American patients are fortunate to have access to advanced medical technology that is among the best in the world. However, the amount paid for this access is sometimes criticized for being disproportionate to the value received.
This challenge is consistent across the U.S. health care system, but it is particularly acute in the prescription drug market. In the United States, the Centers for Medicare & Medicaid Services (CMS) projects that spending on prescription medicines will increase faster than other health care goods and services through 2026.
When a health system overpays for drugs, patients are harmed. For example, in a system with a fixed budget (e.g., Medicaid, Veterans Administration, etc.), if a new medication is overpriced by $1 million compared to an equal alternative, that’s $1 million that could have been spent on more meaningful treatment. Additionally, when insurance companies overpay for drugs, a direct consequence is rising premiums that may result in some individuals dropping their coverage.1 The recent approval of high-priced drugs causes concern for many payers—prescription drug prices need to more accurately reflect the level of improvement in patient outcomes.
In other first-tier nations such as the United Kingdom and Germany, drugs are priced based on their appraisal in a health technology assessment (HTA). The purpose of an HTA is to compare the effectiveness of a newly approved drug to the current treatment options for a particular condition or disease. The HTA in the United Kingdom and Germany is conducted by an independent third party (neither the manufacturer nor the buyer) that is sometimes a nongovernmental agency.
In the United States, there is no organization that conducts HTAs that has the authority to dictate reimbursement thresholds. However, several independent organizations have emerged that provide cost-effectiveness research to pharmacy benefits managers (PBMs) and payers. Their findings can be used as a reference point during negotiations.
In a 2019 survey of formulary decision-makers, 90 percent of respondents agreed or strongly agreed on the need for an independent HTA body in the United States.2 But despite the availability of some cost-effectiveness reports, evidence on their use in formulary decisions is mixed.
One of the more prominent organizations in the United States that conducts HTAs is a Boston-based nonprofit, the Institute for Clinical and Economic Review (ICER). ICER is modeled somewhat after the United Kingdom’s National Institute for Health and Care Excellence (NICE), but it is about one-fifth the size—its 30-person staff performs less than 10 assessments per year. While ICER is small and relatively new (founded in 2006), its relevance is on an upward trajectory.3
If ICER’s value assessments can influence reimbursement decisions, drug prices will be more closely aligned with clinical benefits. This could incentivize manufacturers to reallocate research and development efforts to more innovative drugs with better patient outcomes.
Health care economics scholar Uwe Reinhardt stated: “In a truly competitive market, both the prices and the inherent qualities of the goods or services being traded are known to all parties ahead of any trade … By contrast, in the American health care market, both the price and the quality of health care have been kept studiously hidden from patients.”4
The United States is unique in the developed world that the federal government has no role in the pricing of pharmaceuticals.5 The country could benefit from gathering lessons from similar countries and then applying them to its drug market.
HTA in Germany
Until 2011, Germany was one of the only European countries where pharmaceutical companies could set prices at the level they chose. As a result, drug prices were known for being as much as 25 percent higher than the average prices across the European Union.6
In a package of health care reforms, the Pharmaceuticals Market Reorganization Act (AMNOG) was introduced. It required pharmaceutical companies to demonstrate whether a new drug offered additional clinical benefits over existing treatments. Under AMNOG, pharmaceutical companies can still set the initial list price when they bring a new drug to market for one year. When a newly approved drug is launched on the German market, the manufacturer must submit a cost-benefit report. This report describes the drug’s benefits over recognized, standard therapies that are considered “comparators.”7
During this initial one-year period, the drug is formally assessed jointly by a nongovernmental agency, the Institute for Quality and Efficiency in Health Care, and the Federal Joint Committee, which is a regulatory agency. Patient-relevant clinical endpoints are used to appraise any advantages of the newly approved drug.
The AMNOG evaluation and price negotiation process applies to all new patented drugs introduced in the German market with some exceptions. These exceptions are:
- Drugs with an expected annual Statutory Health Insurance (SHI) expenditure below €1,000,000
- Orphan drugs, without an appropriate comparator on the German market, with an expected annual SHI expenditure below €50,000,0008
There are four categories of patient-relevant endpoints:
- Mortality (survival)
- Morbidity (disease-related symptoms and complications)
- Side effects (treatment-related symptoms and complications)
- Health-related quality of life (physical, mental, social)
Examples of endpoints for oncology drugs are progression free survival, objective response rate and complete remission. Surrogate endpoints sometimes can be used to measure the effectiveness of a treatment. Examples of surrogate endpoints include blood pressure readings, tumor size measurements and blood test values.9
After the newly launched drug is on the German market for one year, the assessment is completed and the drug is awarded a rating between one and six. A level one rating means “extensive benefit” over the comparable therapy, and a level six rating means “less benefit” than the comparator. What’s more, the same product can receive different ratings for different patient subpopulations within the product’s approved indication. Based on the rating, the company will negotiate to set the reimbursement price. One year after market launch, this negotiated price replaces the initial list price of the drug.
