The Importance of Accurately Measuring the Value of New Medications

Traditional CEAs

Globally, analysts and policymakers assess the value of new medications and therapies using traditional CEA methods. However, these narrow methods rarely encapsulate all the potential benefits of new drugs or medicines.

According to a graphic developed by NPLB, modified from the Professional Society for Health Economics and Outcomes Research (ISPOR), multiple factors can impact the value of medication, including patient-centered health improvements, productivity, adherence, dynamic net health system costs, direct non-medical costs, the value of knowledge, community spillovers, risk reduction, the value of hope, option value, equity, scientific spillovers, and family or caregiver spillovers.

Traditional CEA rarely can encompass all, or even most, of these factors that can impact the value of a medication. As a result, many drugs are deemed less valuable than they actually are. “Quality is important, but it's only one aspect of how traditional cost-effective analysis misses the mark,” said Rubin. “The methodology is flawed and outdated.”

For example, the report explains the CEA does not effectively recognize the value of medications that treat patients with permanent disabilities or acute illnesses.

“The problem with traditional cost-effective analysis is that they undervalue the benefits of disabled patients,” he added.

Another example of how traditional CEA misses the mark is its failure to account for drug price changes over time as the market changes and patent exclusivity ends.

“The report identified critical flaws in traditional cost-effectiveness analysis methodology that foreign governments like the National Institute for Health and Care Excellence (NICE) in the United Kingdom, Canadian Agency for Drugs and Technology in Health (CADTH) in Canada, and Pharmaceutical Benefits Advisory Committee in Australia use, as well as the US organization ICER use that's relied on by insurers and foreign governments to deny patient access to care, or allow and enable insurers to charge high out-of-pocket costs,” explained Rubin.

Alternatives to Traditional CEA

Although the report could not address all the factors that impact cost-effectiveness, the researchers looked at two elements to assess how incorporating these considerations would impact a medication’s analyzed value.

GRACE

To properly understand the value of health gains in different patient situations, the report used generalized risk-adjusted cost-effectiveness (GRACE) strategies. The data from the publication explained that GRACE evaluates medication value like CEA, with one caveat: it incorporates the effects of scarcity. In essence, as treatment becomes scarcer, the willingness to pay (WTP) for healthcare improvements increases.

Additionally, this type of analysis corrects the fallacy of traditional CEA, which assumes that improving disabled people’s lives is worth less because they have lower health levels at baseline. Instead, GRACE incorporates factors that measure attitudes toward healthcare uncertainty. As the report notes, “Implementing GRACE requires measuring real people’s attitudes toward uncertainty in health outcomes and the associated rates at which their well-being increases with improvements in health.”

Incorporating GRACE allowed researchers to conclude that 17 of the 20 medications analyzed were cost-effective, compared to 8 deemed cost-effective when assessed with traditional CEA. In addition, the researchers came up with 4 other important conclusions.

First, they noted that severity matters when considering the value of health gains, as the value rises when the number of untreated people or conditions falls. When analysts put each of these drugs in context, a drug that will extend life expectancy for a patient now has a different value compared to drugs that will extend life expectancy down the line.

Building on that understanding, the report found that unlike the trends insinuated by traditional CEA, the WTP for improved healthcare-related quality of life increases as the severity of the disability increases. This implies that medications that manage disabilities, which were previously undervalued, are actually worth more.

On the other hand, GRACE analyses find that, among patients with very severe and debilitating conditions, the WTP for modest improvement in healthcare-related quality of life eventually wanes.

Finally, the researchers concluded that the traditional standard of measuring medication efficacy using quality-adjusted life-years does not accurately consider patient attitudes toward quality of life and life expectancy. Instead, effective evaluations should separate measurements of quality of life and longevity.

Dynamic Pricing

Beyond incorporating GRACE into CEA, the report also assesses the impact of considering dynamic pricing in CEAs. Dynamic pricing essentially considers the price of a drug throughout its lifecycle. When a medication originally comes to market, it is at a high cost. However, as the drug remains on the market, the prices are impacted by pharmaceutical patent protections and market exclusivity changes.

Various factors influence dynamic pricing, including technical difficulties in reproducing a drug and steps taken by patent holders to extend market exclusivity. In the US, patent protection typically lasts around 14 years on average, and price reductions upon generic entry can vary but are often substantial.

“Biotech innovation occurs in this country because folks are chasing after that large reward, but because of how the patent system works and the regulatory system works, all that reward does is guarantee people exclusivity for a fixed period, which on average is 12–16 years of effective market exclusivity. It's the only part of the healthcare system that goes generic,” said Rubin.

When CEAs fail to account for changes in pricing over time, the evaluations overestimate the societal costs of certain medications, potentially reducing their cost-effectiveness.

What Do These Results Mean?

PharmaNewsIntelligence asked Rubin how people in the healthcare system can use and apply this information for future analyses.

“Before a government agency, federal or state, adopts traditional CEA methodology that could potentially harm patients if it's done wrong, they need to take the time to understand this report and the faulty and outdated math we're trying to update,” he replied.

Beyond the uses for government organizations, Rubin explained how companies launching a drug could use this data before entering into drug pricing negotiations.

“We would encourage others, whether you're a new company about to launch its first product or a company that's about to negotiate with CMS or a state board, to use these types of analysis, not to say, "Here's what the price of a drug should be," but to better inform the process of understanding whether or not these innovations are providing value to patients and society,” he concluded.