Podcast 281: Drug Costs — What’s “The Right Price” for prescription pharmaceuticals?

Why can’t the U.S. control prescription drug pricing as they do in the U.K., where per-capita spending is less than half our level?

In a capitalist democracy, many parties — the drug companies, medical associations, consumer groups — get to lobby their points of view. Is the problem intractable, or just an exercise in chaos?

Our three guests have written a book about the problem, “The Right Price: A value-based prescription for drug costs.” And although they don’t have a definitive answer, they do offer recommendations, interesting observations, and a way forward.

Listen in and let us know what you think.

[Running time: 26 minutes]

“The Right Price” (Amazon link)

TRANSCRIPT

Joe Elia:

The US has the highest drug prices around, right? And it threatens household as well as governmental budgets. Who sets those prices? What is their basis?

You’re listening to Clinical Conversations from the NEJM Group. I’m Joe Elia and I’m here with the authors of a book that came out last year titled, “The Right Price: A Value-Based Prescription for Drug Costs.” The authors are Drs. Peter Neumann, Joshua Cohen, and Daniel Ollendorf — all of the Center for the Evaluation of Value and Risk in Health at Tufts Medical Center.

Welcome.

Well, we could quickly drown in numbers here, so let’s get some out of the way, immediately.

One is that US prescription pricing amounts of some $500 billion a year. And the other that I’d like to cite is our per capita spending on those drugs, on those prescription drugs, is at least twice that in the United Kingdom.

So, there are more numbers, but let’s get around to your book. As the book’s first author, Dr. Neumann, you’ll get the first question, but anyone’s allowed to answer at any point. So, why did you write The Right Price and what has the reaction to it been?

Dr. Peter Neumann:

Well, thanks, Joe, for having us first of all.

We wrote this book because the conversation around drug prices is very important, but it tends to focus on the level of prices, not on the value that the drugs deliver. And we thought it very important to try to orient the debate around drug value and not drug prices.

Everyone wants lower drug prices, of course, we do too, but the really critical question is what value the drugs are delivering, and how do we think about that, and what’s an acceptable price, given the value? And so far the reaction to the book, I think, has been quite positive. We’ve spoken to many audiences and had a lot of positive feedback from people. And I think, and we hope, that it’s contributing in a constructive way.

Joe Elia:

People who read medical literature often come across the acronym QALY. Can somebody explain that in 10 seconds or less?

Dr. Joshua Cohen:

Maybe I’ll take a shot at it. So, a QALY is just a life year, but we scale it to also account for health. So, are you in pain — are you functional, and so on? A “one” corresponds to the hypothetical state of being in perfect health; “zero” is the equivalent of being dead, and the rest of us are in between; closer to 1 is better.

Joe Elia:

Thanks, Josh, that was close to 10 seconds. So, somebody who’s not feeling well a lot would probably score only maybe a 0.6 out of 1 or 60 percent of 100. And so, you would say a year in that person’s life would represent 0.6 QALY’s.

Dr. Joshua Cohen:

Yeah. I mean, actually, 0.6 would be really someone in quite a bit of discomfort or you know loss of function, but yes that’s the idea. Someone who’s, you know, in very poor condition would have a number like that.

Joe Elia:

Okay. So, one organization, the Institute for Clinical and Economic Review (or as I think of it as “ICER”) gets a lot of mention. And we should mention as well that Dr. Ollendorf worked there for about a decade, I think. What is ICER and what does it do?

Dr. Daniel Ollendorf:

So, ICER in the parlance of the day is known as a health technology assessment organization. So, it does its work along the same lines that many other agencies and organizations internationally, such as NICE in England or the Canadian Agency for Drugs and Technologies in Health or CADTH in Canada, do. Essentially, it’s an organization that is focused on understanding the clinical evidence on new and emerging technologies. So, to Josh’s point, what kind of benefit…or to Peter’s point, what kind of benefit the new treatments might bring? And also, to understanding questions about the cost-effectiveness and the impact on the budget that these new technologies might bring as well.

So, really using state-of-the-art scientific techniques to understand the value equation that we talk about in the book.

What kinds of clinical benefits are being brought by the drug? How is that balanced out against the possible harms that the drug or technology might be causing? And what’s the price? And does that price align using a QALY as a measure of benefit? Does that price align with the value that the drug or technology is bringing?

Joe Elia:

Now, it’s not a government organization is it?

