Peter Wehrwein


Remember those Mastercard commercials that ended with the tagline “priceless”?

The Institute for Clinical and Economic Review (ICER) in Boston and Memorial Sloan Kettering’s DrugAbacus take the exact opposite view. They are assigning prices to drugs based on equations and processes that weigh a variety of factors to arrive at their value.

ICER is revising its methodology but the current iteration starts with comparative clinical effectiveness and then also factors in the long-term costs (including avoided costs) to the health care system and “contextual factors,” such as whether the drug under consideration is the only acceptable treatment for severe disease. ICER also, notably, sets a cost-effectiveness threshold for drugs of $100,000 to $150,000 per QALY.

ICER is set up a little like the FDA, with staff supplying the expertise and outside committees applying judgment. DrugAbacus is a more modest effort that features a nifty online tool that allows the user to select a numerical value in eight domains (efficacy, tolerability, novelty, research and development costs, rarity, population burden, unmet need, and prognosis) and then an algorithm kicks in and comes up with a price. But its creator, Peter Bach, MD, is an excellent public speaker and writer who is emerging as a strong public voice on all kinds of drug pricing issues, including the proposed changes to the way CMS pays for Part B drugs.

One of the basic objections to value-based pricing involves where the value-deciding power will reside. ICER and DrugAbacus are nice and clear and transparent about their methods, but they are a far cry from vesting, say, a government agency with value-deciding power. During a lively Aspen Institute panel discussion on drug pricing this summer (Ezekiel Emanuel was on the panel, thus the liveliness) Ken Davis, MD, president and CEO of the Mount Sinai Health System in New York City, talked about the National Institute for Health and Care Excellence (NICE), the British organization that decides which drugs will be available through the National Health Service, this way:

I look at some of the things that NICE writes and I think, ‘God, those guys don’t have any nuance.’ I mean, where is the database for some of those conclusions? They just are not the experts that are really necessary to tell you what the quality really is.

Better methods, more inputs and letting private organizations like ICER and DrugAbacus merely suggest prices might deal with this complaint.

But there are more fundamental objections to value-based pricing that Davis touched upon and that David Blumenthal, MD, the president of the Commonwealth Fund, outlined in a recently published commentary.

There is a compelling superficial logic to value-based pricing, Blumenthal wrote. But health care depends on inexpensive drugs like penicillin. If pencillin were to be priced based on all the costs that timely treatment with antibiotics can prevent, it would be unaffordable.

In Aspen, Davis talked about the polio vaccine in the same context:

Imagine if we had modeled a polio vaccine that way. In fact, when I was in second grade I got the polio vaccine free. Imagine what would have happened if somebody had said let’s figure out the downstream costs, we’re going to save the health care system with the polio vaccine. I’m sure my parents couldn’t have afforded it.

Consider, Blumenthal wrote, the humble toothbrush. What would its price be if avoided dental bills were factored in? And how about the airline tickets for a memorable family vacation? Maybe ICER could come up with an answer to Mastercard’s pricelessness, but they would still be pricey indeed.

Blumenthal doesn’t entirely reject value-based pricing but makes a plea for eyes wide open and what we might be getting into:

But, if we go in the direction of setting prices according to value, we should be clear that we are not mimicking the functioning of the competitive markets that we so celebrate in capitalist economies. We are creating a very different, socially constructed yardstick that is appropriate primarily in the absence of effective markets, and that could result in profits that vastly exceed anything that companies would make under normal market conditions.

I spoke with Steve Pearson, MD, the president and founder of ICER, about these objections to value-based pricing. Affordability and value are two different things, he explained, and that’s why ICER has built into its process another layer of calculations of a drug’s impact on health care budgets. Value calculations might also be completely recalibrated when a drug (or a vaccine) has significant public health impact, he noted. Based on value calculations and QALYs, the price of a truly effective treatment for Alzheimer’s disease would be astronomical, but it could be adjusted downward because, in some sense, its value is too high.

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There’s a lot more going on in health care than mergers (Aetna-Humana, Anthem-Cigna) creating huge players. Hundreds of insurers operate in 50 different states. Self-insured employers, ACA public exchanges, Medicare Advantage, and Medicaid managed care plans crowd an increasingly complex market.

Major health care players are determined to make health information exchanges (HIEs) work. The push toward value-based payment alone almost guarantees that HIEs will be tweaked, poked, prodded, and overhauled until they deliver on their promise. The goal: straight talk from and among tech systems.

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The surge of new MS treatments have been for the relapsing-remitting form of the disease. There’s hope for sufferers of a different form of MS. By homing in on CD20-positive B cells, ocrelizumab is able to knock them out and other aberrant B cells circulating in the bloodstream.

A flood of tests have insurers ramping up prior authorization and utilization review. Information overload is a problem. As doctors struggle to keep up, health plans need to get ahead of the development of the technology in order to successfully manage genetic testing appropriately.

Having the data is one thing. Knowing how to use it is another. Applying its computational power to the data, a company called RowdMap puts providers into high-, medium-, and low-value buckets compared with peers in their markets, using specific benchmarks to show why outliers differ from the norm.
Competition among manufacturers, industry consolidation, and capitalization on me-too drugs are cranking up generic and branded drug prices. This increase has compelled PBMs, health plan sponsors, and retail pharmacies to find novel ways to turn a profit, often at the expense of the consumer.
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Shelley Slade
Vogel, Slade & Goldstein

Hub programs have emerged as a profitable new line of business in the sales and distribution side of the pharmaceutical industry that has got more than its fair share of wheeling and dealing. But they spell trouble if they spark collusion, threaten patients, or waste federal dollars.

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