Transparency around Value to Support Rational Pricing Discussions

Rising drug prices have been hotly debated this year with a greater push for pricing transparency.

The issue of drug pricing has become a staple of the news cycle, with fresh headlines every few weeks spotlighting either the high cost of new breakthrough drugs like Sovaldi, or jaw-dropping price hikes for existing, popular products like the EpiPen. While these examples represent two very different sets of issues, in the minds of consumers, they boil down to the same thing: drugs cost too much, and drug companies are to blame. And the only framework for a rational discussion of the subject rests on a transparent, data-based value case for the product in question.

Much of the public sensitivity to drug pricing is a function of growing consumer exposure to healthcare costs. Payers and employers are shifting more of the financial burden onto patients in the form of higher deductibles, copays, and premiums. Consumers don’t need to be hospitalized to experience drug price increases; they feel it every time they fill a prescription.

So the focus on drug pricing is not likely to go away. Congress is conducting its own investigation, and there are rumbles of more regulation and even price controls. Legislation has been proposed at state and federal levels, such as California Prop 61 (limiting state reimbursement to the discounted rate paid by the VA, which failed to pass) and the bipartisan “FAIR Drug Pricing Act of 2016,” which would require pharmaceutical companies to document price increases of more than 10% in a given year (which is still in process).

But what payers, patients and policymakers really want to know is the answer to one question - why does the drug cost this much?

To structure a reasonable dialogue on the question requires more transparency around the economic and clinical benefits of the product. Here are some important considerations to keep in mind about creating transparency in today’s value-conscious environment:

1) Demonstrate outcomes that matter. Manufacturers must be able to document meaningful improvement delivered by their product over the current standard of care that patients and payers are willing to pay for. And that bar has been rising. For example, oncology drugs that offered any incremental survival used to be accepted as a matter of course. That is no longer the case. The turning point dates to 2012, when oncologists at Memorial Sloan-Kettering Cancer Center (MSKCC) decided not to include Sanofi’s Zaltrap in their treatment protocols because it wasn’t worth the cost. The available data indicated that Zaltrap was no better at extending life than the product currently used, Avastin, and it cost more than twice as much.i In order to gain access, the manufacturer dropped the product’s price by fifty percent. Going forward, manufacturers should focus on demonstrating outcomes that actually matter to patients, such as the ability to control pain, return to work, complete activities of daily living, and “feel normal.” This requires collection and analysis of patient-reported outcomes, which is new but important territory for many companies to pursue.

2) Reconsider comparators. When a new pharmaceutical product comes to market, the baseline for thinking about price is often the current standard of care – even if no comparative studies were done. In contrast, pricing decisions in global markets (notably, Germany and others in the EU) rely heavily on head-to-head comparisons to demonstrate improved outcomes. Given the growing tension around pharmaceutical pricing in the US market, manufacturers need to do a better job demonstrating why the product merits the price charged. Part of this is providing data that shows significant improvement over comparators – and then building a price relative to the comparators studied.

3) Identify economic benefits by stakeholder. When new drugs are introduced, manufacturers will identify cost savings relative to the current standard of care. These often reflect direct savings a commercial payer will see – like elimination of side effects, reduction in number of medications used, shortened hospital stays, or diminished need for additional intervention. However, not all stakeholders (payers, providers, employer, and patients) define value in the same way. It’s critical to collect the right data that will support a compelling value case tailored to the needs of each stakeholder. Consider tracking data on progression-free survival, faster return to work, greater ability to focus, improved mobility, and attaining health goals. This data will help consumers and others make more informed choices about the products they are willing to pay for, in addition to providing more transparency into how pricing was determined.

4) Address the disconnect between short-term costs and long-term benefits. Due to high churn among plans, the financial benefit of many health improvements are often not recognized by those paying for the drugs. As an example, a commercial payer may not recognize the long-term savings for a diabetes drug that prevents amputations many years later. Since commercial payers expect to see members change companies every 2-3 years (and sometimes more frequently), they have a short-term view of the cost/benefit tradeoff, and CMS is often the financial beneficiary of much of the long-term benefits created. Manufacturers should consider supporting policies that reward long-term cost savings and encourage business practices that incentivize individuals to remain with their selected plans for longer periods of time.

Manufacturers need to do a better job explaining their pricing and collaborating in the development of a transparent and understandable methodology for price determination. Otherwise, this issue will continue to corrode public trust in the integrity of manufacturers, and could well result in direct government intervention that would have profound ramifications across the industry. Since drugs account for approximately 12% of the US healthcare spend, the continuing drama around drug pricing is a distraction from the larger issue of where the remaining spend goes and why it remains so stubbornly high.

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