The Growing Shift Toward Value-Based Drug Pricing

Jessica Miller

November 2016, Vol 7, No 10 - Value in Oncology


Boston, MA—Drug pricing in the pharmaceutical industry came under scrutiny at the recent War on Cancer forum organized by The Economist. An expert panel discussed the disassociation between the actual benefits of cancer drugs and their prices.

Peter Bach, MD, MAPP, Director, Center for Health Policy and Outcomes, Memorial Sloan Kettering Cancer Center, NY; Lowell E. Schnipper, MD, Chair, Value in Cancer Care Task Force, American Society of Clinical Oncology (ASCO), and Chief of Hematology/Oncology at Beth Israel Deaconess Medical Center and Professor, Harvard Medical School; and Steve Miller, MD, Chief Medical Officer, Express Scripts, emphasized the shift in the pharmaceutical industry toward value-based drug pricing.

Over the past decade, the issue of drug pricing has become a “hot topic” as a result of increasing drug costs, from the cost of the hepatitis C drug sofosbuvir plus ledipasvir (Harvoni) and many cancer drugs to the public uproar over the pharmaceutical executive Martin Shkreli. Research shows that this scrutiny, at least in oncology, is not unfounded.

“We’ve demonstrated, adjusting for inflation, that the cost of a cancer drug at launch for the number of life years it delivers has risen 5-fold in the last 20 years,” Dr Bach said.

So what can be done about this? Dr Bach suggests finding a way to reconcile the 2 pieces of the puzzle—the price, and the benefit the drug provides.

This union will not be achieved by the use of the so-called market. Dr Bach argues that supply and demand is “supposed to accomplish 2 things—one that’s good, and one that’s horrible—when you think about drugs for life-threatening illnesses.” Supply and demand may establish the market-clearing price, but also, by its nature, does not allow everyone to get the drug.

“That’s how markets work, and that’s not what we want in cancer; we want a system where people with diseases who can benefit from the drugs get the drugs,” Dr Bach told conference attendees.

Instead, he said, a solution may come in the form of value frameworks.

Understanding the “Value” in Value Frameworks

Dr Schnipper’s work with ASCO’s Value in Cancer Care Task Force, which developed the ASCO Value Framework, started off by focusing on drugs.

“It was pretty clear that the cost of healthcare in the country was absolutely out of control. We were also rather obviously, but introspectively, aware that our profession wasn’t coming forward with solutions to the problems,” Dr Schnipper said.

The economic consequences for patients were at the forefront of the ASCO Task Force’s focus in developing the value framework, and they attempted to find a rational, evidence-based way to ascertain a drug’s value to patients, Dr Schnipper told listeners. A visible depiction of costs, from purchasing the drug to administering it and other supportive drugs, was built into the value framework. This was all done to make patients and physicians aware of the huge cost implications of current therapies used by patients.

“Let’s deal with what the patient is dealing with and help them discern what to them might become real [value] versus questionable value versus a tradeoff that they may be forced to make regarding paying mortgage payments or kids’ college tuitions,” he said.

Dr Schnipper argued that patients should get what they pay for, using the analogy of buying a car from Honda versus a car from Jaguar, pointing to the vastly different prices and quality that would be expected for each. If one therapy is very successful and another is not, should the prices of both therapies be the same? And how do oncologists make clear to patients the quality of the cancer drug that they are going to receive?

“We need to have a mechanism for patients to understand what it is they are getting, and what we as payers and patients should expect to pay for what it is we are getting. If we are getting very little or nothing, frankly, I don’t think we should pay for that product,” Dr Schnipper said.

Value-Based Pricing: What Is Possible?

That is the essence of value-based drug pricing, Dr Miller contended, but utilizing this model in the current system is difficult. He used the example of paying a premium price for the drug erlotinib (Tarceva) for the treatment of patients with lung cancer, but wanting to pay a lower price when the same drug is used for the treatment of patients with pancreatic cancer, a disease state for which it does not work as well. This would destroy “best price” for manufacturers, he said.

This does not mean that value-based contracting is not possible, but rather this needs to be looked at in a more practical way.

“So what we do is we contract with the manufacturers on a blended rate. We’ve been able to do this in renal cancer, non–small-cell lung cancer, prostate cancer, and we have unique contracts with the different pharmaceutical manufacturers so they’re actually sharing the risk,” Dr Miller said.

An example of this is the contract Express Scripts has made with AstraZeneca for their lung cancer drug ­gefitinib (Iressa).

“They made a deal with us that if a patient goes on Iressa, and in the first-line they either don’t see the response they want or the patient has side effects, we refund 100% of the money back to the plan sponsor, so the patient can essentially try Iressa risk-free,” Dr Miller said. “This is value-based contracting, because I’m already getting an incredibly good price on the drug, but this is value above and beyond the unit cost,” he added.