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Will CVS Caremark Make ICER The American NICE?

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Rationing of some sort is part and parcel of every healthcare system. Simply put, it refers to any method to allocate scare resources. This may occur by implicit means. To illustrate, in the U.S. allocation of healthcare resources happens largely implicitly on the basis of willingness or ability to pay, whether with or without health insurance. In most other industrialized nations allocation of healthcare resources occurs explicitly independently of an individual’s willingness or ability to pay, for example, by way of government-imposed formulary restrictions or price controls. It appears that a private entity in the US. - the pharmacy benefit manager CVS Caremark - is embarking on an explicit path towards rationing.

Last month CVS Caremark published a white paper in which it outlined several methods to "lower pharmaceutical costs," including attempts to lower the prices at which drugs are launched. CVS Caremark lamented the fact that launch prices of drugs have been steadily rising for decades. The pharmacy benefit manager advocated the use of methods, such as the cost per quality-adjusted life years (QALY), to influence initial pricing decisions made by drug manufacturers and inform formulary decision-making.

For newly approved drugs, CVS Caremark indicated it would use cost per QALY ratios based on publicly available analyses conducted by the Institute for Clinical and Economic Review (ICER). ICER employs a methodology similar to the one used by the British National Institute for Health and Clinical Excellence (NICE).

CVS Caremark intends to institute a $100,000 per QALY threshold above which it would deny patient access. Specifically, CVS Caremark will “allow clients to exclude any drug launched at a price greater than $100,000 per QALY from their plan.” Additionally, the white paper notes that drugs deemed "breakthrough" therapies by the Food and Drug Administration will be excluded from a cost per QALY assessment. Rather, CVS Caremark says it will focus on "expensive, ‘me-too’ medications that are not cost effective."

The latter statement is puzzling because ICER evaluates newly approved drugs, many of which are not "me-too." It's also presumptuous because there are many expensive drugs that are cost-effective.

Most importantly, there is considerable arbitrariness involved in the $100,000 per QALY figure. The empirical approach to determine a cost-effectiveness threshold would involve an algorithm whereby, given a fixed budget, healthcare services and technologies, such as prescription drugs, would be funded, starting with the most cost-effective, until the budget is exhausted. The last funded healthcare service or technology's cost per QALY would delineate the threshold. But, such an approach has never been undertaken, even in the U.K., due to insufficient data on the cost per QALY for many healthcare services and technologies. Therefore, policymakers are left with arbitrarily defining cost per QALY thresholds at $50,000, $100,000, or some other figure. Furthermore, the $100,000 per QALY number may encourage pricing up to the threshold. That is, it's clear to a drug manufacturer that a threshold level exists above which drugs will likely not be reimbursed. But, of course, that doesn't prevent manufacturers from pricing drugs up to the threshold. One has to then ask how such pricing can be considered value-based.

There is definitely an important role to play for cost-effectiveness analysis. It's the closest proxy policymakers have to rank the value of drugs. Also, the more payers, patients, and healthcare providers know the better informed their decisions. But, without an empirically determined threshold, pricing and formulary decisions contingent on an arbitrarily defined threshold cannot be considered value-based.

 

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