US tries value-based pricing for medications

Government-sponsored healthcare agencies, common in Europe, have developed value-based drug pricing using the market forces of supply and demand along with several other factors. This is a new process in the United States.

According to Leslie Small, writing in Fierce Healthcare, “Health technology assessments” are applied to determine the value of medications, therapeutic devices and diagnostic techniques.

While the concept makes a lot of sense, it is not an easy process. Different sized patient populations, length and frequency of treatment and perceived effectiveness can provide different projections of cost effectiveness.

“Using incorrect or misleading assumptions isn’t just an academic error,” according to Dana Goldman and Anupam Jena, in an article in STAT (“Value-based drug pricing makes sense, but it’s difficult to pull off,” June 8). “If ignored, they can distort the cost effectiveness of a therapy and lead to unsound coverage decisions and wasted resources.”

Real-world results can differ from those in clinical trials, because in life patients may be sicker, less compliant about taking drugs consistently and on time and are less closely observed than they are in clinical trials.

Published prices are another issue. Health technology assessment usually use the “list price” for a drug, which is in fact negotiable and always higher than insurers actually have to pay, since they have made agreements with manufacturers for discounts.

Assessments also usually assure that generics will be cheaper but just as effective as proprietary drugs, when they may not be. Proprietary drug prices fall as competition appears, making them more cost effective.

Despite these problems, the use of value-based pricing and health technology assessments is gaining traction in this country. The Institute for Clinical and Economic Research now does health technology assessments for several clients including professional associations like the American Society for Clinical Oncology and major hospitals such as Memorial Sloan Kettering.

UPMC Health Plan has established the Center for Value-Based Purchasing for pharmaceuticals, with researchers and physicians participating in the project.

“We anticipate that the models and learnings from this efforts should be highly scalable to other insurance providers and pharmacy benefits managers, which will give the Center for Value-Based Purchasing for Pharmaceuticals the opportunity to rapidly influence pharmaceutical purchasing nationwide and promote greater value in medication use,” said William Shrank, M.D., UPMC Health Plan’s chief medical officer.

Similarly, the insurer United Health Group is partnering with drug manufacturer Merck to create a new value-based research project called Learning Laboratory. This will work to achieve clearer and more reliable estimates of clinical and cost outcomes.

The insurer Harvard Pilgrim Health Group is partnering with manufacturer Astra Zeneca for outcome-based research. “Real-world performance may differ from what is observed in well-controlled clinical trials, and the willingness of pharmaceutical companies like Astra Zeneca to go at risk for delivering on these outcomes sends a positive message to health plans, prescribing physicians and patients,” according to Harvard Pilgrim chief medical officer Michael Sherman.