Dan Leonard, President

Patients may have noticed that some health insurance plans cover their specialty medications, while others do not. For patients switching between insurers or employers, these differences in coverage can potentially disrupt their care, especially for people living with chronic conditions.

Peer-reviewed research conducted by the National Pharmaceutical Council (NPC) and the Center for the Evaluation of Value and Risk in Health at Tufts Medical Center over the past 2 years sheds some light on what’s behind the discrepancies in coverage decisions from one insurer to the next.

found that insurance coverage and reimbursement for specialty medications varied substantially, with only 15.9% of drug coverage policies consistent across the largest United States commercial health plans. Less than half of all coverage decisions were similar across the majority of the health plans reviewed.

Of the 3417 coverage decisions evaluated, 38% of coverage decisions imposed restrictions or excluded the medication from coverage. More specifically, the study showed that payers implement several types of restrictive policies that limit access to specialty medicines. These restrictions include using step edits, in which a treatment must be proven ineffective before the plan will cover other therapies; restricting use of a medicine to certain groups of patients; and limiting the types of physicians who can prescribe the treatment. These kinds of restrictions force physicians to tailor care not only to diverse patients, but also to the multiple insurance plans that provide health care coverage.

Differences and restrictions in coverage policies are expected across health plans. Plans differ in their goals, budgets, state or insurance regulations, and even plan membership—potentially impacting which services or medications to cover. However, noting  the inconsistency of coverage policies for specialty medicines, the researchers explored what might be driving those variations.

In their next study, the NPC/Tufts team examined a potential factor: the use of evidence by payers to inform those same coverage decisions. They found that only 15% of coverage policies cited the same study evaluating a specific drug for a specific indication. For example, the most commonly cited study was a randomized controlled trial (RCT) of ipilimumab for metastatic melanoma, which was cited by 11 of 16 plans that issued a coverage policy for the drug and condition pair. In contrast, a significant real-world evidence study of omalizumab for severe asthma was cited by only 1 of 17 plans that issued a coverage policy for that medicine and its specific use.

While it is not surprising that not all studies were cited by all plans, only 38% of all studies were cited by more than 1 plan. Underlying this inconsistency, the quantity of evidence used varied widely, from an average of 4.2 studies cited to an average of 64.4 studies. Across all plans, on average 17.4 studies were cited in each coverage decision.

The researchers also looked at the types of evidence cited in coverage decisions: economic evaluation, evidence synthesis, randomized controlled trials, evidence synthesis, and other clinical studies. Researchers found some plans relied predominantly on randomized controlled trials to inform formulary coverage. Other plans used a full range of evidence, including real-world evidence, evidence synthesis, and economic studies. To understand real-world experience among more diverse patient populations, address expected treatment in usual care settings and typical provider networks, or demonstrate the impact of treatments on measures often not evaluated in traditional clinical trials, such as improved quality of life, work productivity, or the effect on caregiver burden support. The full range of evidence is needed.

Some variation in the evidence that plans report reviewing is expected, but the extent of variation in the volume, composition, and consistency of the cited evidence is notable and may be a key factor behind the inconsistent coverage that patients encounter. The full results of the second research study were published in 

Restriction or exclusion of specialty medications has key implications for patients. Treatment decisions may be driven by what health care coverage patients have, rather than by the physicians who know what kind of care is needed. These coverage decisions should be based on a complete review of the comprehensive set of evidence using accepted methods to assess the quality and certainty of evidence. Best practices adopted by the payer community and professional bodies outline the need for formulary decisions and the documents used to inform the committee decisions to be neutral, objective, and based on scientific evidence, and should include broad types of evidence to inform decision-making.

There are potential solutions, such as following the recommended best practices for the conduct, and deliberations of Pharmacy and Therapeutics (P&T) committees that were developed at a cross-functional forum led by the Academy of Managed Care Pharmacy.

 The resulting recommendations focused on several key areas, such as improving training and education for P&T committees, particularly in how to evaluate real-world evidence and observational studies through the use of decision-making tools, such as the GRACE (Good ReseArch for Comparative Effectiveness) checklist, and the CER Collaborative, for which NPC is a partner.

