Issue No. 42: A Busy Time on the Pricing Front:Complicated QALYs, Confirming CPIs, a Departing FDA Commissioner, and Health Care vs. Health
The drug pricing front has been especially active lately, so this edition of the newsletter brings you a variety of developments.
Economic Analysis and the Value of Medicines: Know the Limits
For decades now, some policy advocates have been trying to come up with economic analysis, modeling, and algorithms to determine whether patients deserve certain sophisticated medicines. As Susan Peschin wrote last month in The Hill:
New York's Medicaid program used ‘cost-effectiveness’ research to evaluate whether the impact a drug had on a patient’s life was worth the price of a new cystic fibrosis treatment. The research was generated by the Institute for Clinical and Economic Review, or ICER, which issues reports about whether new, FDA-approved medications are worthy of insurance coverage.
She added, “Some big players are aligning with ICER, so why should we be concerned? To put it simply, ICER’s methodology for determining drug value is unscientific and discriminatory.”
ICER determines “value” by coming up with a specific number to define the effectiveness of a drug or a procedure, or, even more important, the marginal improvement, if any, that such treatments can provide compared with the current standard.
On March 11, JAMA, the Journal of the American Medical Association, published a short but comprehensive piece that looked at the question. The authors – Gillian Sanders and Matthew Maciejewski of the Duke University School of Medicine and Anirban Basu of the Comparative Health Outcomes, Policy, and Economics (CHOICE) Institute of the University of Washington – did not put a gloss on the complexity of the issue. They wrote:
Choosing among alternative treatments or programs is complicated because benefits, harms, and costs vary in the following ways: (1) benefits may be reflected in varying patterns of reduced morbidity or mortality in patients; (2) interventions vary in price and also in costs of acquiring or providing them (e.g., time costs); and (3) benefits and costs accrue differently to different constituents (patients, caregivers, clinicians, health systems, and society).
Quality-adjusted life years, or QALYs, have become the standard benefit measure for value analysis. Deriving QALYs involves assigning quality weightings to each year of life remaining, with 1.0 representing optimal health and 0 indicating death. “The weight for each period is multiplied by the length of the period to yield the QALYs for that period,” write the researchers.
While QALYs have the advantage of standardization, they also have standardization’s primary deficit: trying to put a number to an elusive concept that varies by person and disease and that often lacks hard, long-term data for evaluation.
QALY analyses, write Sanders and colleagues, “have numerous limitations, including that available data may be drawn from heterogeneous populations, data on important outcomes may be unavailable, and that only short-term outcomes may be available and long-term outcomes must be extrapolated. Further, simplifying assumptions often must be made about how to represent the health states associated with the disease being studied that may not accurately represent the nuance and complexities of the clinical setting.”
In 2016, the Second Panel on Cost Effectiveness in Medicine, a study that followed a report 20 years earlier, emphasized these limitations. “To ensure that all consequences to patients, caregivers, social services, and others outside the health care sector are considered,” wrote the current authors, “the Second Panel recommended use of an ‘Impact Inventory’ that lists the health and non–health-related effects of an intervention.”
Not only do Sanders, et al., endorse the Second Panel and warn of the difficulties of QALY analysis, they also believe that the results of the analysis should not be used as a blunt instrument. They write:
A cost-effectiveness analysis does not make the decision for patients, clinicians, health care systems, or policy makers, but rather provides information that they can use to facilitate decision making. A cost-effectiveness analysis is also not designed for cost containment.
These analyses do not set the level of resources to be spent on health care, but rather they provide information that can be used to ensure that those resources, whatever the level available, are used as effectively as possible to improve health.
Economic modeling of treatments was always meant to be used with other information, including, as Popovian writes, “expert opinions and outcomes data based on past patients.” The worry is that medical decisions will be based on one set of analytics, thus restricting access “patients in need of essential therapies that require a different set of data points.”
At a time when ICER, the Institute for Clinical and Economic Review, has been promoting the notion of limiting spending on treatments to $50,000 or $100,000 or some other number per QALY, the warnings of the JAMA article are especially important.
CVS Health, in a white paper last year, announced it was starting “a program that allows clients to exclude any drug launched at a price of greater than $100,000 per QALY from their plan. The QALY ratio is determined based on publicly available analyses” from ICER. The announcement provoked a letter to the CEO of CVS Health last September, signed by more than 90 patient organizations, ranging from the American Association of People With Disabilities to the Bladder Cancer Advocacy Network. The letter stated:
Our concern reflects deep flaws in ICER’s cost-effectiveness analysis. In particular, policy decisions based on cost-effectiveness ignore important differences among patients and instead rely on a single, one-size-fits-all assessment. Further, cost-effectiveness analysis discriminates against the chronically ill, the elderly and people with disabilities, using algorithms that calculate their lives as “worth less” than people who are younger or non-disabled.
