Good, Bad, or Indifferent on Drug Pricing: A Value Benchmark Approach for Newly Launched Drugs in the United States.

swarali tadwalker

Swarali Tadwalker, MPH

Hardly a day goes by without a new article being published in the mainstream press or a medical journal discussing drug pricing.  The cost of drugs is a hot potato topic at medical meetings, pharma conference rooms, government hearings, and dinner tables.  And this topic seems to generate high emotions and dogmatic views, typically resulting in a call for more data, reasoned approaches, and better insight.

For most newly launched drugs, the relationship of a drug’s price to its true value is critically important, yet persistently elusive.  We are all asking:  “Are they worth the price?”  Value-based pricing is one avenue to answer this question, but in so doing, must take into consideration the perspectives of various stakeholders: manufacturers, payers, patients, providers, and society.

In a bold effort to facilitate value-based drug pricing decision-making from a nationwide perspective, the non-profit Institute for Clinical and Economic Review (ICER) announced on July 21, 2015 the Emerging Therapy Assessment and Pricing (ETAP) program with the aim to provide a reliable source for information on drug cost-effectiveness to different stakeholders in the United States (US). The press release on the launch of ETAP can be viewed here.  Bolstered by a $5.2 million grant from a Houston philanthropist, ICER plans to double its staff and increase the production of up to 20 benchmark reports on the value of newly launched drugs in the United States.  The two major goals for ETAP are:

  1. Authoritative assessment and price benchmark reports; and,
  2. Public engagement with all stakeholders to enhance legitimacy, dissemination and impact.


HealthEconomics.Com’s President, Dr. Patti Peeples, conducted an in-depth interview in July 2015 with two driving forces of ETAP, Dr. Steve Pearson, President and Dr. Dan Ollendorf, Chief Review Officer of ICER, to explore the goals behind ETAP and the implications for this new benchmark approach to drug pricing.
 Pearson Steven D. Pearson, MD, MSc, FRCP is an internist and health services researcher who has a long history of academic work on comparative effectiveness research (CER) and bioethics.
 ollendorf1 Daniel A. Ollendorf, PhD is a multi-decade researcher focused on comparative effectiveness systematic reviews and health technology assessment (HTA) process.

Patti Peeples, RPh, PhD [PP]: Let’s start by hearing an overview of ETAP program and a description of the catalyst for the ETAP initiative. What can you tell us about ETAP?

Steve Pearson [SP]: In broad strokes, the Emerging Therapy Assessment and Pricing or ETAP program is meant icer logoto expand what ICER has been doing for several years, but to expand in a way that would really enhance its impact for greater usefulness for different decision makers.

First, let’s look at what ICER does:  ICER has traditionally focused on full systematic review of the comparative clinical effectiveness of emerging therapies, and this is typically integrated with a cost-effectiveness analysis (CEA) as well as an analysis of potential budget impact of shifting care to new treatment. More recently, ICER has been developing what we call a value-based price benchmark in which we basically anchor a price range to a new therapy along with the degree to which it improves patients’ health.

In addition, ICER looks at short-term affordability to better understand both the long-term and short-term value.  The idea here is to give insight into whether a drug will be brought into the healthcare system at a price and payment mechanism or fashion that can prove affordable in the long term.

Our new program – ETAP – is an expansion of ICER.  We had an early test drive of ETAP with our work on the Hepatitis C drugs, the results of which received a lot of notice, as well as use by insurers and others. ETAP will allow us to ramp up this activity so that we plan to have an ICER report available at or near the time of FDA approval for all significant new specialty drugs. Our target is to produce between 15-20 reports in the first two years.

[PP]: Steve, when you say that you are looking at both short-term as well as the long-term value, can you elaborate on those time horizons and also describe from whose perspective you are looking at this?

[SP]: Sure. For the long-term perspective in our reports we include cost-effectiveness analyses.  These analyses come from simulation models based on data from published literature and publicly available databases (e.g., from the US government), or manufacturer- or payer-provided data.  We typically take either a life-time or a very long-term horizon in our cost-effectiveness analyses so that we really capture the important downstream effect, both clinical and economic, on the entire healthcare system.

But we are quite sensitive to the fact that sometimes there are drugs that are relatively cost-effective in the long-term, but if these drugs are being used to treat a very large patient population and if a large number of patients shift to the new treatment in the short-term, it can really create affordability problem for patients and insurers. So, we have a methodology that links together both the long-term cost-effectiveness and the short-term budget impact over a two-year horizon to calculate our value-based price benchmark.


ICER Rating System Overview

The ICER Integrated Evidence Rating™ combines a rating for comparative clinical effectiveness and a rating for comparative value. The clinical effectiveness rating arises from a joint judgment of the level of confidence provided by the body of evidence and the magnitude of the net health benefit — the overall balance between benefits and harms. This method for rating the clinical effectiveness is modeled on the “Evidence- Based Medicine matrix” developed by a multi-stakeholder group convened by America’s Health Insurance Plans. More here.