The recommendations also included providing transparency of the rationale for formulary decisions, ensuring broader representation from patients and other relevant stakeholders, and considering a wider range of evidence, including real-world evidence. Addressing all of these areas can help drive more consistent use of evidence.

Comprehensive, and consistent evaluation of evidence is needed, and inclusion of real-world evidence is critical, to ensure patient appropriate and evidence-based access to specialty medicines.

Chambers JD, Kim DD, Pope EF, Graff JS, Wilkinson CL, et al. “Specialty Drug Coverage Varies Across Commercial Health Plans in the US.” 

Chambers JD, Panzer AD, Pope EF, Graff JS, Neumann PJ. “Little Consistency in Evidence Cited by Commercial Plans for Specialty Drug Coverage.” 

American Society of Health-System Pharmacists. ASHP Statement on the Pharmacy and Therapeutics Committee and the Formulary System. 2012. 

https://www.ashp.org/-/media/assets/policy-guidelines/docs/statements/pharmacy-and-therapeutics-committee-and-formulary-system.ashx

National Committee for Quality Assurance. Health plan accreditation updates 2020 overview. 2018. 

https://www.ncqa.org/wpcontent/uploads/2018/11/20181102_Health_Plan_Accreditation_HPA_2020_Updates_Overview.pdf

Centers for Medicare & Medicaid Services. Medicare Prescription Drug Benefit Manual. 

https://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/PartDManuals

AMCP Partnership Forum: Principles for Sound Pharmacy and Therapeutics (P&T) Committee Practices: What’s Next? 

Dreyer NA, Velentgas P, Westrich K, Dubois R. The GRACE checklist for rating the quality of observational studies of comparative effectiveness: a tale of hope and caution. 

Berger ML, Martin BC, Husereau D, Worley K, Allen D, Yang W, et al., On behalf of the, ISPOR-AMCP- NPC. Retrospective Prospective Observational, CER Task Forces. A questionnaire to assess the relevance and credibility of observational studies to inform health care decision making: an ISPOR-AMCP-NPC good practice task force report 

Articles

Peer-reviewed research conducted by the National Pharmaceutical Council (NPC) and the Center for the Evaluation of Value and Risk in Health at Tufts Medical Center over the past 2 years sheds some light on what’s behind discrepancies in coverage decisions from one insurer to the next.

Evidence: Vital but Seldom Used Consistently by Payers

On New Year's Day 2018, Carla Jordan, a Virginia public school teacher, wrote a 20-page letter to President Barack Obama, President-Elect Donald Trump, and 220 members of Congress, explaining how her employer’s high-deductible health plan (HDHP) had driven her and her husband into bankruptcy. The Jordans’ story, told in a feature

 on Bloomberg News, is all too common. With 2020 already on the horizon, it’s important to remember that for many Americans, a new year brings a rude awakening. For individuals with HDHPs, resetting to zero is no cause for celebration. For people with chronic conditions, January can mean sticker shock at the pharmacy counter, as meeting the annual deductible begins anew. Fortunately, there is good news for patients with chronic conditions and who are in a high-deductible health plan.

The United States Treasury Department in July announced a change in guidance that expands the list of preventive care benefits, including medical care services and prescription drugs for certain chronic conditions, that can be covered pre-deduct- ible in HDHPs that are linked to health savings accounts (HSAs). The new guidance expands the list of chronic conditions and drug classes beyond the IRS’s previously narrow definition of a “safe harbor,” which directed that coverage did not include “any service or benefit intended to treat an exist- ing illness, injury, or condition.” Under the new guidance, specific preventive care for such conditions as congestive heart failure, asthma, diabetes, hypertension, and heart disease is included.

This is an important step in helping Americans achieve greater value for their health care dollars, especially as HDHPs become more prevalent. A recent federal survey found that enrollment in HDHPs (defined as deductibles of at least $2700 for family coverage) surged in 2018 to include nearly half of the privately insured.

