No simple formula determines the price of a drug, nor is there a single price for a drug in the U.S. multipayer system, but there is a consensus that the value of a medicine – its effectiveness for patients – should be the prime factor. Unfortunately, the leading organization that promotes value pricing has serious shortcomings, both in its overall approach and methodology.
‘Examined for Value by a Credible Body’
Currently, in a nation where 91% of Americans have health insurance, most prices are settled through negotiations between pharmacy benefit managers (PBMs), working for insurers and health plans, and pharmaceutical manufacturers, with such factors as competition, effectiveness and other market factors at play.
But isn’t there a way to gauge the effectiveness of drugs so that prices, reflecting true value, become easier to determine, almost formulaic?
In a July 16, 2018, comment letter responding to the Trump Administration’s “Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs,” the Pharmaceutical Care Management Association, a trade group for PBMs, stated:
To achieve a reasonable level of pricing, the drug could be examined for value by a credible body that would estimate a reasonable range of price for a given drug, based on the value it is expected to bring to patients. One such entity is the Institute for Clinical and Economic Review (ICER).
ICER, founded in 2006, describes itself as “an independent and non-partisan research organization that objectively evaluates the clinical and economic value of prescription drugs.” By analyzing “all clinical data” and convening “key stakeholders – including patients, doctors, life science companies, private insurers, and the government – ICER translates “the evidence into policy decisions that lead to a more effective, efficient, and just health care system.”
Sounds perfect, but there have been problems, big ones. Consistent criticism led ICER last year to ask for public comment on its “value assessment framework” for 2020 to 2023. ICER has asked patient representatives to review its draft drug reports, and in April the organization appointed its first-ever “Vice President for Patient Engagement.”
Despite these steps, the “800-pound gorilla of cost-effectiveness analyses,” as Shea McCarthy called ICER in STAT News, has provided no transparency into how stakeholders are affecting the “economically justified price” that ICER calculates for the drugs it examines.
First Issue: Suspicion of Bias
The organization has been under fire almost from its inception.
The first issue was suspicion of bias. The organization’s eight-person governance board is heavy with former and current insurance industry executives, including officials of Kaiser Permanente and UnitedHealth Group and the past executive vice president of America’s Health Insurance Plans trade association. Another member of the board is Ron Pollack, who headed the advocacy group Families USA for 33 years. Pollack is no friend of the companies that make the medicines that ICER judges. A typical quote: "Price gouging is becoming America's other drug crisis. The drug companies are using the top 20 drugs to squeeze consumers dry."
ICER’s primary funder is the Laura and John Arnold Foundation, which has donated $27.6 million to the organization since 2017, plus at least $20 million more to Memorial Sloan-Kettering, Johns Hopkins, and other institutions for work on pharmaceutical “affordability.” John Arnold was an Enron executive who, according to Wired magazine, “managed to walk away from Enron’s 2001 collapse with a seven-figure bonus and no accusations of wrongdoing attached to his name.” He then started a hedge fund, became a billionaire, and retired at 38 to concentrate on philanthropy. The Laura and John Arnold Foundation has taken an aggressive stance on drug pricing that, from the start, threw into question the objectivity of ICER’s research because of the views of its major funder.
Quantifying Quality of Life
Still, even if ICER were wholly objective, the task it set for itself – trying to quantify a drug’s effectiveness – was certain to invite criticism. The focus of ICER’s work is the acronym QALY, which stands for “quality-adjusted life year.” Introduced 44 years ago in an academic paper Richard Zeckhauser and Donald Shepard, the concept was to create a way to evaluate both the duration of life and the quality of that life in one single measure.
Here’s how it works: If a person lives for one year in perfect (100%) health, the person is assigned a QALY of 1, which is derived by multiplying one year of life by a “utility” value of 1. The utility number represents the relative quality of the life. A utility of 1 represents perfect health, a utility of 0 represents death, and everything between reflects different relative states of quality.
So if a person lives three years with only half the utility of perfect health, then the QALY would be 1.5, because the 3 years of life is multiplied by the 0.5 utility value. Similarly, if the person lives for six months at half utility, then the QALY is 0.25 (0.5 year x 0.5 utility value).
ICER compares a current treatment with a treatment using a new drug and calculates the new drug’s ability to increase QALY; that’s the drug’s effectiveness. Then, ICER suggests an amount of money that an additional QALY is worth – for example, $100,000. Multiply the QALY increase by the dollar amount and (voila!) you have what ICER calls the “value-based price benchmark.”
Obviously, the QALY itself is a blunt instrument, often obscuring the true experience of real people. In Newsletter No. 34, we used this example:
Imagine that Patient A has been living for six years in a state severe debilitation, at a utility of 0.3. Now imagine Person B has lived in a state of near perfect heath for two years, at a utility of 0.9. The net experiences of both patients would each total 1.8 QALYs for the time periods considered. But can the experience of being severely disabled over a longer period of time be deemed similar to living in perfect health over a shorter period?