Dr. Daniel Ollendorf:

It is not. So, the US is a bit of an outlier in comparison to other developed nations, because we have no formal step to do this work. So, ICER does this as a private organization and so is limited only to making recommendations to patients, clinicians, payers and others about what a price — a value-based price — might look like and what the evidence is saying about a new treatment.

Joe Elia:

And as you said the UK has got this organization called NICE, but we don’t have one in the United States. And as I read your book, and as I’ve been reading through my life about the politics of medicine, I have the sense that the lobbying of the drug companies of medical organizations, et cetera, have a lot to do with the fact that ICER can’t be a governmental agency because they’ve been lobbied out of the government. Is that fair?

Dr. Daniel Ollendorf:

Yeah, well it’s a bit of an interesting history. So, in fact, one of the ironies here is that organizations like NICE are using methods that were, in fact, pioneered here in the US. So, we used to have government entities who did this work: the Office for Technology Assessment, the National Center for Health Technology. These were not formal agencies in quite the same way. They were more Congressional advisory services, but they provided a lot of this information and information on health technology to decision-makers and policymakers.

I think those early efforts were scuttled in part due to lobbying, not necessarily from the pharmaceutical industry. In fact, the medical profession was quite concerned at the time about this kind of work being done outside of the profession itself. But recently, it has been the case that lobbying from patient advocacy groups and from the pharmaceutical industry has prevented any sort of formal step like a NICE to be taken here.

Dr. Peter Neumann:

And I would add, Joe, the politics of this are quite tricky. There’s ideological opposition to the federal government playing too strong of a role in many areas including health technology assessment. And the rhetoric you often hear is that — at least from some places — we don’t want the federal government to get between doctors and patients in their ability to make their own decision. So, in addition to the lobbying, which we suggest and is real, I think we shouldn’t underestimate that just ideological opposition.

Joe Elia:

As I read your book I realized how complicated. I was telling myself things like, well, it’s not brain surgery — it’s worse!

Because trying to figure this out, increasingly these days, I’m reminded of what Rudolf Virchow, the founder of cellular pathology, said about medicine, and he said this in the 19th century. He said that medicine is a social science. And it seems to me that drug pricing is kind of a proof of that, that every piece of society has a stake in this. And because it’s a democracy it becomes less tidy than it otherwise might be.

You know, you hear things about, well, you know the price is “what the market will bear” and the realization is that the pharmaceutical, the drug companies sell stock and so they’re interested in having good value in their stock. But there’s a tradeoff between the interests of society and the medical and the pharmaceutical industry. Are we looking at a situation that’s going to continue to evolve and we’ll never solve this equation? It’s not like algebra, there’s no, there’s no X equals something at the end of the day. Could you comment on that?

Dr. Peter Neumann:

Well, we emphasize in the book how complicated the market for prescription drugs is. And in many ways it’s just a reflection of how complicated the healthcare system in the United States is with so many different players. We talk about all kinds of issues on the requirements, let’s say, on the demand side of the market. We have insurance. We have third party payers. We have this phenomenon that when a patient takes a drug and benefits other people benefit. On the supply side we have patents, we have regulation, we have many, many players in between the drug companies and the ultimate consumer, the patient, and on and on.

These complexities to some extent, of course, will always exist, but we argue in the book that we can at least help things along by providing better information to the marketplace on the value of prescription drugs by measuring value and disseminating that information. We argue that this is something that individuals and even individual payers can’t do very well by themselves, but really in our view it takes an organization like ICER, or perhaps in the future some government organization, to help things along.

Joe Elia:

Yes.

Dr. Daniel Ollendorf:

I might add in that, so we know that the Build Back Better Act, which did have some discussion of drug price reform in it, is sitting dormant in Congress. But I think what gives us some hope that something may be done to better integrate value into this conversation is that there still is a lot of interest in doing something. Whether that is a slimmed down version of Build Back Better or whether there is something that CMS will do on its own is an open question, but I think that there is still some energy and some enthusiasm. What we don’t know from the discussions is what sort of approach to drug price reform will be taken. Will it be some kind of across the board price controls or will it be a value-based approach? And we, obviously, argued for the latter.

Dr. Joshua Cohen:

You know, I think it’s important to emphasize something. You know Peter was talking about this, but you know at some level its like, “Wait a minute, why are drugs so complicated?” You know it seems like they’re different from all the other products that we buy, you know, from the trivial — we mention toothpaste in our book. We don’t have a toothpaste technology assessment agency, you know, looking at what the price of toothpaste should be or, even more important, you know less trivial products like cars and houses, and things like that. So, you know, what is it about drugs?