 The National Business Group on Health reported that 30% of employers expected to offer only HDHPs in 2019,

 while America’s Health Insurance Plans estimated that enrollment in HSA-HDHPs reached 21.8 million in 2018.

 HDHP enrollment among private-sector employees increased from 11.4% in 2006 to 46.5% in 2016.

Despite their popularity, HDHPs can present significant cost barriers for the insured. The Kaiser Family Foundation reports that the average annual deductible among all covered workers has increased 53% over the past 5 years.

 The Pharmacy Benefit Management Institute reports that the average family deductible is $3571.

 Contrast this with the fact that 40% of Americans say they would be unable to pay for a $400 emergency medical expense, according to the Federal Reserve, and 25% skipped a medical treatment in the past year due to an inability to pay (11% skipped prescription medications).

 Although HDHPs were intended to encourage price shopping by consumers, a perverse, unintended result is that individuals delay or forego medical care and vital medications,

 often resulting in much more costly conditions down the road.

There is a strong research basis for the value of the kind of HSA/HDHP reform demonstrated in the new Treasury guidance. Two NPC-funded research studies by VBID Health demonstrate the positive financial impact of pre-deductible coverage of medications for chronic conditions. Using a baseline hypothetical HDHP with a $2000 deductible and 10% coinsurance until reaching the $6500 out-of-pocket maximum, one study examined how providing pre-deductible coverage for 57 drug classes covering 11 chronic conditions would impact out-of-pocket costs, plan expenditures and premiums. Although it would increase utilization (a good thing for patients with chronic conditions) and shift some costs to health care plans, this study found that the overall impact would be modest, requiring a premium increase of less than 2%.

The new guidance can be good news for payers as well. It permits health plan innovation and can play a part in an overall portfolio of approaches aimed at reducing health care expenditures. It also has the potential to increase the clinical effectiveness of HSA-HDHPs and improve patient health outcomes. And finally, as stated in the conclusions of the second study:

As we anticipate 2020, better health for all Americans is our goal. Let’s hope that the millions with HDHPs and chronic conditions can resolve to get all of their necessary care and medications in the new year.

Tozzi J, Tracer Z. Sky-high deductibles broke the U.S. health insurance system. Bloomberg News website.

bloomberg.com/news/features/2018-06-26/sky-high-deductibles-broke-the-u-s-health-insurance-system

. Published June 26, 2018. Accessed August 15, 2019.

Cohen RA, Martinez ME, Zammitti EP. Health insurance coverage: early release of estimates from the National Health Interview Survey, January-March 2018. National Center for Health Statistics website. 

cdc.gov/nchs/data/nhis/earlyrelease/Insur201808.pdf

. Published August 2018. Accessed August 15, 2019.

Large US employers eye changes to health care delivery system as cost to provide health benefits nears $15,000 per employee. Washington, DC: National National Business Group on Health. August 8, 2018. businessgrouphealth.org/news/nbgh-news/press-releases/press-release-details/?ID=348. Accessed August 15, 2019.

Health savings accounts and consumer-directed health plans grow as valuable financial planning tools. America’s Health Insurance Plans website. ahip.org/2017-survey-of-health-savings-accounts/. Published April 12, 2018. Accessed August 15, 2019.

Miller E, Vistnes J, Rohde F, Keenan P. High-deductible health plan enrollment increased from 2006 to 2016, employer-funded accounts grew in largest firms. 

 2018;37(8):1231-1237. doi: 10.1377/hlthaff.2018.0188.

2018 Employer Health Benefits Survey - summary of findings. Henry J. Kaiser Family Foundation website. kff.org/report-section/2018-employer-health-benefits-survey-summary-of-findings/. Published October 3, 2018. Accessed August 15, 2019.

