In an ideal world, all patients would receive the best possible care regardless of cost. However, since wealth is unevenly distributed and there are not enough resources to promptly treat all patients with every therapy that has proven safe and effective, cost considerations cannot be ignored. Health economists have traditionally led such discussions, but as treatment costs have skyrocketed in recent years, more of the medical establishment has joined in cost-effectiveness discussions.
“We are benefiting from a rich pipeline of innovative and wonderful new medications,” said Steven Pearson, MD, MSc, president of the Institute for Clinical and Economic Review (ICER), a non-profit research organization that independently evaluates the clinical and economic value of medical interventions. “The challenge is finding that sweet spot where we maintain access and affordability for individual patients and for the health-care system – because we will never have unlimited resources to spend on health – but also incentivize innovation and keep that pipeline flowing.”
ASH Clinical News spoke with Dr. Pearson, clinicians, and health economists about the ins and outs of economic evaluation of health-care interventions, the pros and cons of cost-effective analyses, and how these practices are being used to inform health-care decisions both here and abroad.
Bringing Systematic Thinking to Drug Pricing
In the U.S., prescription medication costs account for 10 to 15% of total health-care expenditure, which in 2018 translated to approximately $335 billion.1 It’s a cost category increasingly being scrutinized and targeted for intervention.
“[The U.S. is] the only developed country that doesn’t use cost-effectiveness analysis in some way to help determine drug prices, which many people feel is the number-one reason that we pay so much for drugs,” said Dr. Pearson.
ICER began as a grant-funded program at Harvard Medical School and has no political affiliation or official policy-making role. Most of ICER’s funding (77% in 2018) comes from non-profit foundations. Another small proportion (8%) comes from payers (insurance plans and provider groups), and about 13% comes from pharmaceutical and device companies. Industry funding, according to Dr. Pearson, does not influence analyses and goes to support a yearly policy summit that ICER organizes.
ICER’s main activity is conducting rigorous analyses of a drug’s clinical data, then translating this evidence into drug assessment reports that evaluate “how well each new drug works, the economic value each treatment represents, and other elements of value that are important to patients and their families.”2 These reports also include a “value-based price benchmark” suggesting an appropriate price for each drug.
In assessing an intervention’s value, ICER relies on the quality-adjusted life-year (QALY), a composite health outcome measure that combines quantity and quality of life, as opposed to considering survival alone.3 It is designed to aid policy makers in considering all measures that affect human health – independent of the medical condition targeted by the intervention – by making all types of health gains directly comparable. Using a QALY-based analysis, for example, the value of a long life lived with chronic illness can be weighed against the value of a short life lived in good health.
The composite value is expressed as the number of healthy years gained from a treatment. QALYs are not intended to be used in decision-making beyond traditional economic evaluation.
Calculating QALY is a straightforward process: Multiply the number of life-years lived by the weight of the value of those life years on a numeric scale (0 for death to 1 for perfect health). For example, the value of 1 year lived in the most desirable condition (1.00) is equivalent to 3 years lived with a quality-of-life weighting of 0.33 or to 4 years with 0.25. These valuations are called “utility weights” or “quality-of-life weightings.”
ICER evaluates prices at which therapies would be considered cost-effective under conventional willingness-to-pay thresholds of $50,000, $100,000, and $150,000 per QALY.
Agencies also use an incremental cost-effectiveness ratio (also, and potentially confusingly, called an ICER) to represent the economic value of an intervention, compared with an alternative. Computing that measure is a complicated procedure that relies on many assumptions regarding the costs and the benefits of different treatments.
Cost-effectiveness analysis and QALYs of medical interventions do not influence the FDA or some U.S. payers, but they have long been used by the health-care agencies of other developed countries to compare interventions and maximize value.
The U.K. and its National Institute for Health and Care Excellence (NICE) use these analyses explicitly to inform and guide price negotiations. NICE was established in 1999 as a public body that conducts evidence-based evaluations of the efficacy, safety, and cost-effectiveness of health-care interventions. It reports the findings of these analyses to the U.K.’s National Health Services (NHS), providing the NHS with guidance on whether an intervention has a high enough benefit-cost ratio to warrant coverage on the NHS.
