drug pricing 04 oct14

22
1 Drug Prices in the US: How High Can They Go? - Issues and Discussion October 2014

Upload: adrian-ho

Post on 08-Jul-2015

304 views

Category:

Healthcare


1 download

DESCRIPTION

Some thoughts on the rising cost of drugs

TRANSCRIPT

Page 1: Drug pricing 04 oct14

1

Drug Prices in the US: How High Can They Go?- Issues and Discussion

October 2014

Page 2: Drug pricing 04 oct14

22

A talk on rising drug prices --- Why might you be interested?

As a patient

• You may be faced

with having to pay a

high price for a drug

therapy.

• As insurance policies

shift more and more

of the cost burden to

patients, this will

become increasingly

and issue for

individual patients*

As a healthcare

consultant

• Our clients make pricing

decisions and may want to

understand our perspectives.

We should be prepared to

discuss intelligently.

As a citizen

• Even if you are not a

patient, higher drug

therapy costs are

passed through to the

rest of us through

higher insurance

premiums

• This will be an issue

with our federal

budget via Medicare

and Medicaid

Page 3: Drug pricing 04 oct14

33

A thought experiment…

● Imagine a drug therapy was developed that could cure 90% of all cancers

Fantastic, time to celebrate, right?

● But now imagine that the drug manufacturer decided to charge $500k for a course of

therapy*

*This may not be as farfetched as you think. There are no formal price controls on drugs in the US, and a

pharma company is beholden to its shareholders to maximize value.

Would this still be a good thing?

Page 4: Drug pricing 04 oct14

44

Questions / Issues that arise

● As drug prices continue to increase, how will this impact different stakeholders?

o Payers (including the federal government)

o Individuals (patients as well as healthy others)

o Physicians and health care providers

● What limits are there to drug prices? What dynamics might play out as prices

continue to increase?

o Political pressure leading to formal price controls

o Payer revolts / negotiations (including new contracting schemes)

o Physician and HCP interventions

● How should we value a new drug? What are different ways to assess its cost/benefit,

and which ways are more “appropriate?”

o How do (and how should) such different economic analyses impact the drug price?

These are complex questions (and certainly deserving of more than a single discussion).

My focus today is on the last bullet, with some thoughts on the first two.

Page 5: Drug pricing 04 oct14

55

A real world example not too different from our thought experiment

- the case of Sovaldi

● Sovaldi (marketed by Gilead, and approved in Dec 2013) is a HCV therapy with a cure

rate of 90%

o The best alternative therapies cure about 40-70% of HCV, depending on genotype, and have

nastier side effects

o A 12 week course of Sovaldi therapy costs $84k*

− Thus it has been called the “$1000 a day drug”

o $5.8B in sales in the first 6 months of 2014 (basically the greatest pharmaceutical launch

ever)

● There are roughly 3.2 million HCV patients in the US, with annual deaths of 17,000 in

2007

● If all 3.2 million HCV patients get Sovaldi, this would generate revenues to Gilead of

3.2M x 84k = $269B

o The total spending on all prescription drugs in the US was $208B in 2013!!!

*Note: There are other drugs with prices in the same range of Sovaldi, but these tend to be drugs that treat much

smaller populations (rare diseases, particular types of cancer, etc.), so their revenue impact is much smaller.

Page 6: Drug pricing 04 oct14

66

Ways to assess Sovaldi – an HCV “State Diagram”

● In the absence of Sovaldi, a “state diagram” of HCV looks like this:*

Chronic HCV

patients can

develop

cirrhosis and

liver cancer,

and some may

eventually

require a costly

liver transplant.

*Note: Precise

values and

probabilities can be

argued; the main

point here is to

illustrate the idea of

the state diagram

Page 7: Drug pricing 04 oct14

77

Ways to assess Sovaldi - Cost/Benefit (CB) Analysis (I).

● The state diagram can be used to calculate the % of patients in different states, at

different time periods

For example, after

10 years, 62% of

patients are still

suffering chronic

HCV, 25% have

compensated

cirhossis, 1.7% have

liver cancer, and

7.1% are deceased.

● Since there are annual costs associated with each of these states, one can calculate

an expected “net present cost” for a newly diagnosed HCV patient.

o In this example, the net present cost is around $40k

Page 8: Drug pricing 04 oct14

88

Ways to assess Sovaldi - Cost/Benefit (CB) Analysis (II).

● In the presence of Sovaldi, to first order, the “state diagram” of HCV looks like this:

100%

*Note: A more detailed analysis would include the small percentage that do not get

cured, plus the additional costs of therapy associated with Solvadi (it typically is

used in combination with ribavirin and interferon) which adds to the cost.

Chronic Hepatitis C$84,000

Cured

Basically, for a cost of $84,000,

all patients get cured*

● Cost/Benefit = Average Cost w/o Solvaldi – Average Cost w/Sovaldi

= $40,000 - $84,000

= ($44,000)

Conclusion: Cost/Benefit is negative

Question: Does this mean that Solvadi is overpriced?