2018 trends in drug benefit design. Pharmacy Benefit Management Institute website. 

pbmi.com/ItemDetail?iProductCode=BDR_2018&Category=BDR

Board of Governors of the Federal Reserve System. Report on the economic well-being of U.Ss. households in 2017 - May 2018. The Federal Reserve website. 

federalreserve.gov/publications/2018-economic-well-being-of-us-households-in-2017-dealing-with-unexpected-expenses.htm

Brot-Goldberg ZC, Chandra A, Handel BR, Kolstad JT. What does a deductible do? the impact of cost-sharing on health care prices, quantities, and spending dynamics. Econometrics Laboratory, University of California, Berkeley website. 

eml.berkeley.edu/~bhandel/wp/Utilization_BCHK_Web.pdf

Agarwal R, Mazurenko O, Menachemi N. High-deductible health plans reduce health care cost and utilization, including use of needed preventive services. 

2017;36(10):1762-1768. doi: 10.1377/hlthaff.2017.0610.

Financial impact of HSA-HDHP reform to improve access to chronic disease management medications. VBID Health website.

Expanding pre-deductible coverage in HSA-HDHPs could improve lives and save dollars. VBID Health website.

Fortunately, there is good news for patients with chronic conditions and who are in a high-deductible health plan.

Good News for Patients With High-Deductible Health Plans

Value assessment frameworks are gaining traction in the United States and increasingly being applied in real-world settings. This shift in how we determine value in health care has the potential for long-lasting consequences on reimbursement decisions and access.

What’s more, the issues raised by such frameworks are growing increasingly complex, particularly with the introduction of curative specialized treatments, such as gene therapies. Unfortunately, headlines have been focused more on the costs of these treatments than the actual value and cures that they represent for patients.

Assessing the value of a treatment isn’t a new concept, but with the advent of these innovative curative medicines, there is a growing interest in determining how much our health care system is willing to pay. Several value assessment frameworks have been developed to assist payers with these decisions. Of those, the Institute for Clinical and Economic Review (ICER) has been the most prominent.

ICER, thanks in part to a significant injection of funding from the Laura and John Arnold Foundation, conducted 14 value assessments last year and the organization is on pace to match that number in 2019. However, it doesn’t mean that ICER should be the definitive word on how we view the value of a treatment.

ICER’s value assessments have some serious flaws that we hope will be addressed as it incorporates input from the public and updates its framework for 2020. We recognize that value assessments can be useful tools for health care decision-making, which is why our approach is to offer constructive feedback to organizations such as ICER and others working on value assessment.

It is critical that value assessment be patient-centered, and the National Pharmaceutical Council (NPC) published our own 

Guiding Practices for Patient-Centered Value Assessment

 to ensure the patient voice is included in these assessments. These guiding practices serve as a guidepost in framing our feedback.

In comments submitted to ICER, NPC recommended changes to improve ICER’s framework across 3 broad areas: changes to the framework itself, improvements in the way that assessments are conducted, and application of the framework beyond medicines to examine value across the entire health care system. The framework changes we recommend include a suggestion to use a collaborative and transparent model development process, similar to the approach that the Advisory Committee on Immunization Practices (ACIP) uses, in which a clinical expert working group can review both manufacturer and ACIP models side-by-side in a public meeting.

We also encouraged ICER to quantitatively include patient and societal factors in its assessments and to include this societal perspective as a base case model. We also underscored the need for ICER to evolve its thinking and incorporate more real-world evidence in the assessment process.

Some areas of the assessment process itself, too, deserve reconsideration. ICER should embrace full transparency by making its model publicly available to all stakeholders.

The organization should also present much broader results and context in its press releases and report-at-a-glance documents. Doing so can provide a fuller picture of the range of pricing scenarios and societal value, rather than implying a false sense of precision.

Finally, in order to achieve its goal of a “more just, efficient and more effective health care system,” ICER assessments must expand in focus to assess health care spending across the entire system. A lot of the discussions around value—and most of ICER’s assessments&mdash;have focused almost entirely on medicines, although drugs comprise just 16% of health spending in the United States.

ICER’s assessments must scrutinize the other 84%, as well. Medicines are a small portion of the US health care dollar, so ICER’s overall impact would be greater if it focused proportionately on other interventions, such as devices, surgery, and diagnostics.

We aren’t alone in raising concerns. Numerous patient groups have spoken out about the need for a more inclusive process in which patient voices have more weight when groups are assessing value.