Like other international health technology assessment agencies, NICE uses a cost-effectiveness threshold. Generally speaking, if a treatment costs more than £30,000 (or $39,000) per QALY, the agency will recommend against its coverage on NHS. Of the roughly 800 drugs the agency has evaluated since its founding, around one in seven have been turned down for exceeding cost-effectiveness thresholds.4 For the rest, NICE has either recommended the drug at its asking price or after the manufacturer offered a discount.
The QALY threshold is not an absolute threshold, but rather a guide. NICE has made some exceptions and recommended treatments with a QALY well above £30,000, including for particularly transformative treatments, orphan drugs, and end-of-life care.
“Cost-effectiveness analysis is mostly used as a negotiation tool in England and other countries,” explained Sherry Glied, PhD, Dean of New York University’s Robert F. Wagner Graduate School of Public Service and former Chair of the Department of Health Policy and Management at Columbia University. “A drug can be left off of a formulary as a bargaining tool [to get the manufacturer to lower the price].”
In the U.K., if a drug maker’s product has been deemed “cost-ineffective,” it must negotiate the price with NICE if it wants access to the U.K. market. This back-and-forth played out between the agency and Vertex Pharmaceuticals, when NICE recommended one of its cystic fibrosis treatments for coverage (Kalydeco [ivacaftor]), but not its other two candidates (Orkambi [lumacaftor/ivacaftor] and Symdeko [tezacaftor/ivacaftor]), which it considered cost-ineffective.
The two parties continued to argue over the judgments for 4 years, until they finally came to an agreement on how much the NHS will pay for these drugs in late 2019.5 As is typical, this amount is not disclosed to the public.
The potential delays in getting new therapies on formulary due to negotiations driven by cost-effectiveness analyses, as well as the concept of health-care rationing, is a major concern of patient advocacy groups. However, health-care systems outside the U.S. claim they cannot afford the high prices initially proposed by many manufacturers. The debate continues about whom delays can be “blamed” on – payers, the health technology assessment organization, or the pharmaceutical company and the prices it sets.
“If a payer says, ‘I will not pay X for the drug,’ and the manufacturer says, ‘We will not charge less than X,’ who is limiting access to patients?” Dr. Glied explained. “One could say it’s the drug company, or one could say it’s the payer.”
Social Science, not Pure Science
Cost-effectiveness analysis may rely on complex probability theories like Markov modeling – which simulates the probabilities of different health states (e.g. progression-free, progressed, dead) and the rates of transition across them – but it still sits firmly in the realm of “social science.”
“It’s absolutely not a pure science, but neither is it used as a pure science,” explained Dr. Glied, who served as Senior Economist for Health Care and Labor Market Policy in the Bush and Clinton administrations and participated in the Clinton Health Care Task Force. “It is generally used as a bargaining tool with the drug companies to say, “The price you picked is too high, could you please come up with a lower one?’”
For newly approved therapies in the U.S., prices are “completely unrelated to the production cost of the drug,” she noted. “So, basically, until now, drug companies have charged whatever the market is willing to bear.”
“Cost-effectiveness is merely a tool to inform thinking,” Dr. Pearson added.
He likened it to extrapolating clinical trials data to real-world clinical practice: “In the clinic, we often have to take short-term data and make certain assumptions about how it might translate into longer-term outcomes and try to connect that with what matters most to patients. Cost-effectiveness uses available data to create a model to connect the different outcomes in a way that can inform our decisions, both on the clinical side and in terms of what a fair price for that treatment would be.”
Sickle Cell Disease at Bat, Hemophilia on Deck
Sickle cell disease (SCD) offers a compelling story to support pricy new therapies. SCD is relatively rare, affecting about 100,000 people in the U.S., but this is more than double the number of patients living with hemophilia and cystic fibrosis, both of which get far more attention and funding.6
Individuals with SCD are burdened with myriad complications throughout their lives and experience marked health disparities compared with the general population – owing to institutional racism, structural barriers to care (particularly in adulthood), and a lack of SCD care specialists in some areas of the country.5
In late January 2020, ICER released a draft evidence report examining the cost-effectiveness of three SCD therapies recently approved by the FDA.7 The oldest is pharmaceutical-grade L-glutamine (Endari), and the two newest drugs, approved in quick succession at the end of 2019, are crizanlizumab-tmca (Adakveo) and voxelotor (Oxbryta).