[PP]: Steve and Dan, what thresholds do you use to determine cost-effectiveness and how are these data presented to stakeholders for evaluation and feedback?

[SP]: Good question. So, in some of our reviews in the past we provide, where possible, cost per Quality-Adjusted Life Year (QALY) data. We recognize that the cost per QALY metric is not very intuitive or applicable for many decision makers here in the United States.  Therefore, we also present costs for different kinds of intermediate clinical outcomes that may be more readily understandable or actionable.

But as far as CEA thresholds, we don’t use one single bright line in the sand in deciding “cost-effective or not”.  Importantly, our organization, ICER, is not the ultimate decision-maker on cost-effectiveness; we simply provide the information to decision-makers and facilitate a forum for discussion.  In addition, we typically model our results around the World Health Organization’s general approach to cost-effectiveness linked to Gross Domestic Product (GDP) per capita. Moreover, we integrate our considerations with elements of value that might lie outside the traditional cost for clinical outcomes framework.

These data are presented in reports and at public meetings comprised of independent panels of doctors and public representatives. Our expanded ETAP initiative will include working with external academic health economists as part of a virtual network to help us with our work. We think that this is a great opportunity to enhance the impact of much of the great work being done in health economics both in America and elsewhere.

[DO]: It is important to convey that this approach is intended to be collaborative with all stakeholders, including the pharmaceutical industry.  All parties are recognizing that trends are changing.  There’s been a significant change – even as recently as the last couple of years –  and we believe that this is one effort to try to have a clear and transparent way to recognize and reward drug and medical innovation.

[PP]: There are several currently available drugs that have garnered substantial publicity based on their price and clinical benefits (or lack thereof).  Will ETAP focus only on new drugs just being launched or will they also look at drugs already on the market?

[SP]: Yes, we most likely will look at existing drugs already on the market. Our grant funding specifies a focus on developing the infrastructure to be able to capture the incoming new drugs. But if there are drugs for which the evidence around their effectiveness in an applicable patient population or their price seems to be raising a lot of questions, we very much intend to have the potential to look at those drugs as well.

[PP]: What is your mechanism for public comment and review of your comparative effectiveness reports?  Will your results be “vetted” by interested stakeholders? 

[SP]: We have a comprehensive public comment process (see an example here). We have had and will continue to have multiple avenues for manufacturers, payers, patient groups, or anyone who wishes to comment on the scope of our reviews. They’ll get a chance to comment on the first draft and then we have public meetings where they can make public comments as well. We anticipate and welcome input from anybody on our processes as we go through them.  Our website also has an option to sign up for regular updates on our programs and activities, including calls for public comment on recently-released draft reports.

ICER’s existing core public programs, the New England Comparative Effectiveness Public Advisory Council (CEPAC) and the California Technology Assessment Forum (CTAF), offer simulcasts of their events.


The Institute for Clinical and Economic Review is launching a membership program in 2015 to allow a small, influential group of leaders from insurers, pharmacy benefit management firms, health technology assessment groups, and life science companies to work together, over time, to shape the future of evidence and coverage policy in the U.S. Learn more about membership benefits here.


For more information on ICER and ETAP, visit

Click for a larger view.

Click for a larger view.


In an infographic by Institute for Clinical and Economic Review, effects of high drug pricing were vividly illustrated. While many new therapies did not offer any new benefits from existing medications, in 2014, as many as 576,000 people had over $50,000 yearly medication costs with about a 60% increase. Further, high prices have led many patients to skip their dose or cut their dose.




Written by Swarali Tadwalker, MPH

Guest Blogger and Research Intern at HealthEconomics.Com

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How Should Health Care Providers Measure and Market the “Value” of their Services?

John Schneider, Ph.D

John Schneider, Ph.D

There was a time when we did not spend a lot of time worrying about the quality of the health care services we received.  Our families went to the doctor who was known as a “good doctor” and we received treatment in the nearby hospital known as a “good hospital.”  An endorsement or two from a fellow parent or respected community member was generally enough for providers to build reputations in an era when there were no alternative pathways to build a brand name.  Often, a prominently displayed diploma on the wall sufficed.  Data were scant, and quality was measured more by grandiose accomplishments, like performing brain surgery and organ transplants, rather than on more widespread process and outcome measures.

In the U.S., beginning around the early 1990s, this began to change.  Managed care organizations (MCOs) and some large employer groups began to ask a simple question: what are we getting for the all the money we are spending on health care?  Other payers began to follow the lead of the MCOs, asking the same questions.  Globally, countries with centralized health systems saw their health expenditures crowding out other public expenditures, and this encouraged them to ask the same questions about the value of the increasingly large amount of resources devoted to health care.

The transition to value has not been an easy or natural progression.  One of the main impediments to making health care more “value based” has been the lack of consensus on how to define “good” quality versus “poor” quality; more generally, will we recognize good quality when we see it?  Work on these issues has been extensive in the past couple decades,  but there remains a high degree of debate over the best or most appropriate quality measures, how to weight the importance of process versus outcomes, and how to determine the right role for consumer satisfaction.  While these debates have been churning, changes in health care information systems and reporting has created opportunities to measure process and outcomes in ways that were unimaginable only a decade ago.