Ultimately, it’s the patients who are affected most by value frameworks. Done well, such assessments can help guide patient access to high-value treatments. But done poorly, without fully taking the needs of patients into account, value assessments could be used as a mechanism that makes getting needed treatments harder.

Value assessment frameworks are expected to play a more pivotal role in decisions that affect future patient choice and access. Our challenge now is to ensure that existing frameworks, such ICER’s, adhere to value assessment guiding practices.

Complex and often difficult decisions are necessary as we seek to measure value in health care; however, taking steps now to ensure that the process is collaborative and grounded in best practices moving forward is in the best interest of patients.

Value assessment frameworks are expected to play a more pivotal role in decisions that affect future patient choice and access.

More Than Just a Number: Assessing The Value of Innovative Treatments

States are getting inventive in their approaches to meeting the health care needs of their citizens, especially when it comes to curative treatments for conditions that have a high prevalence rate. Louisiana, for instance, in January 2019 became one the first states to adopt a subscription model—also known as the Netflix model&mdash;to get more hepatitis C virus (HCV) treatments to the patients with the greatest needs. This model is just one of several financing approaches that states and organizations are testing as ways to ensure their health care dollars are spent more efficiently and effectively while providing patients with access to innovative, curative therapies.

Louisiana has a high rate of HCV prevalence in its Medicaid and prison populations and a limited health care budget. Similar to how Netflix allows consumers to watch unlimited programming for a monthly subscription fee, Louisiana worked out a fixed-cost, 5-year contract with Gilead Sciences’ authorized generics subsidiary, Asegua Therapeutics, to access all the HCV medications it needs.

Washington state followed suit weeks later by announcing an agreement with AbbVie to provide HCV treatments for approximately 25,000 patients covered by its Medicaid program. Through Medicaid supplemental rebates, rather than the complicated and often politically charged waiver process, Washington will pay until it reaches a certain level of total spending for HCV treatment. After that, the state will receive the medication at a very low cost.

These strategies are likely just the start of a broader financing trend by states. With the treatments used over a short term for lifetime effects, the question of who pays and who benefits is always front and center. Given that 45 to 60 curative therapies are expected to reach the market in the next decade, with estimated total treatment costs of $20 billion to $25 billion, it’s not surprising that states are looking for ways to stretch their limited budgets.

Many of these treatments are gene therapies and immunotherapies for rare or ultrarare diseases with no or few treatment options. For patients, these treatments could mean marked improvements in daily quality of life. Treating these patients and monitoring their outcomes are complex propositions, however, which is why we’re now seeing states and organizations testing different types of financing approaches, in addition to the Netflix model.

Under an effort led by the Financing and Reimbursement of Cures in the US (FoCUS) program, part of Massachusetts Institute of Technology’s (MIT) NEW Drug Development ParadIGmS (NEWDIGS) initiative, and supported by the National Pharmaceutical Council, investigators are testing financing models that include performance-based annuities for treatments of blood disorders, milestone-based rebates for chimeric antigen receptor (CAR) T-cell therapies, and the creation of an orphan reinsurer benefit manager for orphan/ultraorphan diseases.

For blood disorders, an up-front payment tied to the initial treatment followed by a series of payments over time (eg, several years), would reduce not only the 1-time impact of the potential cost but also the uncertainty for payers. When a treatment first comes to market, there are little to no robust durability data, so the risk of financing such a treatment needs to be shared, with payments made as pre-agreed performance metrics are met. One example is a 5-year performance-based annuity that mitigates actuarial risk from patient backlog or rare but high-cost cases.

Financing CAR T-cell therapies is trickier because patient success is more difficult to judge. CAR T is a type of immunotherapy that involves multiple steps to treat advanced cancers, and patients can relapse after 1 or many years. Under a milestone-based contract, a payer would provide compensation to the innovator at the time of delivery with an understanding that if a patient recovery milestone is not met, a rebate for that payment is forthcoming. This could alleviate short-term performance risk with minimal implementation hurdles.

