A recent report analyzes Medicare’s 2016 Proposed Part B Drug Payment Model to assess alternate payment models to keep costs of drugs low, while still keeping them relevant and innovative in view of the preferences and values of patients and users. This comes after several drug and pharmaceutical company innovators and leaders called for better reforms for a more “rational” and “sustainable” method of pricing cancer drugs.
This decision was made partly due to the Food and Drug Administration’s (FDA) approval of the eye-tearing high price of muscular dystrophy drug eteplirsen. The drug is priced at a massive $300,000. The drug would treat Duchenne muscular dystrophy patients.
Approval to sell eteplirsen in the market was given to drug company Sarepta Therapeutics. Eteplirsen will be the first disease modifying drug on the market in the US to treat DMD, and approximately 13% of DMD patients may theoretically be eligible for treatment.
The company was soon followed with a lot of questioning over setting such a high price for the drug, to which the CEO argued that it is midrange of price points set for drugs treating rare diseases. A disease is considered rare if there are less than 200,000 patients suffering from that condition in the US.
Drug prices are higher in US than any other country in the world because unlike most developed countries, the US healthcare system allows drug manufacturers to set their own prices.
In other countries, where there are national health insurance systems, a delegated body negotiates drug prices or rejects coverage of products if the price demanded by the manufacturer is excessive. Manufacturers may then decide to offer the drug at a lower price.
While high prices for new drugs to treat rare conditions are alarming, these drugs are used for a small number of patients and thus do not have a major impact on healthcare budgets. Despite this, cancer patients even after recovering require years of medication just to stay alive. These costs tend to go to $100,000 to $250,000 annually per patient.
Given that cancer survivors will most likely require these medications for the rest of their lives, it’s no rocket science the financial burden that it can cause to the US healthcare system.
In March of this year, the Centers for Medicare and Medicaid Services (CMS) announced a proposal to test new payment method models for prescription drugs. In the first phase of the program, CMS would reduce payment made to physicians for Medicare part B drugs, the drugs which are usually given at clinics and hospitals to outpatients.
In the second phase, CMS would implement value based purchase of Medicare part B drugs, and has focused their efforts for strategies that can be evaluated such as outcome based risk sharing agreements, reduced patient cost sharing and decision support tools.
Secondly, according to CMS, pricing for new drugs could be based on cost benefit analyses, which will require federal agencies to analyze costs and benefits when issuing regulations and only adopt new rules under the circumstances that outweighed the costs. If CMS is to be adopted, it will help compare similar treatment options instead of just pushing out high coverage charges, as is done in the UK and other countries.
Core to these methods is the method of measuring the price of one’s life. In essence, what this means is that it is essential to analyze the benefits expensive treatments such as eteplirsen will have in adding value to patient’s life.
Some countries already follow such calculations, using a measure known as “Quality-adjusted life year” or “QALY”. QALY is used to help set drug prices in countries with single-payer systems. For example, the United Kingdom rates a QALY at an estimate of $50,000.
The report authors analyzed various important rules issued by FDA and CMS over a 10-year period between 2005 and 2015, and found that associated cost benefit analyses used a median value of 293,000 which ranged from $213,000 and $300,000, and $300,000 which ranged from $100,000 to $637,588, respectively, for an incremental year of life.
Such analyses have the benefit of determining if the cost of a new drug is justifiable. Therefore, a new drug costing $200,000 to $300,000 per year is fair according to agencies’ own methodical analyses.
There is no way to give precedence of one disease over another, meaning that currently there is a risk for unintended medical consequences on public health of using one method for cost benefit analysis while using another technique for other medical decisions. These factors need to be considered and questioned when making such important decisions.