Liam Bendicksen is an undergraduate at Brown University studying Public Health and Public Policy. He tweets at @liambendicksen and you can reach him at email@example.com. This is his first post in a series on the tradeoff between drug profits and innovation.
As an accomplished professor of health policy and cancer research at Vanderbilt, Professor Stacie Dusetzina’s perspective offers some expert insight into the hot-button issue of drug policy. Professor Dusetzina’s work has been featured in the New England Journal of Medicine, NPR, and The Washington Post, among other well-respected publications. Some of her most recent work focuses on evaluating the political prospects and implications of H.R. 3, the drug pricing bill that passed the House in December. I recently interviewed Professor Dusetzina for The Incidental Economist to hear her take on how policymakers can balance innovation and drug prices.
Liam Bendicksen (LB): How should we take innovation into consideration when contemplating drug regulation?
Stacie Dusetzina (SD): We should try to balance access and innovation — both are incredibly important. The fact of the matter is that if you reduce prices and therefore potential profits, you will lose innovation.
The trick is how to make sure the drugs that we lose if we cut spending are not the highly innovative drugs. I think this is possible if we use the relative value of a drug to set a price that reflects the advances that the product brings to patients with a particular disease. If your drug makes little difference for patients relative to existing treatments, you get paid less than if your drug makes a big relative difference. Using the cost-effectiveness of a treatment to determine a reasonable price is one way to do this.
LB: Is there a foreign model of pharmaceutical regulation that the United States should emulate? What does that country do well, and why?
SD: Many other countries already do these types of cost-effectiveness evaluations. For example, in France, the price (and the reimbursement levels set to determine how much patients will pay) for a new treatment is set by considering how the drug will be used and the benefit relative to other treatments. In the UK, you see an evaluation of cost per quality-adjusted life-year or QALY — if you don’t meet a specific cost for benefit threshold you aren’t going to make it on the national formulary.
The issue is that when you start to argue that we should set prices that are nearly the same as in other countries you have to recognize that the US is the biggest customer for prescription drug products. How we set prices will probably have an oversized impact on innovation. Our price can get closer to those of our international peers, but I think we will want to make our own assessments of value rather than borrowing from other countries.
LB: If the United States were to limit drug prices with regulation, do you think that other countries would attempt to make up for the projected reduction in industry-driven innovation?
SD: Under the types of proposals the Administration has put forward such as international reference pricing, other countries will almost certainly have to pay more or do a better job of hiding their actual prices so that we’re indexing off of a number that is higher than the real price. That’s one reason why I find international reference pricing proposals to be problematic. There is already a lack of transparency about international prices – including what the real prices are (net rebates and other price concessions). I would expect the transparency around international pricing to get worse if countries worried that we would use their price to set our own. In the US, we distinguish between “list prices” (what someone would pay at the pharmacy counter if they were uninsured) and “net prices” (the actual price achieved by the drug manufacturer net of rebates, discounts, and other fees). The former is widely available, and the latter is a protected trade secret in the US. Attempts to get more transparent information on net prices result in lawsuits from manufacturers and pharmacy benefits managers. Given the fierce protection of “real” prices in the US, I can only imagine we would have a difficult time getting reliable information from our international peers.
That said, the reason that a lot of these countries have those good prices is that they say ‘you meet this price, you’re not on the formulary, period.’ So how much room do companies have to negotiate? So I think it’s hard to say how much more other countries will pay. They’ve got the process of getting low prices figured out.
LB: It seems like common sense that we shouldn’t pay high prices for drugs that don’t provide much in the way of clinical benefits. But how should we evaluate drug innovation so that we can incentivize and reward companies for high-value drug development?
SD: Clinical benefits relative to existing treatments seem like an obvious priority to me. You could be broad about what you consider a benefit. In different disease areas, maybe that’s extending life, in others it could be improving quality of life. But getting meaningful improvements for patients’ health is the number one thing we should be focused on. If you pay more for these treatments then, theoretically, innovation will move into those spaces.
LB: The major issue at stake, then, seems to be how that clinical and cost-effectiveness analysis gets done. How can we promote the right types of innovation and cost-effectiveness on a policy level?
SD: I think people are not really in favor of the government doing that, because the government can be inefficient, but having nonprofit groups like the Institute for Clinical and Economic Review do it is a good idea. Having multiple groups is good. Creating government-academic partnerships (e.g., Centers of Excellence within academic institutions) could help to ensure that there are multiple groups available to ensure fast and responsive evidence synthesis close to the time of drug approval.
I don’t think we would want to have long delays between when drugs are approved by the FDA and when they’re available to patients, so you’d really need more than one group doing this. But I think it could be done as long as the entities leading the work are nonpartisan, not-for-profit, and not financially benefitting from the system, I think you could set something like that up.
LB: Where do you envision the funding for that entity coming from, since you mentioned that it would ideally be nonpartisan, not industry-connected, and independent?
SD: It’s a good question. I think it would have to be government funding that’s going to these entities to do this.
LB: How should that cost-effectiveness research be organized on an institutional level? Would it be organized around a central body like the Patient-Centered Outcomes Research Institute that the Affordable Care Act established?
SD: I think there are some good examples of government partnerships with academic “Centers of Excellence” that could be used as a model. For example, the FDA has a program for regulatory science that funds Academic centers for training and research activities. Using those models, the Patient-Centered Outcomes Research Institute could be the hub and then academic institutions could do the hands-on work. I think you would need to make sure the funding was sufficient to ensure personnel were available for rapid evaluation. You would also want a contracting process that is outside of the usual grant writing process so that evaluations are happening close to the time when drugs are being approved.
LB: It sounds like what’s important to you here is the speed and responsiveness of evaluations so that patients can get the drugs they need quickly.
SD: That’s exactly right. If you’re not getting this cost-effectiveness information in a timely manner, it’s probably not going to be very useful for payers who are trying to figure out what to do with these products or the government thinking about pricing.
LB: What about regulatory tools that compensate the government for its investment in the early stages of development like NIH fair pricing condition?
SD: What is interesting to me is that policymakers point out how much the NIH invests in certain medications, or how much it costs to develop a particular drug. The NIH does fund a lot of basic science that’s higher-risk, and I think you can trace back some level of NIH investment to nearly every drug.
But again, those things are less important if we compensate companies for the value their products bring. If you got lucky and developed the world’s best drug and it didn’t cost you that much, why should you not make a handsome profit? You should make tons of money because you’ve developed something that is exceptional. But the reverse is true if you developed something low-value but spent a ton of money — that’s the cost of doing business.