The impact of gene therapy is asymmetric, affecting small health plans more significantly than those with a larger number of covered lives, and many patients switch plans. One way to address this challenge is through orphan reinsurers and benefit managers (ORBMs). These organizations could combine the risk bearing of reinsurers with the therapy-contracting capabilities of pharmacy benefit managers. Another way is through multipayer risk pools, in which payers combine to provide coverage for orphan and ultraorphan diseases. These could be implemented via state-sponsored Medicaid pools or an ORBM.

Why aren’t more states and other organizations jumping at the chance to try out these approaches? They need to figure out how to deal with regulatory barriers first. Among those barriers, Medicaid Best Price—the lowest price for which a treatment is offered and the required rate provided to federal programs&mdash;and the Anti-Kickback Statute present unique challenges. Even more challenging, though, according to MIT FoCUS, are current Health Insurance Portability and Accountability Act (HIPAA) privacy protections. “Sharing patient performance data among the involved parties in performance-based agreements (especially developers and subsequent payers) often requires additional hurdles due to HIPAA regulations that did not contemplate this sort of agreement,” the group wrote in its “Federal Policy Suggestions for Durable Therapies” document.

 They also recommend amending HIPAA regulations to ensure the availability of the data needed to inform long-term, performance-based agreements.

The structure of our health care payment and delivery system makes keeping pace with medical and scientific innovation difficult. However, if these creative financing models begin to show promise and improve access for patients, they could lead to further innovation and adoption of financing approaches. That’s a move we’re all looking forward to watching.

States are getting inventive in their approaches to meeting the health care needs of their citizens, especially when it comes to curative treatments for conditions that have a high prevalence rate.

Creative Financing for Innovative, Curative Therapies

The time has come for a robust national conversation about the cost of health care in the United States. As activity around the 2020 presidential primaries heats up, each new candidate brings their own take on how to rein in the rise in US health care expenditures. That dialogue is necessary and vital to generating ideas and solutions that could benefit our country in the long run. At the same time, the dialogue is simplistic and the conversation too narrow, focusing on the list price of a handful of innovative medicines.

The American health care system is incredibly complex, made up of countless interrelated entities that research, regulate, deliver, evaluate, and supply the industry as we know it today. As we debate who should pay for health care and how, it is critical to make clear what we expect to get for those payments: high-quality, cost-effective care that improves patient outcomes—in other words, value. Although it may be difficult to define value, it’s not impossible.

Recent research results from the National Pharmaceutical Council (NPC) and RTI Health Solutions1 demonstrate that biopharmaceuticals provide substantial health care benefits at modest cost. The findings also suggest that cost is much more than just what is paid for a medication.

The authors wanted to assess what value looked like over time. Specifically, they sought to determine, when considering disease prevalence and inflation, whether the cost of treating top conditions associated with disability and mortality became costlier over time and, if so, whether those increased costs were commensurate with improved patient outcomes and well-being.

To answer those questions, the authors examined whether spending on the top causes of death and disability was a good investment by estimating changes in both cost and burden of disease (morbidity and mortality) from 1995 to 2015, adjusting for changes in prevalence and inflation. The diseases studied included ischemic heart disease; cancer of the trachea, bronchus, or lung; breast cancer; HIV/AIDS; cerebrovascular disease; chronic obstructive pulmonary disease; and diabetes.

Using data on spending and outcomes for each condition, condition-specific cost effectiveness ratios were calculated by dividing the per-person difference in costs by the per-person difference in a measure of death and disability (disability-adjusted life years). The researchers found that, for 6 of the 7 conditions, increased health spending led to improved patient outcomes, measured as reduction in death and disability (the exception was COPD). For persons living with HIV/AIDS, the per-person change was a 9-year improvement.

In other words, investments made 20 years ago in fighting the worst diseases of the day have paid off.

The evaluation of costs on a per-person basis (adjusting for inflation) revealed that for lung cancer, ischemic heart disease, cerebrovascular disease and HIV, per- person total costs—such as physician and hospital visits and out-of-pocket costs&mdash;declined over the study period while patient outcomes improved.

