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Chain Drug Review – Commentary: "Considering Value in Health Care"

This commentary was originally published in the July 25, 2016, issue of Chain Drug Review.

By: Dan Leonard, President, National Pharmaceutical Council

Our health care system is in a period of great transformation, thanks to significant advances in medical therapies, as well as data and technology and how we deliver health care to patients. But with change comes uncertainty, and questions: how do we value all of these advances and ensure their positive impact on patient health and our health care system?

It’s a complicated question to answer, partly because there are so many changes occurring in parallel. On the one hand, we are living at a time where we are seeing incredible advances in treatments for patients. In the past few years alone, we’ve seen the creation of curative treatments for hepatitis C and other liver diseases. Survival rates for cancers such as melanoma and leukemia have increased dramatically.  In fact, overall death rates for cancers are down 23% since the 1990s, and heart disease mortality has been reduced 38% in the past decade.  And this is just the beginning.  Major cancer breakthroughs are on the horizon.  New drugs for Alzheimer’s are expected to emerge on the marketplace in the next decade.  And personalized medicine, driven by our constantly evolving knowledge of genomics, can be a game-changer in numerous therapeutic areas.

At the same time, there is broad initiative led by the federal government to move our health care system from one that pays for the volume of health services to one that pays for the value of those health services. Under this approach, payments for health care goods and services should be aligned with patient outcomes and overall cost containment.  This is an important direction for a health care system that must achieve both high quality care and financial sustainability. 

In bringing medical innovation and value together, especially in the context of pricing and reimbursement concerns and juggling federal regulations and often shareholder expectations, decision-making becomes more complex. Given this complexity, there are many differing views—involving organizations representing providers, innovators, payers, insurers, hospitals and patients—over how value is defined and whether the cost of a particular treatment or therapy fits within the definition of what constitutes value-based care. Some stakeholders have been developing value assessment frameworks as a way to determine the value of care, but these frameworks are still in their infancy and utilize some questionable methodologies.

For example, one assessment utilizes the list, or invoice, price for a prescription drug in its value formulations. This artificially raises the budget impact estimate for that treatment and can lead to recommendations that only a select group of patients can use it. Unfortunately, this is also an estimate that is widely reported, even though the invoice price is not the actual price that is paid.

A recent report issued by the IMS Institute for Healthcare Informatics explains this discrepancy in greater detail.  Looking at wholesale invoice prices for brand-name prescription drugs, that data shows that prices increased by 12.4% in 2015, well above inflation. That figure is not representative, however, with the way pricing works in the real world.  After health insurers and pharmacy benefit managers (PBMs) finish negotiating with pharmaceutical manufacturers on various rebates and price reductions, the net price increase last year was only 2.8%. There is a widely held misconception about drug pricing in the populace because of public scrutiny and reporting on the higher price growth figure, even though PBMs and insurers are actually paying the lower price.

Based on current trends over the last four years, we have seen a widening gap between invoice and net price.  In 2011, there was little difference between the invoice price increase (9.3%) for brand name drugs and the net increase (8.7%). As payers have become more assertive in price negotiations, among other factors, the gap between invoice and net has grown significantly.  In 2014, the net price increase was 5.1% (compared to an invoice price growth of 14.2%) before dropping to 2015’s 2.8%. 

It is also important to recognize important developments happening at the same time. When Sovaldi, the first cure for hepatitis C, reached the market, overall spending on drugs in that therapeutic category naturally saw a spike. In a relatively short time, though, prices began to fall as competitors entered the marketplace. It is now widely acknowledged that spending on this drug will be largely offset by the long-term savings gained through healthy individuals no longer needing extensive medical services.

Here is where the development of value frameworks against the backdrop of unprecedented development of new cures and therapies becomes so challenging.  There are enormous stakes in the way we transition to a pay-for-value system when medical innovation is yielding the tools to extend lifespans and significantly reduce suffering.

At the National Pharmaceutical Council, we have developed a list of 28 guiding practices that should be inherent in a truly patient-centered value assessment.  Among them, we believe that patients must be involved in the process and that assessments must be updated regularly to keep pace with innovation.  We believe assessments of value must involve all aspects of the healthcare system, not just biopharmaceuticals, and the genuine value of a treatment can only be viewed over a long-term horizon, not a one-year budget window. 

If those involved in this effort do this wrong—using poor methodology or limited evidence, or failing to consider the full value of a treatment—then we may be limiting the ability of countless individuals to change their lives via new therapies. But if we succeed in synchronizing health care’s innovation track with its value-focused track, the benefits to society will be incalculable.  As long as we work from a shared set of facts, objectives and principles, then it can be possible to value all of these advances and ensure their positive impact on patient health and our health care system.

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