It clearly depends on the person, and the example shows how difficult it is to quantify personal experience. And there’s another question: How do researchers know whether a person’s “health-related quality of life” is at a 0.4, 0.7, or 0.9? Researchers use surveys that take into account such matters as mobility, ability to wash and dress oneself, pain, anxiety, and ability to perform usual activities at work and leisure. The survey data are translated unto utility values.
‘Our Concern Reflects Deep Flaws’
Many patient groups are appalled at this process.
In 2018, CVS Health, parent company of CVS Caremark, a large PBM, issued a white paper describing “a program that allows clients to exclude any drug launched at a price of greater than $100,000 per QALY” from their plan. More than 90 patient organizations, ranging from the American Association of People With Disabilities to the Bladder Cancer Advocacy Network, wrote a letter to the CEO of CVS Health, that said in part:
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.
From a clinical care perspective, QALY calculations ignore important differences in individual patient’s needs and preferences. From an ethical perspective, valuing individuals in “perfect health” more highly than those in “less than perfect” states of health is deeply troubling.
(The CVS-ICER plan is “off to a slow start,” Reuters reported in October.)
In an op-ed piece in the San Francisco Examiner last year, Randall Rutta, the chairman of the Partnership to Fight Chronic Disease, objected to the fact that ICER does not give an extra year of life for a person with a chronic condition the same value as an extra year for a healthy person. In effect, then, a drug that lengthens the life of a sick person is not as valuable – on a QALY basis – as a drug that lengthens the life of someone who is not sick.
“The discounted QALY,” writes Rutta, “is in effect a determination of discounted value assigned to a person, a value judgment that may be at odds with their personal opinion about their own life in its totality, in the context of family, workplace, and community.”
Limitations and Dangers of QALY
Last year, the National Council on Disability, a federal agency, issued a report highly critical of QALY analysis. In a letter of transmittal to President Trump, the council’s chairman, Neil Romano, a former Assistant Secretary of Labor for Disability Employment Policy under President George W. Bush, wrote:
[I]n an effort to lower their healthcare costs, public and private health insurance providers have utilized the Quality Adjusted Life Year (QALY) to determine the cost-effectiveness of medications and treatment. QALYs place a lower value on treatments which extend the lives of people with chronic illnesses and disabilities. In this report, NCD found sufficient evidence of the discriminatory effects of QALYs to warrant concern, including concerns raised by bioethicists, patient rights groups, and disability rights advocates about the limited access to lifesaving medications for chronic illnesses in countries where QALYs are frequently used. In addition, QALY-based programs have been found to violate the Americans with Disabilities Act.
And the Governor of Oklahoma recently signed into law a bill, HB 2587, that would bar the state from using QALY methodology. It says that state agencies…
shall be prohibited from developing or employing a dollars-per-quality adjusted life year, or similar measure that discounts the value of a life because of an individual’s disability, including age or chronic illness, as a threshold to establish what type of health care is cost effective or recommended.
In a review of the academic literature on QALY, published in 2016 in the Journal of Stem Cell Research and Therapy by D.A. Pettit of Oxford University and colleagues wrote:
The QALY has limitations in producing reliable and valid measurements across disease categories and does not consider a variety of contextual factors including program-specificity, palliative care, mental health and indeed the future of the medical landscape. As it is currently defined, QALYs do not cover the nuances needed within and across disease categories and patients.
The researchers concluded: “Three common themes emerged concerning the limitations of QALYs. These were ethical considerations, methodological issues and theoretical assumptions and context or disease specific considerations.”
Perhaps the biggest problem is the rigidity with which ICER employs the QALY – despite the methodology’s well-known limitations, only some of which we have noted here. HTAs (or health technology assessment bodies) in Europe and the U.K. have adopted a more flexible approach.
Some critics accept the notion that ICER’s calculations of QALY despite some misgivings, but they question why ICER includes price recommendations in its efficacy analyses. Those recommendations have lately strayed from the range of $100,000 to $150,000 ICER set in its own “Value Assessment Framework” for 2020 to 2023.
The organization would seem to be better off avoiding pricing recommendations entirely and sticking to calculations that reflect how much a drug extends and improves the life of patients – a tough enough job in itself.
There is no doubt that finding a quantifiable way to provide reasonable range of assumptions on the value makes eminent sense, but so far, ICER has not achieved what it set out to do. It still lacks the confidence of key stakeholders. Perhaps, in the end, an organization with ICER’s apparent ideological baggage is simply not equipped for a task that has proven extremely difficult.
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