And what Peter said gets at that, which is on the demand side, you know, consumers are not patients, they’re not really in a position to choose drugs in the same way that they choose their toothpaste, right? There have to be a lot of other parties involved. There are clinicians, primarily, and on the supply side we can’t just have the sort of normal competition where, you know, different companies compete and bring the costs down to, or the price down to the marginal costs of production. And that’s because you have to have patent protection on these products, because they’re so easy to copy.

And so, that means that we can’t have the normal, you know, individual producers and consumers just interacting with Adam Smith’s invisible hand, and everything works out great. Instead, we have to collectively figure out what the price should be. And that gets to what you said earlier, which is this becomes a social enterprise, and that’s what we’re talking about.

Joe Elia:

Yes. In the United States we have offered a monopoly to the drug companies, a limited monopoly, for some time. And the argument that’s adduced, and that you bring forward in your book as well, is that, well, without this monopoly the drug companies have got no incentive to innovate, which I found — okay, so what would those companies do if they didn’t have that incentive? Would they go out and make lawnmowers or you know toothpaste?

Dr. Joshua Cohen:

Well, I mean, I think what would happen is that those companies, the capital that is behind them, it’s not so much that, like, the companies would decide something, but the capital would move elsewhere and you know the people with those skills would move to do something else. And so, we would not have, you know, if a lot of these medications sold at their cost, their marginal cost of production, they could be pennies a pill and you just would never get the kind of resources you need to attract all the people you need and the risk that’s involved the many years. You know there’s so many drugs that are investigated, molecules that are investigated, that then go nowhere that, you know, you just would not get anywhere near the kind of innovation that we get.

Dr. Peter Neumann:

And Josh’s point raises just a question that gets back to the title of our book, The Right Price. That you know we worry a lot about too high prices, understandably, but there also is a problem if we have too low prices. And so, the right price, again, is the value-based price. The price that we hope delivers the value to the consumer, but also provides the right incentives to be producers to innovate and to innovate for the next products.

Dr. Daniel Ollendorf:

So, to be clear the right price can be very high. So, if you have a gene therapy that cures a universally fatal disease that occurs in childhood, and you’re allowing that child to live something close to a complete life, that therapy can be very expensive. A million dollars, 2 million dollars might not be too high.

Joe Elia:

Right. And so, there are ways of determining what a price might be, and you talk a lot about those in the book, and this is where we start swimming in the big pool of numbers, if you’re so inclined. I’m not so inclined, but if there is an example that you would like to bring forward about this I’d be happy to hear it. Is there an approach that you might use to illustrate this?

Dr. Joshua Cohen:

I don’t know. I mean, let me take a shot at it, you know? We tell the story of how…in the book of how these methods came about. And they came about, you know, not because someone sat down one day and said, you know, we should do health economics and let’s start writing down the theorems that underlie that science. Instead, they were trying to solve, you know, pretty straightforward problems of the day. And those involved like, you know, hey, if we can save some lives what’s that worth?

And so, at first people were like, well, what’s a life worth? And then the limitations of asking that question became apparent because it was like, well, are you talking about saving the life of someone who’s 85 or someone who’s much younger? And what about the quality of life? It’s not just about extending life it’s about the quality of life. And then it’s like all right, well, how are we going to estimate things like, you know, an extra year of life or an improvement in, you know, freedom from pain? These are not things that you can estimate by going to the marketplace and seeing what price people place on these things, because they’re not bought and sold explicitly.

But economists came up with different ways of imputing these values by looking at decisions people make, for example, you know tradeoffs between large cars and small cars. Now, there are a lot of reasons why people buy large cars versus small cars, but one of them is implicitly that the large car has more safety. So, they are implicitly buying health there. So, that’s one approach. Or you can actually ask people, you can hypothetical, you know, if there were a pill that could extend your life by this much, you know, what would it be worth to you? So, there are different ways of doing it. They all have limitations, but that’s the basic thumbnail sketch of how the science of estimating the value of health evolved.

Joe Elia:

Well, you end your book with some recommendations, and you gave a nice definition of the QALY early on, and I think the book says let’s stick with it because it’s, if nothing else, a standard measure. Even though, sometimes, people say, well, it’s not that standard, but it’s the closest one we’ve got to a standard. Is that right?

