A few years ago, if you had mentioned ICER, even pharma industry insiders wouldn’t know what you were talking about—or would have confused it with confirmation of naval orders (aye, sir!). Now ICER—the acronym for the Institute for Clinical and Economic Review—has become familiar to anyone involved in the business side of the pharmaceutical industry and a major force in payer–manufacturer price negotiations.
In a 2018 ICON plc survey of more than 20 U.S. payers, more than three quarters of respondents said that they would use an ICER cost-effectiveness threshold as a basis for negotiating a rebate contract. More than a third said it was likely or extremely likely that they would request a rebate to match the net ICER cost effective price. And a similar proportion said they would request a rebate worth more than 50% of the difference between the product list price and the ICER-assessed cost-effectiveness threshold, although payers indicated that this would be capped when actual rebates approached “double digits.”
Judging by these survey results, ICER’s numbers are, at the very least, serving as important starting points for the consistently tense negotiations between drugmakers and payers.
To gain a better understanding of ICER’s impact on drug pricing and potential impact on U.S. healthcare spend, we recently conducted an analysis to evaluate the difference between the wholesale acquisition cost (WAC) price of the products included in ICER reports and the ICER cost-effective price at the $150,000-per-quality-adjusted-life-year (QALY) threshold. We chose that threshold because it is the one the most commonly used by ICER.
We then estimated the potential cost savings by taking the estimated annual budget impact on a population basis cited in the ICER report and calculating the difference between the budget impact at the WAC price and annual budget impact at the $150,000-per-QALY price.
The range of difference between ICER cost-effective prices at $150,000-per-QALY and WAC prices ranged nearly 400 percentage points. More than half of the 39 products in our analysis had a WAC price that was more than 50% higher than the ICER cost-effective price at $150,00-per-QALY; not surprisingly, just under 13% of the analyzed products came in at or below the $150,000-per-QALY threshold. The most cost ineffective products according to ICER include treatments for tardive dyskinesia, multiple sclerosis, multiple myeloma, and ovarian cancer.
We used a linear regression method over the past 3 years (2015 was the first year ICER began to assess the products in our analysis) to evaluate trends; the gap between WAC prices and the ICER’s cost-effective prices didn’t narrow. We didn’t observe a significant downward trend in the difference between the WAC and cost-effective price, indicating that manufacturers are likely not yet setting WAC prices on the basis of ICER prices.
We also calculated what the effect on total drug spend would be if the drugs included our analysis were priced at the ICER $150,000-per-QALY level. From the payer point of view, expenditures on the drugs included in our analysis would decrease $9.8 billion a year. That is only a small fraction of the country’s total expenditures on prescription drugs (which some put at $480 billion and others at about $330 billion), but that is, of course, not exactly chump change, either.
Manufacturers of the five products with a WAC price lower than the ICER $150,000-per-QALY price should be able to increase their prices and achieve higher revenue. So if we were to take cost effectiveness to its logical conclusion, the net difference in drug expenditures totals $6.2 billion, after accounting for the additional annual spend of $3.6 billion on those five products.
We recognize that payers have a major opportunity now to use ICER pricing to their advantage, especially as drug rebating is becoming increasingly unpopular in public perception. In pricing wars, they will be able to wield ICER’s numbers as weapons, as demonstrated by CVS Health’s recent announcement that their employer group clients will be able to create formulary exclusions based on ICER pricing. The flip side is access and pricing challenges (but also some opportunities) for manufacturers.
We expect contracting negotiations to be significantly affected by ICER assessments in the coming years. Manufacturers need to be prepared to reconcile their economic evaluations with ICER’s. If they don’t, manufacturers should be prepared to counter payer pushback that is bristling with cost-effective evidence and value positioning.
Nathan White is senior vice president, Mike Pace, divisional principal and executive vice president, Adam Johns, a principal, and Eric Latch, an analyst in ICON plc’s Global Pricing and Market Access practice, based in ICON plc’s New York, Boston, and Philadelphia offices.