An interesting side note. Use of Sovaldi shifts the cost upfront, and so there is a time element in this analysis as well. Indeed, since older HCV patients may

eventually transition to Medicare, use of Sovaldi may shift costs from Medicare to current payers.

Page 9: Drug pricing 04 oct14

99

Ways to assess Sovaldi - Cost Effectiveness (CE) Analysis (I).

● From this table, we can

calculate that use of Sovaldi

saves an average of 6 life-

years*

● This means the CE for Sovaldi

is about $14k

● Cost/Benefit only looks at the financial picture (e.g. what the payer burden is).

● A more complete analysis will also include the value of lives saved

● Cost Effectiveness (CE) is defined as Cost of Therapy / life-years saved

o This measure is appropriate for drugs that treat life-threatening conditions

o E.g. if cost of therapy = $100,000 and it saves 5 years of life, then CE is $20,000

o Another way to think of this is the “cost of additional years of life” --- lower is better

*Technically, 6 discounted life-years

Questions: Is this worth it? Is it worth $14k to save 1 year of life? And whose

perspective should be used? The individual? The government? Payers?

Page 10: Drug pricing 04 oct14

1010

Ways to assess Sovaldi - Cost Effectiveness (CE) Analysis (II).

● Some gross economic measures

o In 2012 in the U.S., the GDP was $15.7 trillion and the population was 314 million, so $15.7

trillion / 314 million = $50,000 is the GDP per capita.

o In other words, on average, each person in the US creates $50,000 worth of value each year

● Thus, from a purely macroeconomic, societal-level perspective, if a drug has a CE <

$50,000, then it is “worth it”

o Sovaldi has a CE = $14,000. In other words, use of Sovaldi “buys” society additional years

of life at a cost of $14,000. Since, on average, another year of life creates $50,000 worth of

economic value, it is “worth it.”

● To reiterate, this is purely a gross economic viewpoint.

o One’s personal valuation of an additional year of life (for yourself, for a loved one, for a

stranger, etc.) will be different, and will be subjective, because each of us place value on not

just economic measures.

● Even just looking at economic value is complicated, because different individuals can

contribute wildly different economic values to society.

o What are the appropriate ethics, if any, to apply here? Some of these issues must already

arise in medical situations such as determining whom gets priority for transplant organs, etc.

Page 11: Drug pricing 04 oct14

1111

Ways to assess Sovaldi - Cost Utility (CU)

● Cost Utility is a more nuanced measure of Cost Effectiveness, in which its not just the

number of life-years saved that is considered, but the quality of those life-years

saved.

● Specifically

o CU = Cost of Therapy / Quality life-years saved

o Quality life-years saved = Quality Factor (Q) x life-years saved, and Q is a value between 0

and 1

1= completely healthy, full quality

0 = no quality of life (e.g. life is saved, but patient remains in a coma)

● For Sovaldi-treated HCV patients, there are few side effects, and they are basically

fully recovered.

o Therefore, Q ~ 1 for Sovaldi, and CU ~ $14,000

● The problem with Cost Utility is that the determination of the Quality Factor Q is

subjective, and so Cost Effectiveness is more often used as a benchmark.

Page 12: Drug pricing 04 oct14

1212

Overview of Pharmacoeconomic Measures

Measure Definition Comments

Cost/Benefit (CB)

D Expected Health Care Costs (Using new therapy vs not using new therapy)

• Purely an economic measure• Expected cost impact of drug• This is most closely related to the Payer

perspective, and most closely related to impact on insurance premiums

Cost Effectiveness (CE)

Cost of Therapy / Life-Years Saved

(Cost of “buying” another year of life)

• Useful for therapies that treat life-threatening conditions

• Units are $, and lower values are better• Rule of thumb economic cutoff is $50,000,

as this is roughly the GDP per capita in the US. If CE< $50,000 then “worth it.”

• This measure is most closely related to value to society, and thus the Government’s perspective

Cost Utility (CU)

Cost of Therapy / Quality Life-Years Saved

or

CE/Quality Factor, where Quality Factor is a number between 0 and 1

• Basically the same as CE, but takes into account the quality of life-years saved. E.g. a year of life severely disabled is not worth the same as a year of life fully functional

• Assessment of quality factor is problematic (how to quantify?)

Page 13: Drug pricing 04 oct14

1313

So which of these measures do pharma manufacturers use in pricing their

products in the US?

Measure Definition Comments

Cost/Benefit (CB)

D Expected Health Care Costs (Using new therapy vs not using new therapy)

• Purely an economic measure• Expected cost impact of drug• This is most closely related to the

Payer perspective, and most closely related to impact on insurance premiums

Cost Effectiveness (CE)

Cost of Therapy / Life-Years Saved

(Cost of “buying” another year of life)

• Useful for therapies that treat life-threatening conditions

• Units are $, and lower values are better

• Rule of thumb economic cutoff is $50,000, as this is roughly the GDP per capita in the US. If CE< $50,000 then “worth it.”