The authors also found that increased prevalence and inflation accounted for the majority of cost growth over the 20-year period. For all 7 conditions, the estimated number of patients living with each condition rose. These are natural results of our aging population and living longer with these conditions. As life expectancy increases, chronic conditions and the costs of treating them go up. Naturally, this is of great concern and an appropriate topic of our national conversation; however, focusing on the list prices of a few novel medications leaves much out of that conversation. This study shows that increases in spending when adjusted for inflation and prevalence were small or nonexistent for some conditions; in other words, costs remained essentially the same. The reductions in disease burden—reduced morbidity and mortality&mdash;show that spending on care for these conditions had value.

Two other studies reinforce these findings. Cutler et al found that spending growth in Medicare declined from 1999 to 2012. Taking a closer look into the causes of the slowdown, the authors found that a large part was attributable to medications controlling cardiovascular risk factors.

 Findings from another study developed by NPC and RTI showed that biopharmaceutical products drove most of the improvements in health outcomes, post diagnosis.

 Taken together, these results provide powerful evidence that challenges the conventional wisdom that all health care spending is out of control. By showing that additional spending for certain diseases was both cost-effective and created high value, the findings demonstrate that policies aimed at addressing rising health care spending should include a disease-specific approach that targets areas in which increased spending is not associated with greater benefit.

1. Wamble D, Ciarametaro M, Houghton K, Ajmera M, Dubois R. What’s been the bang for the buck? cost-effectiveness of health care spending across selected conditions in the U.S.” Health Aff (Millwood). 2019;38(1):68-75. doi: 10.1377/hlthaff.2018.05158.

2. Cutler DM, Ghosh K, Messer KL, Raghunathan TE, Stewart ST, Rosen AB. Explaining the slowdown in medical spending growth among the elderly, 1999-2012. Health Aff (Millwood). 2019;38(2)222-229. doi:.

3. Wamble DE, Ciarametaro M, Dubois R. The effect of medical technology innovations on patient outcomes, 1990-2015: results of a physician survey. J Manag Care Spec Pharm. 2019;25(1):66-71. doi: 10.18553/jmcp.2018.18083.

As we debate who should pay for health care and how, it is critical to make clear what we expect to get for those payments: high-quality, cost-effective care that improves patient outcomesâ€”in other words, value.

Debate Around Drug Cost Must Include Proven Value of Drug Therapies

As the national conversation surrounding health care prices and costs intensifies, politicians and government agency staff continue to press new solutions in their quest to lower US health care spending. Despite the fact that net spending on rebates for prescription medicines has been less than the rate of inflation over the past 2 years and biopharmaceutical innovation plays a key role in improving health outcomes, high drug prices continue to be a hot button issue. The latest in a series of proposed fixes is the idea of tying American drug prices to an international pricing index (IPI).

This proposal, outlined by the Centers for Medicare & Medicaid Services (CMS) in late 2018, would undermine CMS’ stated goal of prioritizing value and improved patient outcomes over utilization and sickness. This is a goal shared by many policymakers and health care stakeholders alike.

The IPI model, as outlined, has critical methodological limitations that would have numerous adverse consequences, leading to restrictions in health care innovation and impeding patient access to needed health care services and products. There are 3 main areas of concern:

1. Countries selected for international comparison are not economically comparable with the United States.

In its outline of the proposal, CMS says that it is considering these countries for inclusion in the IPI model: Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, the Netherlands, and the United Kingdom. The agency states that these countries are being considered because, “They are either economies comparable to the United States” or they are included in Germany’s reference pricing index. Many of these countries, most notably Greece, the Czech Republic, and Italy, do not have comparable economies as measured in per capita gross domestic product (GDP). In fact, the per capita GDP in Greece is less than half of that in the United States.

Further, few of these countries have comparable health care delivery systems, the features of which are often driven by GDP. Countries with more available wealth tend to spend more on health care services and products. A comparison of data from 35 high-income countries found the total GDP to be highly correlated with the percentage of GDP spent on health care.

