The Irrationality of Drug Prices

“We have no rational signpost for when something is too expensive or fairly priced. ICER has stepped into that void.” Michael Sherman, Harvard Pilgrim Health Care


Source: OECD data

One of the failings of US health care is its high cost but roughly average quality compared to other industrialized countries. Per capita annual spending in the US was about $10,586 for 2018. Spending for Switzerland, the next closest country, was $7,317 for 2018. A major component of the non-competitive, high US costs is in the opaque irrationality of drug prices. Unlike other countries, the US does not have an agency that analyzes cost-benefit for drugs so that policymakers can base policy on data. At present, US drug pricing policy is non-existent. That is based mostly on campaign contributions.

A recent NPR broadcast of a segment produced by WBUR (Boston) on US drug pricing focused on an obscure non-profit organization called the Institute for Clinical and Economic Review (ICER). Poll data shows that about 75% of Americans believe drug prices are unreasonable. ICER asks if that belief is true.

WBUR writes:

A small nonprofit based in Boston has a rising reputation as the nation's “drug price watchdog.” It's also been called “big pharma's biggest threat.”

It might seem dull. And the name — the Institute for Clinical and Economic Review — could make anyone feel drowsy. But this quiet office is actually a powerful player in the increasingly furious fight over American drug prices.

“No matter how well we work with people, this is a contact sport,” Pearson says.

A whiteboard at one desk hints at its role. The writing reads: peanut allergy, heart disease, rheumatoid arthritis and an abbreviation — UPI, for “unsupported price increase.”

These are topics that ICER will be researching — to produce reports that can act like bombshells thrown into the drug price battle. Not that Pearson uses a bombshell style. He and his colleagues coolly calculate whether a drug is cost-effective, whether it's worth its price.

For example, when a powerful new drug to lower high cholesterol came out in 2014 priced at $14,000 a year, ICER calculated that it was only worth about $3,000, putting pressure on the drug's maker to lower the price — which it later did.

Pearson says ICER looks into treatments where the evidence is hard to understand “and where the question about the value to patients and the system is going to be something where our research can help make it more transparent. So that can include treatments for very acute severe conditions like cancer, it can include preventive strategies for things like peanut allergy, and anything in between.”

ICER calculates how much each drug extends a patient's life and improves their life. It uses a complex economic model; in the simplest terms, it considers a drug cost-effective if it costs no more than $150,000 per year of quality life it gives the average patient.

“Ultimately, we want to be able to figure out what a fair price is so that we can get better access and make it affordable and sustainable for the long-term, while making sure that we reward the people who really bring good innovation into our system,” Pearson said.

It's no small task for an independent nonprofit with just about 30 full-time staffers. In other developed countries, a government agency decides on drug prices and value. In the United Kingdom, which has a national health care system, that agency goes by the acronym NICE.

Given America's pay-to-play political system, it is no wonder that US drug prices are often unreasonably high. Not surprisingly, drug companies are mounting the usual corporate defense, i.e., attack the source of the bad information as biased, flawed, etc.: “Some critics dispute whether ICER is truly objective, and question its methodology and goals. “I say, ‘ICER, they make reports for insurance so that insurance can deny you care,’ ” says Terry Wilcox, executive director of Patients Rising, a national advocacy group mainly funded by drug companies. It runs a website called ICERWatch that keeps a critical eye on what ICER does. At PhRMA, the national trade group for drugmakers, senior director of policy and research Lauren Neves says PhRMA supports the type of research on value that ICER does. But it has concerns about how insurers use the ICER reports to deny coverage.”

Patients Rising sounds like a group that pretends to be for patients but is there to defend corporate profits. That is standard corporate propaganda practice.

Is high US drug cost real a failure of the capitalist, for-profit US health care system? Should drugs be priced at whatever the market will bear, regardless of (1) any cost-benefit concern, or (2) whether people are unable to pay?

B&B orig: 7/17/19