Academics feel the AMNOG has demonstrated some success in its goal of more closely aligning drug prices with expected treatment benefits. The program has reduced costs while preserving patients’ access to the best available medicines and creating an environment that promotes innovation. Analysis of the German experience is useful for U.S. stakeholders in that, like the United States, Germany has a multipayer health care system.
HTA in the United Kingdom
Citizens of the United Kingdom receive health care through the National Health Service (NHS), which is the world’s largest publicly funded health care service. To maintain a balanced budget and provide its citizens with the latest advances in medicine, NICE utilizes an HTA process to determine the most cost-effective ways to deliver care to patients. NICE has an international reputation for objectivity and analytical rigor. Decisions from NICE are widely “noted” by health services outside of the United Kingdom.10
NICE’s HTA process is respected around the globe for three key reasons:
- Objective approach and analytical rigor
- Engagement with a wide variety of stakeholders
- High level of transparency
In producing its guidance, NICE considers both clinical effectiveness and cost-effectiveness. Several organizations are involved in HTA in the United Kingdom. Due to the laborious process of performing a technology assessment, only about 50 technologies are selected for appraisal each year.11 When NICE selects the technologies to assess, they are selected based on criteria that include:
- Burden of disease (population affected, morbidity, mortality)
- Resource impact (cost impact on the NHS or the public sector)
- Clinical and policy importance (whether the topic falls within a government priority area)
- Presence of inappropriate variation in practice
- Likelihood of guidance having an impact on public health and quality of life, the reduction in health inequalities, or the delivery of quality programs or interventions
NICE’s appraisal is completed in 54 weeks. There are various groups that contribute to the appraisal at different levels of involvement. Some of the key groups are:
- Technology Assessment Group. This is an academic organization commissioned to prepare a review of the clinical and cost-effectiveness of the technology from literature and submissions by the manufacturer.
- Technology Appraisal Committee (TAC). The TAC is an independent committee that is the primary decision-making body in guidance and reimbursement of new health technologies. The members of this committee are appointed to three-year terms and have backgrounds in the NHS, pharmaceutical industry, patient organizations, academia and other areas.
- Consultee organizations. These groups are invited to submit evidence during the evaluation process, comment on appraisal documents and appeal the TAC’s final decisions. Consultee organizations can include the manufacturer of the drug, national patient groups, health care unions and the department of health. Their submission is called a technology-assisted review (TAR).
- The drug manufacturer. This is the sponsoring organization of the technology being assessed. It often provides the company submission.
Once a technology is selected by NICE for appraisal, some of the steps taken are:
- Draft scope. Define what the appraisal will cover and what questions need to be addressed. Elements of the draft scope are:
- The clinical problem, the populations who would use the drug and how the drug would be used
- Clinical setting—where the drug would be used
- Comparator technologies—treatments currently used in the NHS that treat the same condition the new drug will be compared against
- Health outcome measures to use for analysis
- Measures of costs to be assessed
- Length of time over which the benefits and costs will be considered
- Special considerations, such as equality and diversity issues
- Identify interested parties. When identifying the consultee organizations that will be involved in the process, NICE tries to include a diverse range of consultees that are relevant to the technology being assessed. A consultee can apply to be part of the process at any phase of the scoping or appraisal.
- Consultation on the draft scope. NICE works with the consultees to determine if NICE should appraise the technology and if the scope includes all relevant issues. After this step, the scope is finalized.
- Personal feedback. Patient experts and clinical specialists (not consultees) are invited to submit written personal perspectives.
- Commentary. A preliminary appraisal, called the Appraisal Consultation Document, is sent to consultees to comment. One week later, it’s posted on the NICE website for the public to comment.
- Final Appraisal Determination. A final appraisal called the Final Appraisal Determination is distributed. Consultees have a three-week period to appeal. A drug price is included in the Final Appraisal Determination.12
Positive attributes of NICE’s HTA model include extensive involvement by various relevant stakeholders, analytical rigor and transparency. Conversely, some negatives of NICE’s HTA model include potential delays in new drug availability to patients, constraints that prevent assessment for all new drugs and a lack of independence.
Accelerating HTA Adoption by Payers in the United States
A survey published in 2019 described U.S. payers as unable to use current HTA resources to meaningfully negotiate with manufacturers. The authors of the study felt that adoption of an HTA framework by Medicare/Medicaid would accelerate the use of these tools by private payers.13 Although ICER cost-effectiveness reports exist, they mostly are used as a reference point by the negotiating parties.
In 2018, Milliman published a report on the lack of usefulness of ICER’s cost-effectiveness analysis for private payers. The Milliman actuaries feel the key drawbacks of ICER reports are:
- ICER uses the entire U.S. population in the scope of its studies, which is inappropriate for an insurance company that only covers a certain population. For example, a Medicare Advantage plan is less concerned with a drug’s value for children, young adults and pregnant women.
