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CVS Caremark’s foray into cost-effectiveness analysis raises questions about the future of prescription medicines in America

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Americans spend more on prescription drugs than anyone else in the world. In a move to address this, CVS Caremark announced in August that it would allow self-funded insurers to exclude from their plan any drug launched at a price greater than $100,000 per QALY (quality adjusted life year).1

A bold move in the shift to value-based reimbursement

CVS advertises its program as incentivizing pharmaceutical companies to lower launch prices, pointing to QALYs approaching the $300,000 to $500,000 range, a stark contrast to thresholds on medicine pricing in Europe ranging from $10,000 to $50,000/QALY. The policy will use analyses from the non-profit Institute for Clinical and Economic Review (ICER) but excludes FDA-defined “breakthrough” therapies.1

A controversial announcement

Robert Dubois, MD, PhD, Chief Science Officer of the National Pharmaceutical Council (NPC), criticized the move as being “too much too soon” with the potential to “hamper patients’ access to needed medications”. He points to the many limitations of the QALY and endorses a wider value assessment framework that considers factors like the importance of high cost medicines for inadequately treated illnesses as well as secondary values like increased economic productivity of patients. Some of these are in line with considerations by European organisations like the National Institute for Health and Care Excellence (NICE). He goes further to criticize the threshold of $100,000 per QALY as arbitrary, preferring the approach of tying formulary tiers and co-payments to cost-effectiveness to make a broader set of medicines available.2

CVS executives hit back, pointing out that the steady increase in launch prices has contributed to the rise in cost per QALY.3 By emphasizing their policy’s potential to push pharmaceutical companies to lower prices, they shift the focus from problems with the cost per QALY approach to the pharmaceutical industry’s role in rising prices.

In Bloomberg, Biopharma Opinion Columnist Max Nisen writes that CVS’s plan lets pharmaceutical companies off too easy, citing the fact that the FDA’s breakthrough designation has been applied to over 50 drugs over the past few years, commonly some of the highest priced on the market.4

Even patient groups have gotten involved, with over 90 advocacy groups writing an opposition letter to CVS stating that the new policy “…discriminates against the chronically ill, the elderly and people with disabilities, using algorithms that calculate their lives as ‘worth less’ “.5 QALY’s are often deemed less valuable as a cost-effectiveness tool for the elderly because of their insensitivity to health status improvements and shorter life expectancy compared with non-elderly.

CVS’s policy raises questions about the fundamental meaning of value

In the context of the move towards value-based care in America, perhaps this was a logical next step. But what does it mean for healthcare going forward?

The use of the QALY and ICER’s involvement in the US healthcare system is not going away. ICER’s drug assessments have already been used by the New York Medicaid Program and Veterans Affairs in drug coverage decisions.6 7 Moves such as this have started to formalize ICER’s role in coverage decisions and may have the potential to shift the balance of power from pharma to a pricing arbiter. A key question is whether other pharmacy benefit managers will follow CVS’s lead, putting more pressure on pharmaceutical companies.

From a practical standpoint, are QALYs useful in real-world decision-making to payers in the United States? As healthcare consultancy Milliman points out, an analysis conducted using a list price and the “average” patient may not be applicable for payers that serve specific subpopulations and utilize discounts and rebates.8 However, a 2018 ICON plc survey of over 20 U.S. payers seems to show that payers do consider them useful with more than 75% of respondents saying they would use an ICER threshold as a basis to negotiate a rebate contract. 9

Are QALYs being used to look at the most valuable treatment in a given context or simply as a tool for reducing cost? Do cost-effectiveness thresholds capture what individual patients and providers value or are they a step too far into a one size fits all process, especially in an age of individualised medicine?

If we do accept limitations to the cost per QALY approach and move to a broader framework as suggested by NPC’s Dr. Robert Dubois, how will we calculate and weight aspects of value like societal benefits and inadequately treated illnesses?

These are some of the questions that we now need to ask as cost-effectiveness becomes a staple in conversations around medicine cost. There is no doubt that these issues will be at the forefront of policy and economic conversations about medicines in the coming months.

Let us know what you think by commenting on the blog. To stay up on news related to cost-effectiveness around the globe, subscribe to the HealthEconomics.Com weekly newsletters.