We are at a juncture now where we have a large stockpile of data, an intensifying demand for providers to demonstrate quality and value, and an abundance of motivation and goodwill toward moving health care systems—in the U.S. and abroad—to more value-driven or value-based delivery models.   What makes this an interesting and challenging moment is that the old questions that prompted us to focus on value have largely been unanswered.  However, we now have a decade of health management and health services literature to review to get a feel for what works, what does not work, and what purchasers really care about.  In the remainder of this blog we highlight some of the main recurring themes in the progression toward quality measurement and providers’ approach to telling their “value story” to consumers and purchasers.

A recent report from the Healthcare Financial Management Association (HMFA) put forward a consensus on what many health care leaders view as the “four pillars” of quality within health care organizations (HMFA, Value Project, 2012): (1) purposeful engagement of the organization’ people and culture; (2) optimal use of business intelligence and data; (3) implementation of effective performance improvement initiatives; and (4) effective management of risk at the organizational and population levels.  We thought that it would be interesting to overlay these four pillars with a very interesting and recent interview of leading hospital and health system executives published in the journal Hospital & Health Networks (Dec. 1, 2013)

The HMFA report defined the first pillar, “People and Culture,” as “The ability to collaborate, effectively manage change, communicate a value message, and create accountability to value-driven goals. “  To many hospital and health system executives, this primarily means two things.  First, hospitals must continue to find ways of redirecting staff as they shrink inpatient services, expand outpatient services, and engage in population risk management to keep patients away from avoidable hospitalizations.  Second, it means creating the most productive relationships with physicians, whom remain a critical lynchpin in delivering value.  In the case of physician-hospital integration, either through employment or contract, two important questions must be asked and re-asked: Does the integration help achieve clinical goals?  Does it increase or decrease costs?

“Business Intelligence” was the second pillar identified by the HMFA report, and is defined as “The ability to collect, analyze, and connect quality and financial data to support organizational decision-making.”  Health care executives agree that one of the biggest challenges associated with using data to improve and report on value is determining which metrics have the most meaning, and, perhaps more importantly, can be readily understood by purchasers and consumers.  Key measures are 30-day readmission rate, risk-adjusted mortality rates, and complication rates.  Many of the metrics used in the Hospital Value Based Purchasing Program are also high on executives’ lists, especially the measures tracked by the National Surgical Quality Improvement Project.   An overarching need is the ability to analyze and report data in a meaningful way, and to leverage the predictive capability of large integrated datasets.

The third and perhaps most widely debated value pillar is “Performance Improvement,” defined as “The ability to reduce, and in some cases eliminate, clinical variation; reduce unsafe practices; and develop pathways and guidelines designed to minimize errors, improve outcomes, and minimize waste.”  As we alluded to above, the challenge with performance improvement lies in measurement and focus, simply because there are now so many options of variables to examine and process components to tweak.  Hospital executives agree on one measure that has grown in importance and will continue to do so, and that is patient satisfaction.  But haven’t health care executives been interested in patient satisfaction for a long time?  Yes, but there has been one very important change: data collection, quality metric standardization, and reporting standards have enabled (or at least encouraged) health care providers to make dramatic progress in clinical process improvement.  These advances have opened the door to return to talking about the patient experience.  If you look at the health care quality literature over the past two decades, this exact pattern emerges.  Health care executives also care a lot about patient safety, which cuts across process and patient measures.  Finally, part of the performance improvement side of the value story is of course “value for money,” or cost effectiveness.  Increasingly, health care providers are paying closer attention to the cost effectiveness of the procedures they perform and the drugs, supplies, and devices that they use.

The final pillar is “Contract and Risk Management,” defined as “the ability to assess the potential risks and benefits of acquiring other providers or engaging with them contractually to build a value-focused network, and to predict and manage different forms of patient-related risk under different payment methodologies.”  Hospital and health system executives have become much more focused on population risk management, as is the focus of Accountable Care Organizations (ACOs), but have devoted additional effort to doing their own work to manage population in the community, including greater reliance on the innovative merging of databases and information systems and the use of predictive analytics .  They see these activities as being completely consistent with improving patient outcomes and enhancing quality of care.  The challenge, of course, as one hospital executive put it, is that “one person’s waste is another person’s margin…if we keep patients out of the [emergency department (ED)], we have to repurpose ED nurses because there are fewer patients.”

This blog is meant to be a very quick overview of the challenges that hospitals and health systems face in telling their “value story.”  And it is of course not just how to tell the story, but how to then market that story to advance the strategic objectives of the hospital.  As the health care executives interviewed by H&HN opined, the role of each of these pillars is dependent on many factors specific to their institutions, and must be sensitive to the mix of payers, the patient population, physicians, and the people and culture of the organization.


-John E. Schneider, PhD & Gulaba Khan

Avalon Health Economics


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