There are really two questions here, as the JAMA paper makes clear. The first: Does QALY analysis, by ICER or any other group, have validity in the face of complex, often personal questions of value? The second is, Even if QALY analysis does have validity, how should it be applied? A legitimate concern is that the organization that has been funding ICER’s work, the Laura and John Arnold Foundation, has adopted bringing down drug costs as a major goal. The result of associating a price limit with a QALY is all but certain: restricting access to life-saving medicines.
Drug Price Decline Continues
As we noted in newsletter No. 40, most of the media showered skepticism onPresident Trump’s statement during his State of the Union Address that “in 2018 drug prices experienced their single largest decline in 46 years.” But the statement was true, and new data from the Bureau of Labor Statistics, the government’s official scorekeeper, confirm it.
As reported earlier, the Consumer Price Index (CPI) for the prescription drug category (all urban consumers) dropped 0.6% between the end of 2017 and the end of 2018. The increase in the CPI for all items was 1.9% over this period; medical care services as a whole were up 2.5%.
Now, we have numbers for the first two months of 2019: The CPI for prescription drugs dropped 0.5% between January 2017 and January 2018 and dropped 1.2% between February 2017 and 2018. If anything, it looks like the price decline is accelerating.
In fact-checking the State of the Union, Ricardo Alonso-Zaldivar of theAssociated Press, attempting to play down the price decline, quoted economist Paul Hughes-Cromwick as saying that it was important to look at data over longer periods. “It could be that something quirky happened in December.” The new figures show that is something quirky happened in December, it also happened in January and February.
New Data From SSR Confirms Price Drops
Declining drug prices remain the great untold story of the health care sector. More confirmation came March 18 when Sector & Sovereign Researchreported that net prices of branded U.S. pharmaceuticals fell, in real (that is, after accounting for inflation) terms, 4.8% in the fourth quarter of 2018, compared with the same period a year earlier. These data confirm the BLS statistics.
A chart accompanying the report shows clearly that the decline in drug prices coincides with the arrival of the Trump Administration. “We have no near-term expectation that price growth will turn positive,” write the authors, analysts Richard Evans and Scott Hinds. They also note that only two major drug manufacturers had “large positive contributions” to net prices: AbbVie, maker of Humira for auto-immune diseases, and Biogen, maker of Tecfidera for multiple sclerosis.
The statistics from BLS and SSR in turn confirmed data from Express Scripts, the giant pharmacy benefit manger, with 83 million members who account for 1.4 billion prescriptions a year. The company’s annual Drug Trend Report, issued Feb. 8, stated that during 2018 the average unit cost (the price per prescription) for members of its commercial plans fell by 0.4%. For Medicare plans, the price decline was even greater: 1.4%.
Unfortunately, the Trump Administration is as much to blame as the media in propagating misleading data about drug prices. In a press release on March 14, CMS Administrator Seema Verma stated, “From 2013-2017, prescription drug spending grew at an average annual rate of 10.6 percent in Medicare Part D, 10.0 percent in Part B, and 14.8 percent in Medicaid – this is one of our fastest areas of growth.”
But those are gross figures, not per capita figures, and reflect growth in program enrollment, not just price. The Medicare Trustees report that on a per capita basis, Medicare Part D spending grew only 2.2% annually between 2010 and 2017. Additionally, the CMS press release numbers are inflated because they leave out the sort of rebates to health insurers and plans that the Trump Administration is trying to eliminate or direct to patients. The SSR data found that list (gross) prices for branded drugs rose 4% at the same time net prices dropped 4.8%. CMS should read its own report. The Center’s ownDecember study found that prescription drug spending in 2017 rose 0.4% and prices fell 1.4%.
The Departure of Scott Gottlieb
Scott Gottlieb, Commissioner of the U.S. Food & Drug Administration since May 2017, announced March 9 that he would leave office in about a month. Most of the reporting and opinionizing on Gottlieb’s departure concerned his battle against e-cigarettes. The Washington Post, for example, devoted an entire editorial on the exit to praising Gottlieb for trying to suppress the growth of vaping among young people.
