Can Value-Based Pricing Counteract the Rising Costs of Drugs? Part 2

By | June 25, 2018

As discussed in a previous blog, using true value-based drug pricing will require us to implement an agreed-upon benchmark such as Quality Adjusted Life Years (QALY). The Institute of Clinical and Economic Review (ICER) is an organization that attempts to incorporate qualitative information gathered through public engagement, QALYs, price estimates that may vary with the size of a patient population in need of a particular product, and the effects the price would have on the budget of a payer, to deliver a value-based price for a drug.

For example, Luxturna (voretigene neparvovec-rzyl), is a new drug that can improve the vision of individuals with a rare genetic visual disorder. This drug impacts roughly 1,000 to 2,000 people per year and is priced at $850,000 per single treatment, whereas ICER estimates the value-based price at $426,644, less than half of the manufacturer pricing. If the company knew ahead of time that this would be the price they could charge for treatment, would they still produce it? Frankly, no one knows the answer to that question. However, there are pharmaceutical companies that are beginning to adopt true value-based prices at market entry. They are the ones that readily visualize this competitive advantage in an attempt to decrease barriers of acceptance and usage.

Implementing Value -Base Insurance Design can further support drugs that are priced based on ICER methodology. Doing this allows lower out-of-pocket costs that may then be offered to enhance the utilization of such agents versus using other drugs or perhaps the avoidance of appropriate treatment. This methodology has been associated with higher use of those medications that have been shown to provide higher value, thereby rewarding the innovation of such products.

Another option, Indication Based Pricing is an offshoot of value-based pricing. This model of pricing allows the same drug to be priced differently based on the indication of use. Since one of the variables in the ICER equation is based on volume and the disease burden within a given population, this makes sense. Innovation and testing of certain drugs on multiple rare conditions would be enhanced as the pricing of the given medication would be different.

If we do not embrace a new approach, pharmaceutical benefit managers and insurance companies will be forced to control costs by using methods such as prior authorization, utilization management, and step therapy. These modalities increase administrative burden and dissatisfaction for both prescribers and patients. To solve this dilemma, one could lower these administrative burdens on certain medications that have been deemed to be priced appropriately per a defined standard such as ICER. This methodology could, in fact, create a competitive environment that drives prices below the given benchmark. Pharmaceutical companies spend a considerable amount of energy focusing on how to decrease the barriers to prescribing since they know the impact of this rate-limiting step on utilization, and thus sales. Let us use value-based pricing and market dynamics together to enhance our ability to care for more in a manner that improves our chances for sustainability while stimulating innovation in ways that drive better outcomes at lower costs.