The United States is anticipated to lead the globe in implementing value-based drug pricing.

The United States is anticipated to lead the globe in implementing value-based drug pricing.

The changing landscape of drug pricing policy in the U.S. has implications for the global pace and direction of innovation. Drug policy changes are being influenced by perceptions of the value of novel medicines relative to their budgetary impacts, with some believing that many medicines may not be worth their cost, creating an important role for health technology assessments (HTA). The goals of these assessments are to ensure that society does not overpay for new medications, but also does not inadvertently discourage the development of worthwhile medicines and other health technologies.

For years, the U.S. was apparently content to allow market-based pricing for patent-defined periods of time to drive investment on medicines and incentivize innovation, regardless of pricing in other countries. The U.S. incentivized global biomedical innovation with its willingness to pay more for medicines, while other countries assumed perhaps they could count on getting those medicines at a discount either before or after they went generic. U.S. payers — commercial insurers, employers, and government—have often paid for medicines that other countries said were not cost-effective.

With the U.S. becoming increasingly sensitive to the idea that it may be overpaying for medicines, and with value and cost-effectiveness influencing drug pricing policy, all Americans — and, in fact, people around the world — have a stake in making sure that the U.S. gets it right. What does getting it right mean? We assert that taking a societal perspective for quantifying costs and benefits would produce greater value for money while continuing to provide global incentives for innovation.

Related: How do you measure value in a drug — or anything else in medicine?

Assertion 1: Drug prices at launch should be linked to their health and economic value

Evaluating prescription drugs based on both clinical and economic factors is vital to ensure that pharmaceutical prices fully reflect their value to society, and that their value exceeds the value of using those same funds for other types of health care goods and services. Prices above treatment value means Americans are overpaying for some drugs: The cost of the treatment is more than the value of health benefits to patients and broader society such as caregivers and communities.

Pricing below value means that incentives for innovation may not be sufficient to induce optimal R&D investments. To be sure, drug prices do not always need to be set at the full value to society for drug companies to bring medicines to market. For instance, as new branded pharmaceuticals enter the market, prices for existing branded drugs may fall with competition. And when drugs go generic, prices fall further.

Linking drug prices to value is an important starting point, but market dynamics will cause prices to evolve over product lifecycles.

Assertion 2: Getting value-based drug pricing right is nice to have outside the U.S., but vital in the U.S.

Health-technology assessment and value-based pricing (linking drug prices to the health and broader society benefits they bring) have been embraced by many countries around the world. However, many agencies or organizations that conduct HTAs, such as the Institute for Clinical and Economic Review (ICER) in the U.S., the National Institute for Health and Care Excellence (NICE) in the U.K., and the Drug Agency in Canada, focus on health benefits and health system costs from payers’ perspectives, and either do not include other benefits and costs to society or take a narrow societal perspective. Limiting costs and benefits to the payers’ perspective is problematic if not all of the medicine’s value is accounted for.

Value should be measured as the total societal value, but this rarely happens. NICE uses a payer perspective — rather than a societal perspective — and sets a value per quality-adjusted life year (QALY) at around £30,000 ($38,000). That is far below the $100,000 or $150,000 QALY valuation more commonly used in the U.S. and reflects the fact that the U.K.’s National Health Service is a budget-constrained health system. In fact, the U.K.’s own Department of Treasury believes this QALY valuation is too low and sets its own threshold estimate of the consumption value of a QALY at £70,000 (approximately $90,000).

NICE’s narrow, payer-based approach to drug pricing has only a modest impact on the global innovation ecosystem. The U.K. makes up only 2.3% of global pharmaceutical sales, so changes in drug prices there may not materially affect drug company research and development (R&D) investment decisions. In contrast, the U.S. makes up 43% of global pharmaceutical sales, so any changes in U.S. drug pricing policy will have a large impact on R&D decisions and the number of drugs that come to the global market. In short, while U.K. drug pricing may matter a lot in the U.K., U.S. drug pricing policy matters around the globe.



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