Prices for both the newer drugs have been set at about $105,000 per year. ICER assumed average annual costs of $88,000 for crizanlizumab-tmca, $84,000 for voxelotor, and $24,000 for L-glutamine, considering that some trial participants discontinued treatment early due to adverse events or lack of efficacy. Given the benefits the treatments offer, ICER’s preliminary analysis suggests that, with their current prices, the treatments exceed traditionally cited thresholds for cost-effectiveness within the U.S. health system.
Julie Kanter, MD, Director of the University of Alabama at Birmingham’s (UAB’s) Adult Sickle Cell Clinic, was an investigator in the pivotal trials of all three therapies, as well as one of four “expert reviewers” who helped ICER compile their report. (Editor’s note: Dr. Pearson declined to discuss the draft report because of its preliminary status at press time.)
“I signed on [as a reviewer] because I wanted to make sure that [ICER] understood the disease and what the studies did and didn’t do,” Dr. Kanter said. “For example, there was much discussion about how everything in SCD comes back to hemoglobin and if we could demonstrate a treatment’s value based on increases in hemoglobin. That’s inaccurate; there are many patients with high hemoglobin levels who continue to have severe pain and other complications.”
The new SCD review comes in at 194 pages. The draft report was open to public comment until February 20, 2020, with the final evidence report expected on April 16, 2020.
When asked about the draft report, Dr. Kanter said she felt that ICER did a good job of understanding SCD and the immense need that patients have for something that will help but questioned some of the report’s conclusions.
Patient advocates have expressed concern about the way in which ICER valued the reduction in vaso-occlusive crises (VOC), a frequent complication of SCD and a common reason for emergency department visits and hospitalizations. Dr. Kanter said the reviewers based their economic analysis on patients having a reduction of 1 crisis per year.
In SUSTAIN, the pivotal trial of crizanlizumab-tmca, “[patients] who had five to 10 pain crises per year had a 63% decrease with high-dose crizanlizumab-tmca, compared with placebo, and I don’t think the economic analysis accounted for that at all,” said Dr. Kanter.8
“Some of the patient concern is that one cannot put a monetary value on chronic pain or fatigue, and I do not disagree,” she added. “However, none of these drugs have been shown to improve chronic pain or decrease fatigue.”
Dr. Kanter said she had voiced her concerns during the public comment period, suggesting “that [ICER] put in a caveat at the beginning of their assessment, written in plain language, that there is uncertainty around the short- and long-term benefit of these drugs and that this assessment of value needs to be redone in 5 years.”
ICER has been known to repeat assessments as more data on a drug become available, as was seen with their re-do on the new class of lipid-lowering agents, PCSK9 inhibitors. For example, in an initial report soon after the FDA approvals of alirocumab and evolocumab, ICER set cost-effectiveness thresholds of PCSK9 inhibitors at $2,177 per year. When additional data from evolocumab’s pivotal trial were released and failed to show a mortality benefit with the intervention, ICER revised the threshold to $1,725 to $2,242. Later, when additional trial data showed alirocumab reduced cardiovascular events and mortality, the agency revised the thresholds upward, to $2,300 to $3,500 for all patients and $2,700 to $4,000 for higher-risk patients.9,10
“ICER typically assesses treatments near their FDA approval date because that is precisely the moment when an independent analysis of value is most needed to help inform the highly consequential decisions that drugmakers and insurers make around initial pricing and access,” said David Whitrap, Vice President of Communications and Outreach at ICER.
“Of course, post-marketing trials and real-world data continue to evolve the evidence base for a treatment years after it’s been on the market,” he added. “When this new evidence suggests that the drug has a different level of effectiveness or safety than what was originally demonstrated in the initial clinical trials, ICER updates our recommended price benchmarks accordingly,” he added.
Just 1 day after the SCD report’s release, ICER announced their intentions to conduct a review of the comparative effectiveness and value of two treatments for hemophilia A: emicizumab-kxwh (Hemlibra, Genentech) and the investigational gene therapy valoctocogene roxaparvovec (BioMarin). Stakeholders were encouraged to submit comments and suggested refinements to ICER’s review plan – called a Scoping Document – by February 13, 2020. A final evidence report is expected in July 2020.