Dr. Peter Neumann:

Well, I think, and we say this in the book, that the QALY is imperfect, it has its own challenges and problems, but it is useful as a kind of benchmark for value. And it’s a starting point, as we say in the book, the cost per QALY ratio as a measure of value is a starting point, and we think a good one, for this conversation about value. Other things may certainly enter the equation.

Dr. Daniel Ollendorf:

And it’s important to realize that all health technology assessment organizations, ICER included, think of the cost per QALY equation, the value equation, as an input into decision or recommendation making, not the sole driver. So, you need to look at the clinical evidence. You need to understand how severe the condition is and what the level of unmet need is in that condition. What’s the public health burden associated with it? So, there are lots of other deliberative and ethical aspects that go into that conversation.

Joe Elia:

And one of your recommendations, and you are all fans of ICER or something that would evolve from ICER, you say that ICER should be more transparent in its analyses. So, in other words they should be giving people the wherewithal to reproduce the calculations that they make.

Dr. Joshua Cohen:

Yes. So, of course these issues are extremely controversial and the only way that we can, I think that we can really make progress towards some sort of consensus on what the price of a particular therapy should be is if at least we can agree on the analysis, the facts, so to speak. And the best way to do that is to lay bare what we’re doing. So, when ICER or another health technology assessment organization does their analysis the best way that they can convey what they’ve done is to say, look, here’s our model, here’s our computer code. You can look at it. You can change it and see how different assumptions affect the answer. Then, at least, we can argue about what the right assumption should be rather than, you know, just kind of not being able to reach any consensus. Because I can’t really tell what you’re doing and we’re stuck.

Dr. Daniel Ollendorf:

We also argue that everyone in the ecosystem needs to do this. So, a lot of these analyses are sponsored by pharmaceutical companies and they need to be open with their models too.

Joe Elia:

It’s a good book, I have to say. This is not a book review, but I’ve learned a lot reading it and I think that anyone who’s going to be a student of drug prices or clinicians who are taking a course in it would benefit from your book and I want to congratulate you. Is there a question that I have not asked that you wish I had?

Dr. Joshua Cohen:

You know, I think one thing that would be helpful is just even a simple explanation of what is a cost-effectiveness ratio, because, I think, especially you said that young clinicians are your audience. And so, you know, cost-effective ratio sounds really technical, but what a cost-effectiveness ratio is, is it’s the incremental cost per unit of benefit. Even that sounds complicated, but it’s really just a price. So, you know, if I go out and buy a gallon of milk, you know, 4 dollars per gallon of milk, the cost per unit of good thing, the milk, that is better than 5 dollars per gallon of milk.

So, we want low ratios, that’s good, and higher ratios are not as favorable. And to determine whether something…whether we’re paying too much for something we look at the ratio and we say, hey, you know if we’re paying 50,000 dollars for a quality-adjusted life year for this medication, if that’s what it’s giving us, is that a good price or does the price need to be lowered so that the cost-effectiveness ratio is lower, that is more favorable?

Dr. Peter Neumann:

I think the other problem we didn’t get to, and I think is important for your audience, is even if we get to value-based prices there’s still this affordability issue for many people that will remain. In other words, the value-based price, as Dan said, could be quite high. It could be a million, 2 million dollars for a gene therapy. There’s a separate problem of out-of-pocket costs rising for many, many patients and that needs to be dealt with as well through insurance reforms. And there’s legislation that’s being discussed to do things like that.

Joe Elia:

Okay.

Dr. Joshua Cohen:

And that’s something that is towards the end of our book. It might even be in chapter 11, I can’t remember. So the way to fix accessibility is not to say, “Well, let’s make the price really low,” because then you run into an innovation problem. You want to have the right price, but then as a society we need to figure out how can everyone get access to the therapies at that right price? And that’s insurance reform.

Joe Elia:

Okay. I want to thank you Dr. Neumann, Dr. Cohen, and Dr. Ollendorf for your time with me today. And I want to mention, once again, that your book, The Right Price, is available (for a right price, I hope) from the Oxford University Press.

That was our 281st Clinical Conversation. We come to you from the NEJM Group and the writers and editors of NEJM Journal Watch. Kristin Kelley is our executive producer, and I’m Joe Elia, thank you for listening.

The post Podcast 281: Drug Costs — What’s “The Right Price” for prescription pharmaceuticals? first appeared on Clinical Conversations.