While most people would agree that medicines improve health and life expectancy, payers and policymakers have an increasing interest in evaluating if the benefit is worth their price, particularly as longevity and new treatments contribute to cost growth. For years, public and private organizations and their economists have worked to identify approaches to assess the value of medications. With varying degrees, those models have been used to grant or deny access to treatment or to seek a price discount. However, with the growing cost of health care, there has been increasing pressure in greater control over drug prices this has led policymakers to expand the use of evidence to control access to medicines and the prices paid for them.
I spoke with AEI’s Amitabh Chandra and Darius Lakdawalla of the University of Southern California Schaeffer Center for Health Policy and Economics to discuss the use of evidence to control access and cost of pharmaceuticals. We focused on: the effect of the Inflation Reduction Act (IRA), the use of coverage with evidence development by CMS for FDA-approved indications, and state drug review boards. In this post, I summarize some of the key points from that discussion.
The IRA allows the federal government to establish a maximum fair price for the largest medicines used in Medicare and in growing numbers over time. Given the size and scope of the federal government’s market share and favorable rules, this will, function as price-setting rather than negotiation. In setting the maximum fair price, the federal government agency that oversees the process (CMS) can consider evidence of efficacy and evidence of unmet need. Although, it is unclear how they will use the evidence or if it will be based on clinical trial data or real-world data and what that will mean for the price. With CMS able to set the price and no real place for the drug manufacturer to counter, it is unclear why or how evidence will have a role in the establishment of the maximum fair price, where the goal is low cost, not value for money.
The primary goal of price setting should be aligning costs with value. Aligning the two encourages manufacturers to develop new drugs and aligns profitability with innovation while establishing an affordable price for the insurance. This may be unlikely, as one of the IRA’s principal purposes is to lower federal health care spending. The bill was brought about and passed based on budgetary and political problems, not medical ones. As a result, the federal government may find that using no evidence is the best way to lower costs if they approach the cost as a budgetary problem rather than an economic one.
In the discussion of the use of Coverage with Evidence Development by CMS to control access to medicines in Medicare, the panelists discussed the importance of maintaining the distinct roles of CMS and the FDA. The role of the FDA is to establish safety and efficacy and not considering cost and value, so it is not their role but rather CMS and it’s agents to be able to control access to medicines in Medicare. We discussed that this could be done using private market mechanisms such as formulary or private value assessment and does not necessarily need to be done centrally.
Ideally, value assessments will do two things simultaneously: measure value and monetize that value consistently. In other words, HTAs will need a clear understanding of the clinical significance a new drug brings to a consumer and what dollar figure consumers associate with that benefit. That may not be found in clinical trial data or by health economists, because those data sets are limited. As bad as one might believe the private market is at negotiating prices for drugs, one organization with a limited dataset is not the right alternative. The ability to find what consumers are willing to pay for a health benefit cannot be seen by a group of people discussing its value based on a limited set of data. Rather, it must be sought using an evidence-based approach considering the different types of patients that use the treatment and what it means for them.
As part of the IRA’s funding, CMS received $3 billion to negotiate several drugs. This struck the panelists and me as strange because the funding aligned with a much more significant amount than would be necessary. One could draw from this that Congress intends to pass more comprehensive legislation that would expand the number of drugs CMS can set the price on in the future. This uncertainty about what the IRA wants to accomplish and its lack of clear information have left the industry in the dark about future regulation and have added hindrances to lifesaving innovation.
The post The Use of Evidence to Control Access and Cost of Pharmaceuticals appeared first on American Enterprise Institute – AEI.