The wholesale acquisition cost (WAC) of emicizumab is approximately $482,000 for the first year of treatment and $448,000 for subsequent years, which ICER deemed cost-saving in its 2018 Final Evidence Report.11 BioMarin has floated a price between $2 million and $3 million for its gene therapy. The rationale behind BioMarin’s price, beside the transformative nature of the one-and-done therapy, is that the overall cost of care of patients with hemophilia will drop after they receive gene therapy and no longer require regular factor infusions or emicizumab – what economists call a “cost offset.” These types of downstream cost savings are factored into value assessments.
Qualms With QALYs
Measurements of medical interventions’ cost-effectiveness, such as ICERs and QALYs, have detractors. One criticism is that these measurements might be discriminatory against people with disabilities – including age-associated disability. The concern is that any treatment-associated benefit experienced by a patient with a disability would be valued at a lower QALY compared with the benefit experienced by someone without a disability, as calculating from a lower health baseline automatically assigns a QALY gain a lower health utility weight.
Dr. Pearson contended that QALYs aren’t inherently discriminatory, but issues can arise in how they are used and interpreted. They should be considered one of many tools in cost-effectiveness analysis. “A hammer can be used to hit you on the head, or it can be used to build a house,” he offered. “If you have to decide how to ration a single heart between 2 people and you use the QALY to decide that the healthier person should get it, then it’s being used in a harmful way. But that’s not how we use QALYs in cost-effectiveness.”
“I think the disability community has suffered at the hands of insurers and others in the past, so there is reason for them to be concerned about any kind of calculation that might lead to reduced access, but I fully reject the idea that the QALY as it is being used [in our evidence reports] is discriminatory,” he said.
Dr. Glied was more direct: “We could create a disability-oriented QALY system – perhaps multiplying the QALY values by 4 for people with disabilities. But the question is, ‘Are we going to use cost-effectiveness analysis as a tool to negotiate with the drug companies?’”
One group who has been vocal in their criticism of QALYs and the ICER’s cost-effectiveness analyses is the patient advocacy organization Partnership to Improve Patient Care (PIPC). In addition to the claim that QALYs are discriminatory, PIPC has argued that QALYs are generic measures with limited disease-state specificity.
“The QALY is intended to compare one disease with another, rather than getting into the nuances of that disease and to a better understanding of a treatment’s value to the people with the disease – who may fall into different subpopulations or have different priorities,” Sara van Geertrudyen, PIPC’s executive director and a partner in the lobbying firm Thorn Run, told ASH Clinical News. “The patient and disability communities are focused on trying to figure out how to make sure that patients get the treatments that are most appropriate for them based on their own characteristics – especially when we live in an age of personalized and precision medicine.”
PIPC was founded in 2008, when comparative-effectiveness research was a hot topic on Capitol Hill. The organization receives funding from 13 steering committee members, including PhRMA, the pharmaceutical industry’s main trade group.
PIPC’s stated mission is to apply principles of patient-centeredness to the nation’s health care system – through supporting comparative clinical effectiveness research and engaging patients and people with disabilities in the development of payment models and value frameworks.
“Policies to advance value-based health care must mitigate against the misapplication of research in ways that restrict patient access to optimal care, undermine physician/patient shared decision-making, and discourage continued medical progress,” PIPC’s mission statement reads.
As part of achieving this goal, PIPC advocated for the creation of the Patient-Centered Outcomes Research Institute (PCORI), a non-profit, government-sponsored organization established under the 2010 Patient Protection and Affordable Care Act. PCORI is charged with evaluating the relative effectiveness of various medical interventions through patient-guided research. The founding legislation barred the PCORI from using cost-effectiveness analysis to make recommendations, as QALY not considered to be “an outcome of direct importance to patients.” PCORI can, however, fund cost-effectiveness research. PIPC was supportive of the PCORI QALY ban, Ms. van Geertrudyen said.
Similarly, the Centers for Medicare and Medicaid Services (CMS) uses cost-effectiveness analysis to analyze coverage of preventive services under Medicare (such as the pneumococcal vaccine or screening for HIV), but not for determining which treatments to cover.12 However, CMS caps reimbursement for many treatments besides drugs, effectively providing a price ceiling for those treatments.
