On Tuesday 9 April, the Trans atlantic Consumer Dialogue (TACD) held a virtual round table on excessive pricing of medicines to discuss methodologies for determining if a price is excessive.
The discussion brought together experts in the field and focused on seven different approaches to determining whether a price is excessive.
Policy makers are struggling to control the escalating costs and inequality of access to new medical technologies including new drugs, vaccines, diagnostic tests and emerging cell- and gene-therapies.
The concept of an excessive price is one that has an intuitive appeal, but a lack of consensus on how to define an excessive price has proved to be a barrier to implementing cost control measures.
The seven standards or methodologies for determining if a price is excessive that were discussed were the following:
1. External Reference Pricing. Is the price higher than the price for the same technology in an external reference market?
External reference pricing involves setting domestic prices on the basis of an average, median or index of prices for the same product in foreign countries. External reference pricing is used by many countries in the European Union (see: “External reference pricing of medicinal products: simulation based considerations for cross country coordination,” Final Report, European Union, 2014, and “The perverse impact of external reference pricing (ERP): a comparison of orphan drugs affordability in 12 European countries,” (doi:10.1080/20016689.2017.1369817), has been proposed by HHS Secretary Alex Azar for an experiment in the United States Medicare Part B drug program using the following reference countries in Europe: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, and the United Kingdom (plus Canada and Japan) in a formula to determine reimbursement rates, and has been supported by several U.S. TACD members as a possible means of addressing pricing of U.S. government-funded medical inventions or as a general grounds for compulsory licensing.
2. Health Technology Assessments
Health technology assessment (HTAs), both independent and industry-funded (see for example, the summaries of studies reported in “Value in Health,” a journal of the Professional Society for Health Economics and Outcomes Research (ISPOR)) are increasingly a focus of pricing discussions. HTAs involve a plethora of methodologies, but in general require an estimate of the cost per unit of health benefit provided by a treatment. For example, in the UK, NICE uses a threshold of £20,000 to £30,000 per Quality Adjusted Life Year (QALY) for a “normal” drug, and allows £100,000 to £300,000 for a “very rare disease,” with the higher limits for greater gains in QALYs compared to existing treatments. (Mike Paulden in 2017, DOI: 10.1080/14737167.2017.1330152). In the several countries that rely upon such analysis, coverage can be withheld if the cost of the treatment is greater than the perceived value.
3. Reference treatments
Related to HTA is the use of a reference product to determine if a price is reasonable. For example, the price of a new combination treatment for HIV may be evaluated in terms of the price of a rival combination treatment, with adjustments for differences in outcomes. Among the challenges in this approach are cases where a company seeks to justify the high price of drug with a comparison to the costs of hospitalization, transplant surgery or other expensive services.
4. Reasonably affordable
In some countries the price is considered abusive if it is not “reasonably affordable,” or more generally if access is limited. This standard is particularly appropriate in a country where patients lack robust third party coverage from governments, employers or private insurance companies to pay for treatments, and policy makers can use real world outcomes on access, or comparisons between incomes and out-of-pocket costs to make a determination.
5. Excessive returns test
Several experts have recommended that prices be lowered when returns that are excessive, based largely upon a ratio of discounted global cumulative sales to development costs. This test has sometimes been proposed in the context of actual outlays on a specific product, at other times in the context of an average of R&D costs for a class of reference products, and also with adjustments for significant public sector subsidies for R&D. These tests can also be used in combination with other tests, for example, as a secondary test if a price is considered unaffordable, or to only apply to specific cases, such as in the case of drugs with high annual costs per-patient (Soliris, Spinraza, etc), or large annual (Sovaldi) or cumulative sales (Humira, Herceptin, etc).
6. Budget Constraint
Related to health technology assessments and the excessive return tests is the question of the impact of prices on health budgets, which is an important issue for a country that seeks to provide universal access to health care services, including, but not limited to, the class of technologies evaluated. If a country has limited resources to spend on drugs or health in general, then the money spent on any one product will require decreases in outlays on all other categories of spending that are subject to the same budget constraint. A budget constraint has been used to justify curbs on outlays for the leukemia drug Gleevec in Colombia, hepatitis C virus treatments in Austria and the U.S., and Keytruda, a humanized antibody used in cancer immunotherapy, in France, and in the various excessive spending “clawback” provisions described by Pauwels, Kim & Huys, Isabelle & Casteels, Minne & De Nys, Katelijne & Simoens, Steven in 2013 (doi:9. 10.1007/s11523-013-0301-x), or Adamski J, Godman B, Ofierska-Sujkowska G, Osinska B, Herholz H, Wendykowska K et al in 2010 (doi:10.1186/1472- 6963-10-153).
7. Price spikes
Price increases beyond the level of inflation or another metric are another metric by which prices may be deemed excessive. This can be a factor when drug prices are otherwise unregulated (insulin, Gleevec, Daraprim, etc, in the U.S.), when there are new uses for an older drug (ritonavir, etc), or simply new management for the company selling the technology. In the United States, some government health programs include price controls to limit price increases by inflation, while other proposals have been put forth to impose an excise tax on revenues attributable to price increases that exceed inflation, or to otherwise penalize companies that spike prices beyond certain thresholds over an annual or multiyear period.
The remedies to an excessive price will be addressed at a future workshop or roundtable.