• This measure is most closely related to value to society, and thus the Government’s perspective

Cost Utility (CU)

Cost of Therapy / Quality Life-Years Saved

or

CE/Quality Factor, where Quality Factor is a number between 0 and 1

• Basically the same as CE, but takes into account the quality of life-years saved. E.g. a year of life severely disabled is not worth the same as a year of life fully functional

• Quality Factor is subjective, so CU is not as objective as CE

To first order, none of these measures are used

The FDA ’s legal standard for approval is merely to determine if a drug, device or

test is “safe and effective.” Cost is not considered in the approval process, and so

pharma companies basically price on “whatever the market will bear.”

Page 14: Drug pricing 04 oct14

1414

Factors in US drug pricing

How are products already on the

market—branded, OTC, generics,

devices—priced for similar or

identical indications? What is the

competition charging per day, per

month, per regimen?

To what extent can price help the marketing

department differentiate this product relative to

the competition? If the data proved superior in

safety or efficacy or dosing convenience, then a

premium price is not only justifiable but also

preferable from a positioning standpoint.

Price elasticity market research (with

physicians, hospital formularies, patients,

etc.) can inform the optimal price to

maximize revenues.

How will insurers, patient advocates and the

government react to the price? Does the

company have a 'patient access' program

that provides the product to poor patients for

free, or at a substantial discount, to

counterbalance a premium price charged on

the free market?

Note that none of these factors is related to pharmacoeconomic measures. They are basically

factors to consider to maximize revenues (and thus profits).

Page 15: Drug pricing 04 oct14

1515

So basically we have a free market system for drug pricing. This works for many

other products --- what’s the problem?

● Issue 1: Unlike most other markets, in healthcare, those that get the benefit

don’t bear the cost.

In this sense, the healthcare market is similar to the

market for children’s toys.

Children want more and more toys and patients want

more and more therapies as neither are directly

bearing the cost for it.

*This is probably a stronger sentiment in the US with our strong tradition and culture of individualism and individual

rights. Indeed, in other countries governments do hinder access to some forms of healthcare --- e.g. NICE in the UK

has withheld approval of Avastin in multiple indications based on pharmacoeconomic analyses.

● Issue #2: Health is qualitatively different from other “products.”

Its one thing for a parent to deny a child a toy, but it seem an altogether different thing for a

payer or government to deny a patient their health

There is a sense that we all “deserve” health*

● Issue #3: Pharmaceutical products have patent protection, granting market

exclusivity, so its not a completely free market.

Page 16: Drug pricing 04 oct14

1616

The forces pushing toward higher drug prices far outweigh those pushing against

Drug PricesHigherLower

Patients don’t bear the cost of drug, so they

have high demandPrice controls? This is

against free market

principles. Politically

dangerous to propose that

government get involved

in price setting

Pharma companies want to maximize profits

Patent protection give market exclusivity to

manufacturers

Non approval of drugs

based on price? This is

also politically dangerous -

-- “death panels”, etc.

Page 17: Drug pricing 04 oct14

1717

What might the future bring? What factors may be brought to bear vs increasing

drug prices?

● Physcian groups are creating new treatment guidelines that incorporate cost factors

o An ASCO task-force is in the process of creating a scorecard that evaluates drugs on cost

and value, in addition to efficacy and safety/tolerability – ready by late 2014

o But should physicians be stewards of the larger society as well as of the patient in the

examination room?

● Payer revolts

o Express Scripts is forming a coalition to refuse to use Sovaldi after a competitor hits the

market (and is priced lower).

o Will BMS and others with new HCV therapies price lower to get this business, or will they

tacitly collude with Gilead and price similarly to Sovaldi?

● Novel contracting schemes

o These are nascent, but include schemes where the first several doses of a drug are provided

free, and only if there is clinical progress will later doses be charged.

● More patient responsibility for cost of therapy

o As insurance moves toward higher copay, higher deductible policies, patients will become

more like consumers and pick and choose between providers and therapies, driving

healthcare costs downward. Its likely, however, not to impact the costs of life-threatening

disease therapies as much as others.

o This has probably slowed the uptake of Sovaldi already

Page 18: Drug pricing 04 oct14

1818

APPENDIX

Page 19: Drug pricing 04 oct14

1919

Page 20: Drug pricing 04 oct14

2020

Our dysfunctional healthcare system (I)

• We spend far more on healthcare than other countries, even after adjusting for relative wealth.

Page 21: Drug pricing 04 oct14

2121

• Furthermore, our spending on healthcare is rising to unsustainable levels

Our dysfunctional healthcare system (III)

Page 22: Drug pricing 04 oct14

2222

• Despite the high level of spending, life expectancy at birth is far below the trend line

Our dysfunctional healthcare system (II)