In response to the criticisms of QALYs, ICER has developed a new measure of health gain to complement the QALY, dubbed the Equal Value of Life-Years Gained (evLYG). This calculation evenly measures any gains in length of life, regardless of the treatment’s ability to improve patients’ quality of life,” wrote Dr. Pearson in a recent article.13
This way, whether the treatment is for cancer, multiple sclerosis, or epilepsy, the evLYG for 1 year will remain the same.
Rational Versus “Rationing”?
Countering claims that cost-effectiveness analysis will lead to rationing of health care, Dr. Pearson noted that price ceilings and service use limits are already commonly used to control costs. “Medicare sets prices for a hospital stay and for services a clinician provides. The only thing they don’t set a price for is the drugs that people use,” he said.
“I understand the fear that [a patient could be denied a treatment because of a QALY assessment], but the real goal here is to use economic evaluations of cost-benefit or cost-effectiveness as a negotiating tool, especially where there’s limited competition,” he explained. “We’re not talking about rationing, but about providing a rational basis for pricing.”
The U.S. may be becoming more comfortable with the idea of cost-effectiveness techniques to set prices of therapies, although indirectly, Dr. Pearson added. Since many other developed countries use cost-effectiveness analysis to help set drug prices, relying on international reference pricing – an approach the Trump administration has supported in some of its proposals to control the cost of prescription drugs – is an indirect means of importing cost-effectiveness techniques to the U.S. market. —By Debra L. Beck
- CMS.gov. NHE Fact Sheet. Accessed February 12, 2020, from https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NHE-Fact-Sheet.
- ICER. About. Accessed February 12, 2020, from https://icer-review.org/about/.
- Arnesen TM, Norheim OF. Quantifying quality of life for economic analysis: time out for time tradeoff. Med Humanit. 2003;29:81-86.
- The Wall Street Journal. Obscure model puts a price on good health—and drives down drug costs. November 4, 2019. Accessed February 13, 2020, from https://www.wsj.com/articles/obscure-model-puts-a-price-on-good-healthand-drives-down-drug-costs-11572885123.
- NHS. NHS England concludes wide-ranging deal for cystic fibrosis drugs. October 24, 2019. Accessed February 12, 2020, from https://www.england.nhs.uk/2019/10/nhs-england-concludes-wide-ranging-deal-for-cystic-fibrosis-drugs/.
- Lee L, Smith-Whitley K, Banks S, Puckrein G. Reducing health care disparities in sickle cell disease: a review. Public Health Rep. 2019;134:599-607.
- ICER. Sickle Cell Disease: Draft Evidence Report. Accessed February 12, 2020, from https://icer-review.org/material/sickle-cell-disease-draft-evidence-report/.
- Ataga KI, Kutlar A, Kanter J, et al. Crizanlizumab for the prevention of pain crises in sickle cell disease. N Engl J Med. 2017;376:429-439.
- ICER. Institute for Clinical and Economic Review Posts Updated Economic Analyses for PCSK9 Inhibitor Evolocumab, Finds Less Favorable Cost-Effectiveness. September 11, 2017. Accessed February 13, 2020, from https://icer-review.org/announcements/pcsk9-neu/.
- ICER. ICER Publishes Final New Evidence Update for Alirocumab, a PCSK9 Inhibitor for Treating High Cholesterol. February 15, 2019. Accessed February 13, 2020, from https://icer-review.org/announcements/icer-publishes-final-new-evidence-update-for-alirocumab-a-pcsk9-inhibitor-for-treating-high-cholesterol/.
- ICER. Institute for Clinical and Economic Review’s Final Report on Emicizumab Shows New Treatment Improves Health While Lowering Costs for Certain People with Hemophilia A. April 16, 2018. Accessed February 13, 2020, from https://icer-review.org/announcements/hemophilia-final-report/.
- Chambers JD, Cangelosi MJ, Neumann PJ. Medicare’s use of cost-effectiveness analysis for prevention (but not for treatment). Health Policy. 2015;119:156-163.
- Pearson SD. Why the coming debate over the QALY and disability will be different. J Law Med Ethics. 2019;47:304-307.