 Countries with more wealth commonly choose to spend these resources on health care.

2. Incentives for biopharmaceutical innovation would be negatively affected by the use of international reference pricing. 

In the United States, which has a market-based health care system, prices are determined by the market. Among the proposed index countries that are using external price referencing (EPR), the European Commission found that new drugs were more likely to be launched in countries without EPR, so as to establish higher list prices, and less likely to be brought to market in low-priced countries, so as not to drive down the international benchmark. A European Commission report stated, “It has been argued that medicine shortages or the discontinuation of medicine supply are partially also attributable to pricing and reimbursement practices such as EPR.”

Again, the countries under consideration are not comparable because they have not adopted value-based pricing elements in their pricing and reimbursement decisions. As the United States continues to transition to a health care system based on value instead of volume, it would be nonsensical and counterproductive to link US drug prices to those in countries that do not share the same priorities.

Disassociating the price of a pharmaceutical treatment from the value it brings to patients is a step in the wrong direction and could have the additional unintended consequence of inhibiting innovation. Research has found that price controls in the United States would have a significant impact on the incentives for private firms to invest in research and development. Specifically, the research suggests that the number of compounds moving from the laboratory into human trials would decrease by 50% to 60%. This directly translates to fewer new products and the possibilities for new opportunities in the future. Because of the long development cycle, the effects of reduced research and development activity won’t be fully felt for several decades and will likely compound over time.

It is critically important to foster an environment that sustains and enhances innovation to ensure the continued discovery and development of new medicines that improve patients’ health and their quality of life. Recent research demonstrates that for 6 of 7 common disease areas, spending over a 20-year period was both cost-effective and improved patient outcomes. We also found that a significant portion of cost increases can be explained by changes in disease prevalence and inflation. For 4 of those 7 disease areas, improvements in health were associated with declining per-person costs.

3. Policies aimed at reducing health care spending should apply to all categories of services, not just prescription medicines.

Holistic consideration of health care costs in general, complete with value considerations, is important. We must evaluate cost trends and the cost-effectiveness of treatments and services across the health care continuum. Comparisons of drug prices between the United States and other countries will often illustrate a disparity. But, not surprisingly, all components of care are more expensive in our advanced economy. Doctors, hospitals, and tests all cost more here.

 Is CMS considering a pilot of reference pricing for physician fees or hospital stays against the averages in other countries? We certainly would not recommend such an approach as it would only compound an already flawed policy.

Fortunately, promising alternatives to the IPI model exist and warrant further exploration, such as focusing on US market—based approaches to managing prescription drug costs and allowing the market to negotiate and determine prices for biopharmaceutical products. For example, in value-based arrangements (VBAs), payers can reduce the risk of exposure to failed outcomes and make prescription medicines more affordable for patients. These risk-sharing agreements can provide earlier access to medications for patients and generate evidence on what works in the real world, while simultaneously creating international pricing efficiency.

However, for VBAs to reach their full potential, CMS must address the current regulatory barriers that exist, including the Medicaid best price provision of the Medicaid drug rebate program and the federal Anti-Kickback Statute.

Indication-based pricing is another market-based approach to address health care costs and improve patient access. Currently, there is a single list price for each medicine, by unit, for all treated conditions; the same price is paid regardless of use. But many medications may be used to treat multiple conditions and may provide greater value for one condition than another. Under indication- based pricing, the price for a medication would vary according to the condition for which it is used. This creates the potential to lower costs to the health care system and provide additional access to more effective medicines for patients.

Barriers to indication-based pricing also exist in average sales price (ASP) and the Medicaid best price provision. If a carve-out for indication-based pricing were to be created relative to the ASP, it would have to be defined in a way that ensures only value-based contracts are included.

The potential IPI model does not advance CMS’ goal of prioritizing value and improved patient outcomes, nor does it promote the principles of a better market based on competition and choice.

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This proposal, outlined by the Centers for Medicare & Medicaid Services (CMS) in late 2018, would undermine CMSâ€™ stated goal of prioritizing value and improved patient outcomes over utilization and sickness.