Today’s Managing Health Care Costs Number is 6
Peter Bach, a Memorial Sloan Kettering oncologist, and Steve Pearson, the director of the Institute for Cost Effectiveness Research (ICER) have a perspective in this past week’s JAMAdemonstrating that many newly-licensed medications are priced far above their actual value. The authors note drug prices in the United States are generally 2 to 6 times higher than prices for the same drugs in other major industrialized nations
Bach demonstrates the output from Drug Abacus, which uses considers effectiveness, toxicity, novelty of agent, cost of human testing, rarity of disease and population burden of illness to determine a “value” price for new cancer drugs. Drug Abacus uses $120,000 per QALY and a 15% discount for adverse effects. Other multipliers can be adjusted by the user.
Many drugs are overpriced (an outlier is Provenge, a prostate cancer vaccine, which costs $77,554 per month but is valued at $27,261), and others are priced at less than their true value (Gleevec for CML priced at $4546 per month with a value of $6,240).
Pearson also notes research his group has done at the incremental cost effective ratio (yes, ICER) for various other drugs. His group found that the “value” price for the new PSCK9 cholesterol medications is $2177 per year; their price is $14,350.
Bach and Pearson offer clear policy suggestions about how we could push pharmaceutical companies to price their new drugs at their value – without imposing price controls which is highly unlikely with a Republican-controlled Congress and a pro-business majority in the Supreme Court. Drugs which are value priced should be guaranteed formulary inclusion in preferred tiers, have minimal patient cost share, and be offered a longer exclusivity period. Drugs priced far above their value could be excluded from formularies, have higher patient cost sharing, and be offered a shorter exclusivity period.
None of these suggestions will be easy to implement. Patent changes would require Congressional action – and if these assessments of “value” will be associated with high stakes they will be hotly contested. These suggestions would require different prices for drugs based on the underlying diagnosis, which is complex and could lead to new gaming of diagnoses. These recommendations would also lead to higher out of pocket costs for drugs priced above their value – which will be opposed by patient advocacy groups, some of which are funded by the pharmaceutical companies.
We need solutions for high priced new medications. These practical policy suggestions are a good start.