- ICER reports use quality-adjusted life-year (QALY), which is a key measure when valuing the drugs. This measure is less meaningful when savings incurred in the distant future would be incurred by a patient’s future insurers.
- ICER models are very much a “black box;” the assumptions, input data and calculations currently cannot be modified to produce results that are more relevant to payers.14
A significant roadblock that reduces the usefulness of ICER’s reports is that reimbursement discounts and drug prices used in the model are from the Red Book, SSR Health and Medicare fee schedules.15 These reimbursement levels may be quite different from what an insurance company pays.
In March 2020, Steven Pearson, the president and founder of ICER, announced that ICER was releasing an Interactive Modeler. The ICER Interactive Modeler is a modifiable version of the actual ICER analytic model used to produce the cost-effectiveness reports. The Interactive Modeler allows users to drill down into the model and make changes. Users can adjust parameter inputs and compute their own pricing benchmarks.16
Actuaries may be able to work with the ICER Interactive Modeler to identify other inputs where using their own experience data would make results more meaningful. Depending on how flexible the Interactive Modeler is, actuaries may be able to adjust the following:
- Reimbursement levels for drugs/services
- Cost per case/episode
- Utilization rates
- Population characteristics
- Existing diagnosis codes
- Trend expectations
- Persistency and lapse rates
Using this model, actuaries could help insurance companies, Medicaid agencies, the Veterans Administration and other payers better estimate cost-effectiveness and budget impact. Actuaries could sign off on components of the model they worked on and certify that their work was prepared with the level of professionalism expected from a credentialed actuary.
With increased actuarial involvement in defining, projecting and then measuring the effectiveness of new and existing drug therapies, there is a great opportunity for actuaries to substantially contribute to this effort. Pricing a high-cost drug that works is extremely difficult. Therapies to reduce disability or extend life mean everything to patients—actuaries and other stakeholders who make decisions in the rationing of health services carry a tremendous financial and ethical burden.
A transparent, fact-based method that is intended to achieve fairness can go a long way in getting us closer to an environment of proper incentives and more meaningful innovation that could bend the cost curve and improve outcomes for patients.
Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries or the respective authors’ employers.
- 1. Whitrap, David. Overpriced Drugs Can Harm More Patients Than They Help. Institute for Clinical and Economic Review (accessed December 18, 2020). ↩
- 2. Lee, Jenny, and Eric Latch. Trends in Payer Reliance on ICER Assessments. PharmExec, November 12, 2019 (accessed December 18, 2020). ↩
- 3. Thokala, Praveen, et al. 2020. HTA’d in the USA: A Comparison of ICER in the United States with NICE in England and Wales. Journal of Managed Care & Specialty Pharmacy 26, no. 9. ↩
- 4. Khazan, Olga. Why Medicine Is Cheaper in Germany. The Atlantic, May 22, 2014 (accessed December 18, 2020). ↩
- 5. Webb, David J., and Emma E. Morrison. 2015. U.K. Health Technology Assessment and Value Based Pricing. In Pharmaceutical Prices in the 21st Century, 371–388. Switzerland: Springer International Publishing. ↩
- 6. Sieler, Sebastian, Thomas Rudolph, Carola Brinkmann-Sass, and Richard Sear. AMNOG Revisited. McKinsey & Company, May 1, 2015 (accessed December 18, 2020). ↩
- 7. Stern, Ariel D., et al. 2019. The Impact of Price Regulation on the Availability of New Drugs in Germany. Health Affairs 38, no. 7:1,182–1,187. ↩
- 8. Wenzl, Martin, and Valérie Paris. Pharmaceutical Reimbursement and Pricing in Germany. Organisation for Economic Co-operation and Development, June 2018 (accessed December 18, 2020). ↩
- 9. Infographics Group. Patient-Relevant Endpoints—The Essence of Benefit Assessments (accessed December 18, 2020). ↩
- 10. Supra note 5. ↩
- 11. Supra note 3. ↩
- 12. Drummond, Michael. What Are the HTA Processes in the U.K.? Hayward Medical Communications, April 2009 (accessed December 18, 2020). ↩
- 13. Brogan, Andrew P., Susan L. Hogue, Renu M. Vekaria, Ian Reynolds, and Allan Coukell. 2019. Understanding Payer Perspectives on Value in the Use of Pharmaceuticals in the United States. Journal of Managed Care & Specialty Pharmacy 25, no. 12:1,319–1,327. ↩
- 14. Pyenson, Bruce, et al. The Utility of ICER Reports for Private Payer Drug Coverage Decision-Making: Cost-Effectiveness Assessments. September 19, 2018. ↩
- 15. Supra note 3. ↩
- 16. Wehrwein, Peter. ICER Launches Subscription-Model Tools. Managed Healthcare Executive, March 4, 2020 (accessed December 18, 2020). ↩