  1. CVS. Current and New Approaches to Making Drugs More Affordable. (2018). Available at:
  2. Dubois, R. CVS To Restrict Patient Access Using Cost-Effectiveness: Too Much, Too Soon. Health Affairs (2018). Available at:
  3. Brenna, T. & Surya, S. Why CVS Is Giving Plans A New Tool To Target High Launch Prices. Health Affairs (2018). Available at:
  4. Nisen, M. CVS’s Drug-Price Plan Lets Pharma Off Too Easy. Bloomberg Opinion (2018). Available at:
  5. PIPC. Over 90 Advocacy Groups to CVS: Don’t Discriminate on Care. (2018). Available at:
  6. Thomas, K. A Drug Costs $272,000 a Year. Not So Fast, Says New York State. New York Times (2018). Available at:
  7. ICER. The Institute for Clinical and Economic Review to Collaborate With the Department of Veterans Affairs’ Pharmacy Benefits Management Services Office. (2017). Available at:
  8. PhRMA. New whitepaper identifies reasons why ICER’s cost-effectiveness analyses are not useful for payers. (2018). Available at:
  9. White, N. What ICER Pricing Would Mean for US Drug Spend: A Preliminary Analysis. LinkedIn (2018). Available at:

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Paying for Specialty Pharmaceuticals: The Case of Injectable Oncology Drugs

John Schneider

John Schneider, Ph.D

According to the American Cancer Society, the financial costs of cancer are high for both the person with cancer and for society as a whole. The National Institutes of Health (NIH) estimated the 2009 overall annual costs of cancer in the U.S. to be $216.6 billion, consisting of $86.6 billion in direct costs and $130 billion in indirect mortality costs attributable to cancer. This year, about 585,720 U.S. residents are expected to die of cancer. Cancer is the second most common cause of death in the U.S., surpassed only by heart disease. Cancer accounts for nearly 1 out of every 4 deaths in the United States.

A large proportion of cancer-attributable costs are directly related to treatment.  While there is clear value to many new drugs in general [1-3] and cancer drugs in particular [4, 5], in recent years there has been growing concern about the overall costs of cancer treatment, and the proportion of health care budgets allocated to oncology care.[6-8]

A large part of oncology treatment costs are referred to as “injectables.” Provider-infused or injected chemotherapy represents the largest portion of medical benefit injectable costs at about 38% of the total costs.[9]  Including chemotherapy support drugs, such as antiemetics, injectable drugs associated with cancer care represent 55% of allowed medical injectable costs [9].

The portion of total provider-administered injectable expenditures attributable to cancer has been relatively steady in recent years, but the costs of other oncology support drugs have been increasing.  Provider-administered injectables used to treat rheumatologic disorders represent the second largest therapeutic area by expenditures (6% of total medical injectable costs in 2011).

Cancer treatment cost control continues to be a major goal of managed care organizations.  Similar to trends overall in U.S. pharmaceutical payment methods, one payer survey reported that 63% of commercial payers employ formularies for injectable and infusible drugs for at least some therapeutic classes.[9]  Both small and large payers had equal probability of having a formulary. However, only 55% of payers report that health care providers typically adhere to formulary policy.

For the typical payer, seven therapeutic classes currently have a medical formulary in place.[9]  As of 2012, the vast majority of payers employed formularies in the following therapeutic classes: erythropoiesis-stimulating agents (99%); intravenous immune globulin (97%); chemotherapy-induced nausea and vomiting (CINV) (97%); colony-stimulating agents (96%); hemophilia (93%); biologic response modifiers (100%); and chemotherapy (97%).  Within these therapeutic classes, there is a clear trend toward establishing formularies.  From 2011 to 2012, intravenous immune globulin increased by 8%, chemotherapy-induced nausea and vomiting increased by 20%, colony-stimulating agents by 20%, hemophilia by 19%, biologic response modifiers by 36%, and chemotherapy by 40%.

Payers identified seven cancer types as being under formulary management from 2010 to 2013 [9].  Although there were large increases in formulary use from 2010 to 2013 for metastatic breast cancer and prostate cancer, there was a sizable drop in use of formularies for treatments for non-small cell lung cancer.  The increase in the portion of lives under formulary for metastatic breast cancer is probably because of the FDA change in the Avastin label, and the increase in the prostate cancer is likely due to the approval of Provenge.

