Policy Corner: The Mysterious World of Drug Pricing

By Joe Menzin, PhD

Headshot of Joe MenzinAlmost every day, I see unflattering news stories regarding the cost of pharmaceuticals. Whether it’s a supplier raising the costs of essential drugs like the Epi-Pen several-fold or a new CAR-T drug priced at a seemingly exorbitant rate – not unlike a three-bedroom house here in the Boston area – media and government scrutiny is clearly growing.

What does this imply about the market of pharmaceuticals? Is it irrevocably broken? Perhaps not.

Two efforts are underway to bring more rationality to drug pricing in the US: (1) economic evaluations with some teeth, such as those undertaken by ICER; and (2) risk-sharing arrangements, sometimes termed value- or outcomes-based contracting. The former is attempting, imperfectly, to bring value for money into the discussion. The latter is focused on the increased buying power of a more concentrated health insurance industry where eventual price concessions, fair or not, may be forestalled.

These initiatives bring some level of economic rationality to the market by moving value metrics to the forefront of price negotiations. In the near future, perhaps drug pricing will become a bit less mysterious. Not a bad thought for those of us charged with understanding the economics of pharmaceuticals.

Will Cost-Effectiveness Save the Day in the USA?

With the 2016 election campaign season fast approaching, conversations about high and rising pharmaceutical prices are moving to the forefront.  This topic, which has always been part of presidential politics — for those of us old enough to remember — has been supercharged of late by concerns over price gouging and downright greed.

The focus has been on individual medications, such as Daraprim, whose price increased from $13.50 per pill to $750 (Wall Street Journal, September 29, 2015), and the market more generally, with prices increasing by 76% from 2010 through 2014 for the top 30 products (WSJ, October 5, 2015). While some newspaper editorials have pointed to the value of innovation, which price controls will presumably stifle, there is surprisingly little discussion of value-for-money.

The privately-funded Institute for Clinical and Economic Review is playing a key, but perhaps less heralded role, in providing guidance on drug pricing through economic analysis, most notably for the new PKSC9 inhibitors for high cholesterol.  While the ICER methods still need refinement, its more rational, value-based approach to drug pricing is clearly better than arbitrary price controls or delisting drugs from formulary altogether.

Perhaps we’ve finally reached the point where economic analysis and value-based purchasing can supplant hyperbole and help turn down the temperature in an overheated election season.

There’s much more to come between now and next November’s election, so stay tuned, and enjoy our newly rebranded newsletter!

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