Whatever the merits of these efforts, those concerned about constraining drug costs have other reasons for offering Gottlieb congratulations. He set out immediately to remove obstacles to faster approvals of generics. After all, nine out of ten prescriptions in the U.S. are filled with copies of patented medicines. Gottlieb made it less costly, in time and money, to apply for generic approvals. As a result, the FDA says it set a record in fiscal 2018 with 781 generic approvals -- an increase of 90% compared with 2014.
The FDA prioritized reviews for the first three generic alternatives to any original brand name drug without competition and issued 250 product-specific guidances to help the generic industry generate the evidence it needs for approvals.
Last year set another record as well, with the FDA’s approval of 59 novel drugs and biologics, breaking a mark set in 1996 and registering an increase of 28% over 2017.
We don’t know for certain, but it’s also likely that Gottlieb was influential in the Administration’s proposal to reform the opaque and counter-productive rebate practices of PBMs. In a 2016 article, Gottlieb, then a scholar at the American Enterprise Institute, wrote:
The way this system is designed, it’s inevitable that there would be a growing disconnect between the publicized “list” price of a drug, and the real price that’s paid by large purchasers. The political class is using these anecdotes of excessive list pricing to further a legislative push for enactment of drug price controls. But the list prices that are being objectified are disconnected from the real costs, despite the best attempts of drug industry critics to blur these economic distinctions.
This doesn’t mean some patients don’t get stuck with the high list prices. It’s usually the underinsured or uninsured that can end up paying the full amount. It’s precisely the folks who can least afford these costs.
Gottlieb’s achievements as Commissioner should come as no surprise. Even though he is only 46 years old, he may have been the best prepared FDA Commissioner ever. He previously served as the FDA’s Deputy Commissioner for Medical and Scientific Affairs and was a senior advisor to the Centers for Medicare and Medicaid Services. A physician, he was a think tank scholar at the American Enterprise Institute a clinical assistant professor at New York University School of Medicine, and a partner in a venture capital firm.
Named as Acting Commissioner (but not yet nominated to replace Gottlieb) is someone else well prepared: Ned Sharpless, Director of the National Cancer Institute.
It’s Not Just Health Care; It’s Health
A new book by Robert M. Kaplan, former Associate Director of the National Institutes of Health, tries to answer the question, “If the U.S. spends so much on health care, why are we so unhealthy?” His response in More Than Medicine: The Broken Promise of American Health (Harvard University Press) is that our unhealthiness is, to a great extent, the result of bad behaviors, mainly overeating, drinking, smoking, and lack of exercise. Our investment in health care is an attempt to fix the problem. For example, the adult obesity ratein the U.S. in 2015 was the highest among the 45 industrialized nations of the OECD: 38.2% vs. an average of 19.5%. The rate in France is 15.3%; Italy, 9.8%; Germany, 23.6%. And obesity is associated with many deadly and expensive conditions, including diabetes, high blood pressure, cancers of the kidney and liver, osteoarthritis, and more.
Kaplan also argues that we spend too much on health care at the end of life because of over-medicalization. In a review in the Wall Street Journal on March 18, Chris Pope, a fellow at the Manhattan Institute, writes, “Mr. Kaplan’s core point is certainly correct. There is more to be gained from a greater focus on preventing illnesses than from spending enormous sums after they strike. Yet that may be a tougher challenge than he imagines.”
Politicians, of either party, certainly prefer railing against drug prices to admonishing their constituents to live healthy as a way to cut the nation’s health bill – and their own. After all, the three conditions responsible for the most health care spending in the U.S. are diabetes, ischemic heart disease (heart attack and stroke), and low back and neck pain, according to a comprehensive study in December by JAMA. In most cases, the three can be prevented or mitigated through exercise, good diet, and alcohol moderation, and smoking cessation.
Another big problem is lack of adherence to prescriptions. Especially chilling is that the American Heart Association predicts that the “number of people diagnosed with heart failure is increasing and projected to rise by 46 percent by 2030, resulting in more than 8 million people with heart failure.” This, despite the fact that we have substantial tools to fight heart disease. For example, cholesterol-lowering statin drugs and high-blood-pressure medicines have been available as generics for years and, for most Americans, are inexpensive. Emergency interventions mean that a heart attack is no longer a death sentence. Yet the threat of heart failure keeps growing, and the culprit isn’t so much poor health care as poor behaviors.
Two years ago, we wrote in this newsletter, “A Commonwealth Fund study in 2014 rated [the U.S.] third among 11 rich countries for “effectiveness of care.” The U.S. is probably the best place to live if you face a cancer diagnosis, and our access to the best medicines is unmatched.” The challenge is not so much our health care as our health.
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