New Paper: Leading Health Economists Explain How to Fix the Faulty & Outdated Models Used to Calculate the Value of Medicines
Access to Life-Saving Drugs can be Delayed or Denied when Regulators and Health Plans Rely on Outdated Cost-Effectiveness Analysis (CEA) Methodology
WASHINGTON – As policymakers increasingly move to impose government price setting on innovative medicines, it is essential to anchor these decisions to a better understanding of innovative medicines’ true societal value. A new paper published on Friday in the journal Forum for Health Economics and Policy by 12 leading health economists explains why the conventional math used to value medicines falls short – and lays out a consensus approach for how to fix it. The paper is available here.
"The stakes are incredibly high for improving how the value of medicines is assessed,” said co-author Lou Garrison. “Patients could end up paying more for medicines or going without them entirely if conventional assessment methods, which take a narrow perspective, conclude they won’t be cost-effective. In many cases, when you factor in how patients and society value medicines in the real world and how the market works in practice, those same medicines are actually great bargains for governments, employers, health plans, and, most importantly, for the patients they represent.”
Health economists and value assessors have long documented the failings of conventional CEA methods, which overlook important aspects of the patient and caregiver experience, as well as market dynamics, to focus instead on how treatments benefit health payers. The Institute for Clinical and Economic Review (ICER) itself acknowledges that its methodology falls short and omits key measures of value, but it and others have continued promoting the European-style model, arguing that no viable alternatives exist.
Authored by researchers including Dana Goldman from USC Schaeffer Center for Healthcare Economics and Policy, Louis Garrison from the Comparative Health Outcomes, Policy, and Economics Institute at the University of Washington, and Joshua Cohen from the Center for the Evaluation of Value and Risk in Health at Tufts University, the new paper builds on a decade of progress to address the key limitations of conventional CEA methods, providing a practical guide for calculating the value of medicines using an approach known as generalized cost-effectiveness analysis (GCEA).
The authors identify 15 elements of value captured in GCEA that are excluded from or incompletely captured in conventional CEA methods, outlining the current health economics consensus approach to quantifying crucial questions like:
How will price drops due to genericization impact the value of medicines to society over the product life cycle?
How do we better measure the benefits of the treatment to patients by considering elements such as productivity or patient risk preference?
How will this treatment impact a patient’s family and caregivers?
How should we better consider the value provided to patients and society when knowledge generated from current innovations spurs advancements in future treatments?
Implications for value assessment practices and healthcare decision-making
The issue of value assessment has taken on new urgency in the United States over the past year as Medicare has begun “negotiations” with drug companies to set the prices the federal government will pay for certain medicines. Outside groups, including ICER, have pushed for state and federal officials to adopt the conventional CEA that mirrors methods used in many European countries to limit patient access and impose price controls on drugs.
“Preserving affordable innovation is crucial not only for ensuring patients have access to life-saving treatments today but also for paving the way for future breakthroughs,” said co-author Dana Goldman. “CEAs that recognize that novel medicines represent a bargain for America as a society at their market prices will hopefully help the public, media, academics, and policymakers recognize that the market isn’t failing them but doing exactly what it’s supposed to, and that the key to making all this worthwhile innovation affordable to patients lies in insurance design and what plans are allowed to charge patients out-of-pocket. It’s not like we have firefighters charge a family a copay before providing help, so why do we think it’s ok to charge a copay for insulin or chemo? Patients paid for their care through premiums. The mere 8% of total healthcare costs that branded drugs represent are readily affordable to all of us through premiums and are what drive the continuous cycle of future medical advancements.”
“But what does it say about the need for such conventional CEA methods for setting prices if, it turns out that America has long been getting a bargain by relying on the market of competing insurance plans and drug companies to negotiate prices?” asks Peter Kolchinsky, founder of No Patient Left Behind, which sponsored the research. “There is a role for government price setting in ensuring that all drugs go generic without undue delay, as intended by the patent system, but for over a century economists have known and taught that overriding market prices with price controls on novel products snuffs out investor interest in funding their invention. So if indeed markets are securing a bargain for Americans on novel medicines, they need to know that before they ask the government to override those markets and halt all the progress driven by private sector investment.”
Kolchinsky continued: “Unlike conventional CEA, generalized CEA is a tool for appreciating the societal value of medicines relative to which we compare their market-based prices. It’s time we started doing GCEA on novel medicines to see how well the market’s been negotiating their prices. I think America will be surprised by what it learns and maybe take pride in its innovation engine and look to insurance reform to make these medicines affordable instead of calling for price controls.”
The quest to improve value assessment has been an active research subject in health economics and outcomes research for decades. At the ISPOR 2024 North America Conference in Atlanta this May, eight separate presentations and panel discussions focused on ways to implement or refine GCEA to better inform healthcare decision-making to achieve affordable innovation. But while that research is ongoing, it is clear that any limitations in GCEA are “no reason for sticking with conventional CEA, which has far more limitations.”
A user guide and checklist for academics, economists, patients, governments, investors, & innovators
“Undervaluing medicines has real consequences for patients today and in the future. It affects every one of us,” said Peter Rubin, Executive Director of No Patient Left Behind. “The research is clear: it's possible to quantify the real-world impacts that medicines have on patients, their support networks, and society overall.”
Rubin continued, “We encourage health economists, health technology assessment entities, patients, investors, and innovators to treat this GCEA paper as a user guide on how to do better cost-effectiveness analysis. There’s no longer any excuse to let flawed, outdated cost-effectiveness math of the past be used by governments or private payers to deny patients coverage or justify high out-of-pocket costs for prescribed treatments.”
Beyond the impact on current patients, the paper also highlights the costs of ignoring how the use of a medication for one condition can spur research paths that lead to new, life-saving therapies.
Conventional CEA fails to account for these scientific spillover effects and, as a result, consistently undervalues innovation, undercutting incentives for investment in the next generation of cures. This makes the adoption of GCEA even more pressing, the authors write, because “if innovation is discouraged because CEAs undervalue it, there won’t be anything to re-evaluate.”
About the Paper’s Authors
The paper achieves consensus on how to improve conventional cost-effectiveness through the incorporation of GCEA math from leading health economists, including:
Jason Shafrin, University of Southern California
Jaehong Kim, FTI Consulting
Joshua Cohen, Tufts University
Jalpa Doshi, University of Pennsylvania
Lou Garrison, University of Washington
Dana Goldman, University of Southern California
Josh Krieger, Harvard University
Darius Lakdawalla, University of Southern California
Peter Neumann, Tufts University
Chuck Phelps, University of Rochester
Melanie Whittington, Tufts University
Dick Willke, ISPOR – The International Society for Pharmacoeconomics and Outcomes Research
Quotes from the Paper’s Authors
Additional quotes about the importance of updating conventional CEAs to GCEAs can be found here.
About No Patient Left Behind
No Patient Left Behind (NPLB) is a coalition of biotechnology innovators, investors, healthcare professionals, and patient advocates working to ensure that patients have access to the medicines they need today and in the future. Through rigorous, independent research and data analysis, NPLB promotes biotech affordability and innovation, advancing common-sense solutions that enable every patient to afford the drugs prescribed by their doctor at low or no out-of-pocket cost — while also preserving the incentives for investment that spur the development of new, life-saving treatments. In tandem with its research efforts, NPLB educates leaders and stakeholders across the biotech ecosystem about thoughtful and balanced policy solutions. Learn more about NPLB’s latest initiatives at www.nopatientleftbehind.org.
Contact: NPLBpress@nopatientleftbehind.org