Innovative Medicines Provide Greater Value to Patients and Society than Previously Calculated


New report finds critical flaws in drug pricing math used to deny patient care

Traditional cost-effectiveness math omits quantifiable values recommended by leading health economists

WASHINGTON, Sept. 06, 2023 (GLOBE NEWSWIRE) — A new report released today by the nonprofit group No Patient Left Behind revealed critical flaws in a key metric used by U.S. insurance companies and foreign governments to determine whether to cover prescribed treatments at low out-of-pocket costs. The report found that the methodology used by the Institute for Clinical and Economic Review (ICER) for analyzing the cost-effectiveness of drugs has been incorrectly claiming a number of medications offer insufficient value to patients and society.


“It’s time to get cost-effectiveness math right and stop using flawed math to undervalue the patient and societal benefits of new medicines,” said Peter Rubin, Executive Director of No Patient Left Behind (NPLB). “This report quantifies how society derives tremendous value from the net prices of new medicines and debunks the math used by insurers and foreign governments to justify that prescribed treatments are not worth covering at low out-of-pocket costs to premium-paying members.”

The new study incorporates improvements long recommended by leading health economists and ISPOR to correct how traditional cost-effectiveness models determine the value of a drug. The report reviewed 20 medications that had previously been assessed by ICER using their traditional methodology. Under ICER’s approach, only eight of the 20 medications in the study were deemed at or before launch to have sufficient value to patients to justify their prices — a finding that insurance companies use to deny coverage. However, when the math is updated to model just some of the additional elements of value that medicines offer to society, the study found that at least 17 of the drugs provided good value for money.

“Today’s price negotiations determine the focus of tomorrow’s innovations,” said Darius Lakdawalla, co-founder and Chief Scientific Officer of EntityRisk. “When prices accurately reflect value to society, they encourage innovation that benefits patients and their families the most. However, current approaches to computing value leave out known benefits that have been identified by scientific research. Our study demonstrates how to use cutting-edge methods and robust software tools to compute societal value efficiently and accurately so that prices can reflect real value and encourage the right kinds of innovation.”

Making Cost-Effectiveness Math Better: Three Improvements

The improved generalized cost-effectiveness analysis (GCEA) in the new study, conducted by a group of health economists with EntityRisk, made three key updates to the ICER cost-effectiveness model to bring it more in line with real-world patient experiences and market-pricing dynamics.

One critical improvement involved the methods used to calculate the potential benefits that severely ill or disabled patients could receive from a particular treatment. The legacy approach to cost-effectiveness analysis (CEA) devalues medications given to people with severe illnesses or disabilities because they are judged to have a lower baseline quality of life. While the Inflation Reduction Act (IRA) explicitly forbids the government from placing a lower value on extending the lives of these patients, this disparity remains part of ICER’s formula.

Traditional CEA also fails to account for the greater value that sicker patients might receive from a drug as compared to healthier patients. The updated analysis released by NPLB rejected this approach, adopting a methodology that ensures that the lives and health gains of disabled and severely ill patients are not undervalued.

The ICER formula also assumes that a drug will always cost whatever its list price was during the first year it became available, disregarding negotiated rebates, how prices change over time, and how future patients might pay much less. The updated analysis adds two new factors to the equation: “dynamic pricing,” reflecting that drug prices typically fall sharply after generic versions become available, and “stacked cohorts,” accounting for the reality that people will start treatment in future years when the medicine is closer to going generic or already generic.

Remember Lipitor? The new study included a re-analysis of atorvastatin, which was known as Lipitor when it first launched. Each year, millions of people diagnosed with high cholesterol start on generic statins, long after that class of medicines went generic, and are kept out of hospitals at low cost. Yet that quantifiable value doesn’t factor into how ICER or others practicing traditional cost-effectiveness math calculate the value of medicines when they first launch.

Implications for IRA Implementation: The Cost of Bad Math

The findings are especially significant as the federal government recently announced a list of ten drugs for which Medicare would begin “negotiating” with manufacturers to set their prices. Under the IRA, the government is required to negotiate “maximum fair prices” for drugs based on a range of factors that include, among others, values commonly used in CEA.

Three of the drugs studied in the report were also included in CMS’ initial “negotiation” list: rivaroxaban (Xarelto), sitagliptin (Januvia), and empagliflozin (Jardiance). A fourth drug, Trikafta, was recently selected by the Colorado State Prescription Drug Affordability Board (PDAB) for potential price controls based on the ICER cost-effectiveness formula, a move that could lead to limited access and higher out-of-pocket costs for patients in the state.

The traditional approach to cost-effectiveness math must be improved before it is adopted by the federal or state governments. CMS and state PDABs have the regulatory power to consult more comprehensive GCEA math when considering whether and how to set the prices of innovative medicines.

“We are all patients — now or in the future,” Rubin continued. “This study suggests that US payors have been successful in securing cost-effective prices for their members. Payors have a responsibility to now pass along that value to patients without burdening them with high out-of-pocket costs.”

Read the full report released by No Patient Left Behind here:

Watch this brief GCEA animation and read more about how to fix cost-effectiveness analysis to ensure that Americans have access to the medications they need at a low out-of-pocket cost.

About NPLB: Our Goal is Affordable Innovation

It’s not enough to just make today’s medicines affordable.

NPLB is focused on achieving affordability and innovation because the continued development of new and better medicines is how we can reduce the suffering and cost of diseases that are not yet well addressed. NPLB has three guiding principles: 1) prescribed treatments should have low patient out-of-pocket costs; 2) drug prices should not stay high for too long; and 3) market- and patent-based incentives are effective at guiding investment to research and development that will solve the problems that most matter to society.

NPLB previously commented on CMS’ proposed IRA guidance and 1,200 of its supporters sought improvements to IRA prior to its passage.

When the price of medicine stays high for too long, NPLB supports government regulations to bring their prices down after a patent-based period of market-based pricing. The IRA approximates this for biologics by allowing them 13 years on the market and then having CMS force their prices down if there isn’t any biosimilar competition by that time. But the IRA overreaches in the case of small molecule drugs, price controlling them just nine years after their launch, creating a so-called “small molecule penalty” that has already driven shifts in investment away from the development of these highly valuable and cost-effective types of medicines. We want more Trikaftas and Lipitors, not fewer.

Leaving diseases like Alzheimer’s untreated by discouraging the development of medicines to prevent dementia will not save money but rather drive up our healthcare costs because millions more people will be condemned to having their declining health managed in hospitals and nursing homes with significant burdens on caregivers.

Biomedical innovation can be affordable. The right tool for that is insurance. When medicines turn out to be worth their prices to society, the right way to pay for them is as a society through premiums, not to burden with high out-of-pocket costs the few among us who happen to need treatment today. Just as the fire department doesn’t cover its costs by charging a family a copay before saving their burning home, neither should we do that with medicines that protect all of us, today or in the future, from the threat and cost of disease.

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About EntityRisk

EntityRisk was founded by Dana Goldman, PhD, Darius Lakdawalla PhD, and Neal Masia, PhD — three leading health economists bringing together decades of academic and industry experience to unlock financial innovation in the way new medicines are brought to patients. The company’s data-driven solutions are helping large and small organizations across the healthcare ecosystem address the full spectrum of risk considerations ranging from the uncertainty of drug pricing and access to the uncertainty in real-world effectiveness, utilization, and value. Learn more here:

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