The recent decision by CVS Health’s pharmacy benefit manager division to incorporate analyses from the Institute for Clinical and Economic Research into its formulary decisions and allow clients to exclude drugs that fail to meet a certain cost-effectiveness threshold highlights a growing national conversation about not only the prices of drugs, but their value as well.
CVS Caremark, the nation’s second-largest PBM, said earlier this month that it would use analytics from ICER to determine drugs’ cost effectiveness and, if their costs per quality-adjusted life year, or QALY, exceeds $100,000, enable clients not to include them on formularies. The stated purpose of the new policy was to crack down on expensive “me-too” drugs, while those drugs deemed breakthroughs by the Food and Drug Administration would be exempt.
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The way drugs are priced does appear headed in the direction of emphasizing value, said Robin Feldman, professor of law and the University of California Hastings in San Francisco. “I think value-based pricing is on the horizon – I believe we are headed in that direction,” she said. Implementation of value-based pricing could happen through legislation, regulation, contracts between drugmakers and payers or PBMs, or all of the above. The drug industry has also expressed an interest in value-based pricing, but it’s important that such a system is not only in their interest, but society’s as well, she added. PhRMA, the drug industry lobbying group, released a report in February touting what it called the value of value-based contracts.
For now, prices of drugs are based on what their manufacturers think the market will bear, and a study published in this month’s issue of Health Affairs illustrates how the costs of cardiovascular drugs don’t always match their value. The paper, by researchers at the University of Colorado, Georgetown University and other institutions, explores how prices of cardiovascular drugs do not consistently align with their value.
The study looked at 30 commonly prescribed cardiovascular drugs, using randomized controlled trial data to determine average lifetime QALYs and payer-related costs and to calculate incremental cost-effectiveness ratios, also abbreviated ICERs. Overall, the researchers found drugs that offered cost savings with increased QALYs to drugs that were more costly and had decreased QALYs. QALY measures cost effectiveness by incorporating quantity of life, measured in years, and quality of life, ranging from perfect health to death. As such, gain of one QALY equals a year of perfect health.
The findings show how when it comes to pricing of drugs, efficacy and value carry little weight in the argument, said David Henka, CEO of Sacramento, California-based ActiveRADAR, which runs pharmacy cost reduction programs for employers, in a phone interview. “If you’re a pharmaceutical manufacturer, your job is to maximize your profitability and price your product to what the market will bear, and whether that is related to the value of your product is almost irrelevant,” he said.
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