Li et al. (2013) conducted a survey to assess the extent of hospital outpatient oncology drug management, management strategies employed, and specific drugs/tumor types of most concern for inappropriate use and cost.[10] Most institutions (99%) reported using at least one form of control to manage outpatient oncology drug therapy; 89% establish preferred therapies, and most use a multidisciplinary management team consisting of oncologists, pharmacists, nurses, and other practitioners.

There has also been growing concern on the payer side over the steady rise in the overall costs of oncology drugs and oncology support drugs.  These concerns have prompted discussions over reforming oncology payment on the part of public and private payers.[4, 5, 11-15]  For example, on the private payer side, United Healthcare (UHC) launched a pilot program aimed to reduce spending on oncology drugs.  The program is a bundled, or “episode-of-care”, payment for treatments, which is based on the actual cost of drugs plus a case management fee.[5, 16]  The aim of the program is to reduce errors and incentives for physicians to administer unnecessary drug treatment.  Payments under UHC work as follows: as opposed to reimbursing drugs at the average sales price plus an extra 6%, the insurer pays an amount much closer to the actual cost of the drug, plus an administrative fee.  These types of programs and efforts on the part of payers will continue to evolve over the next few years, thereby compelling oncology drug makers to make more convincing arguments for the value of their treatments.[17]

What challenges are you experiencing in the oncology drug and oncology support drug arena, as either a payer, provider, pharma company, or patient?

-John Schneider, PhD, Cara Scheibling & Zack Mower

Avalon Health Economics






  1. Berndt, E.R., International Comparisons of Pharmeceutical Prices: What Do We Know, and What Does It Mean? Journal of Health Economics, 2000. 19(2): p. 283-87.
  2. Lichtenberg, F., Pharmaceutical Innovation, Mortality Reduction, and Economic Growth, in Measuring the Gains from Medical Research: An Economic Approach, K.M. Murphy and R.H. Topel, Editors. 2003, University of Chicago Press: Chicago. p. 74-109.
  3. Lichtenberg, F.R., Are the Benefits of Newer Drugs Worth Their Cost? Evidence From the 1996 MEPS. Health Affairs, 2001. 20(5): p. 241-251.
  4. Danzon, P.M. and E. Taylor, Drug pricing and value in oncology. Oncologist, 2010. 15 Suppl 1: p. 24-31.
  5. Robinson, J.C., Value and payment for oncology in the United States. Ann Pharm Fr, 2013. 71(5): p. 285-90.
  6. Kelly, R.J. and T.J. Smith, Delivering maximum clinical benefit at an affordable price: engaging stakeholders in cancer care. Lancet Oncol, 2014.
  7. Meropol, N.J., et al., American Society of Clinical Oncology guidance statement: the cost of cancer care. J Clin Oncol, 2009. 27(23): p. 3868-74.
  8. Sullivan, R., et al., Delivering affordable cancer care in high-income countries. Lancet Oncol, 2011. 12(10): p. 933-80.
  9. Johnson, K.A., Medical Pharmacy & Oncology Trend Report: 2012 (Third Edition), 2012, Magellan Pharmacy Solutions/ICORE HEALTHCARE.
  10. Li, E., R. Schleif, and B. Edelen, Hospital management of outpatient oncology treatment decisions: a survey to identify strategies and concerns. J Oncol Pract, 2013. 9(5): p. e248-54.
  11. Danielson, E., J. Demartino, and J.A. Mullen, Managed care & medical oncology: the focus is on value. J Natl Compr Canc Netw, 2010. 8 Suppl 7: p. S28-37.
  12. Mullins, C.D., R. Montgomery, and S. Tunis, Uncertainty in assessing value of oncology treatments. Oncologist, 2010. 15 Suppl 1: p. 58-64.
  13. Smith, T.J. and B.E. Hillner, Concrete options and ideas for increasing value in oncology care: the view from one trench. Oncologist, 2010. 15 Suppl 1: p. 65-72.
  14. Colla, C.H., et al., Impact of payment reform on chemotherapy at the end of life. J Oncol Pract, 2012. 8(3 Suppl): p. e6s-e13s.
  15. Bach, P.B., Reforming the payment system for medical oncology. JAMA, 2013. 310(3): p. 261-2.
  16. Goozner, M., United Healthcare, Five Oncology Practices Try Bundled Payments. JNCI, 2011. 103(1).
  17. Robinson, J.C. and S. Howell, Specialty pharmaceuticals: policy initiatives to improve assessment, pricing, prescription, and use. Health Aff (Millwood), 2014. 33(10): p. 1745-50.


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