By Denise Roland of The WSJ. Excerpts:
"The makers of the cholesterol-lowering drug Praluent, which first went on sale for $14,600, offered to sell it for as little as $4,500, after rebates. A new migraine drug called Aimovig, expected to cost up to $10,000 a year, went on sale for $6,900. And Zolgensma, a lifesaving gene therapy for children that its maker said might cost up to $5 million, was priced at $2.1 million.
Behind all the price restraint was a complex economic model invented decades ago to determine how to price health care fairly. These days, a little-known Boston nonprofit group is using it to shame drug manufacturers to lower their prices.
The Institute for Clinical and Economic Review, an outgrowth of Harvard Medical School with no political affiliation or official policy-making role, has latched onto the concept, called the QALY, for “quality-adjusted life year.” It puts a dollar figure on a year of healthy life, calculates how much health a drug restores to a sick patient, then prices drugs accordingly."
"The model, pioneered by U.S. and Canadian economists in the 1960s, has been used for years in slightly different form in many countries, including Canada and the U.K. In the U.S., drugmakers long have opposed such pricing systems, arguing they could lead Medicare to refuse to pay for expensive drugs and cut patients off from new treatments."
"Unlike much of the rest of the world, the U.S. generally doesn’t exclude medicine on the grounds of cost from its publicly funded health-care programs, Medicaid and Medicare. Because of that, drugmakers can typically charge much more than elsewhere in the world.
That is where QALY (pronounced QUAL-ee) comes into the picture. It works like this: One year spent in perfect health equals one QALY. A year with some kind of health problem that affects quality of life would be worth less than one QALY. How much less depends on the severity of the problem."
"For someone suffering from untreated rheumatoid arthritis, though, those 24 years could be marked by extreme pain and loss of mobility and translate to just 10 QALYs. If a certain drug reduces the pain and improves mobility, it might add back another five QALYs, for a total of 15. ICER works out the QALY benefit by reviewing the available data on the drug and translating the outcomes into QALYs.
ICER has affixed a maximum value, $150,000, for each QALY a drug can add. That is based on various health-economics studies into how much Americans are willing to pay for health care and how health-care expenditure compares to per-capita income around the world.
Because the arthritis drug adds five QALYs, the maximum cost should come out to five times $150,000, or $750,000. That cost is then spread over the 24 years the patient is expected to use it. That comes out to $31,250 per calendar year."
"That gives such government buyers leverage over drugmakers in price negotiations and has proved effective at significantly lowering drug prices. Branded prescription drugs in England can cost less than half of what they do in the U.S.
The approach also can cut off patients from new drugs if they are priced above the maximum those governments have set.
England has just emerged from a yearslong standoff with Vertex Pharmaceuticals Inc. over the cystic fibrosis drug Orkambi. The National Health Service, the U.K.’s free-for-everyone, government-funded health-care system, in 2016 used a QALY-based assessment to determine that the drug’s £104,000 ($132,000) a year price tag was too high.
It refused to pay for it. Negotiations on a compromise took nearly four years. Last month, the two sides announced a deal, without disclosing the final price.
Concerns like those are at the heart of the U.S. government’s unease with QALY-based methodology. The Obama administration banned its use in the Medicare program in the 2010 Affordable Care Act.
“This is a cultural issue,” says Steve Miller, chief clinical officer at Cigna Corp., an insurer. “This is America not wanting to put a value on the price of a life.”"
"In the U.S., insurers don’t have the option that makes cost-per-QALY analyses so effective in curbing drug prices in other countries: the ability to walk away. They are prohibited from refusing to pay for treatments solely on the grounds of cost.
They can, however, nudge customers toward better-value drugs by throwing up barriers, such as higher copays, for pricier ones. They also can use those levers to extract bigger discounts from drugmakers. Some are using ICER’s cost-per-QALY reports to help with that."
"Many drugmakers, though, say QALYs are too blunt a tool for measuring the value of drugs and don’t take into account a new medicine’s novelty or its effect on the lives of caregivers, not just patients. Critics also say the values used in QALY calculations are arbitrary and unscientific.
“You win or you lose, based on some arbitrary, nontransparent, non-peer-reviewed report,” says Terry Wilcox, executive director and co-founder of Patients Rising, an industry-funded group that campaigns for improved access to drugs.
The ICER spokesman says that before each planned report, the organization engages with manufacturers, patient advocacy groups and doctors, seeks public comment and shares its economic models with drugmakers. He says the reports eventually appear in peer-reviewed journals."
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