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Understanding the Past, Present and Future of Pharmacoeconomics

Published on 6/4/2018

In May, Dr. Jigar Patel hosted the Cerner Physician Community (CPC) webcast as part of the ongoing CPC webcast series. Deborah Freund, PhD, University Professor in the economic sciences in the School of Social Science, Policy & Evaluation, joined Dr. Patel to discuss the past, present and future of pharmaceconomics.

What is pharmacoeconomics? 

Dr. Patel: What is pharmacoeconomics and why does it matter to providers and conveyors of technology to those providers? How did pharmacoeconomics get started?

Dr. Freund: Well, going back 20 to 30 years, we have been hearing about the cost of pharmaceuticals -- how much they cost to develop and how much it costs to buy them. Pharmacoeconomics is the economic analysis of the use of pharmaceuticals focusing on outcomes versus cost. Those outcomes can include clinical outcomes, quality of life, any human outcome that you can think of, side effects, safety issues and, of course, the impact of health and society.

When physicians hear about pharmacoeconomics and everything going on, their heads must be spinning. I'm so aware of how scarce their time is: There’s the need to see patients quickly, much more quickly than before. Providers need to be aware of which drugs to use, and now, there’s the added concern of drug prices and whether patients can afford to buy the prescription, in their insurance covers the prescription and if the patient will abide by the prescribed drug regime. 

As a physician, you want to prescribe what you believe has the best chance of helping your patient. A patient wants to take that too, but what do they do if they can't afford it?  Do they only take half the prescription? Do they not buy it at all? Those are all the things one is trying to balance. Now, if you are an insurer, you look at that question differently. You want to be able to insure the patient, but ensure you have a healthy bottom line. If you are a drug manufacturer you want that drug to sell and have a healthy profit. How you look at these issues depends on who you are.

As for how pharmacoeconomics started, it almost started with me. When I was in Australia, the head of their national health plan said: "What do we do? We have runaway drug cost on our national formulary that we can't afford, what should we do?" To be honest with you, I didn't know or have a clear defined idea on what I should recommend. I recommended three things and they picked one of them, which was to compare the cost effectiveness of drugs in a class to a new drug that a pharmaceutical manufacture wants to sell in that class, and price it according to whether it is more cost effective or less. If it's more, you accord it at a higher price; if it's less, you accord a lower price. That idea was legislated into law in 1990 and has spread across the world, but really hasn’t spread to the United States.

Big Pharma and drug prices

Dr. Patel: Out of all those competing groups – insurers, drug companies, patients, physicians and providers - who has the greatest leg up in keeping those prices where they are today?

Dr. Freund: Right now, I would say the greatest leg up is with pharmaceutical manufacturers, or “Big Pharma.”. The reason Big Pharma has the biggest leg up is that when a drug is approved, it the company that invented the drug receives a patent that gives it exclusivity for about 20 years, which basically means you can sell that drug without competition, so long as it's not found afterwards to be unsafe.  

Drug price negotiations and research

Dr. Patel: In thinking about where we are today, the drug industry in the U.S. is the engine for innovation around the world. How are other nations taking those drug innovations, which by my understanding the U.S. is funding in a large part, and managing that better or differently?

Dr. Freund: Your statement about U.S. funding research and development in other countries is absolutely true. Whether or not the pharmaceutical manufacture company is located in the U.S., U.S. prices are the highest in the world, and through those we are sustaining R&D in the rest of the world. There are very few, if any, discussions that I'm aware of to try and get countries to come together to share in those costs.

In most countries, there is some version of price negotiations. We have some of that in this country, but less than in others. In France, Italy and Canada, there are direct price negotiations. France and Italy try to pay what other countries do. In Canada, it's based on the median of seven countries, and that is how the negotiations go across provinces. 

In Australia, there is something called the Pharmaceutical Benefits Advisory Committee (PBAC), which is an independent expert body appointed by the Australian government. Their role is to recommend new listings on the national formulary based on a submitted analysis of the cost effectiveness of that drug compared to others in that class, that it may replace or the cost effectiveness of that drug vs. a placebo if it's a new or potential breakthrough drug; the placebo could be a standard treatement if there is no other drug in the class. Then the government will look at the benefits versus cost balance, and if the benefits are greater, the price will be greater on the nation formulary. That is called reference pricing. 

In the U.K. there is NICE, the National Institute for Health and Care Excellence, and they do something similar. In the United States, the Institute for Clinical and Economic Review (ICER) is getting a lot of press for trying to do something similar.

Dr. Patel: Do you believe that approach is fundamentally accurate in using comparative effectiveness research to price drugs?

Dr. Freund: I do, with the proviso that like with what ICER does, this needs to be an open process where people who view it differently are allowed to weigh in. It is very important for ICER’s process that physicians and patients weigh in on how they see it. 

Dr. Patel: How can physicians be involved in that process? What is the mechanism they have today where physicians can express their medical or scientific opinion?

Dr. Freund: ICER is very public about the new things they are considering and when their open forums are. The best thing is to get in touch with them, and participate with them virtually by sending comments.

Disruptive drug pricing 

Dr. Patel: There’s been a lot of news recently around drug pricing. I would love to hear your thoughts on how they will affect the market. Looking at the example of Intermountain Healthcare, Ascension, Trinity Health and SSM Health, how would a not-for-profit drug company that creates generic medication stabilize their own cost by having this created? 

Dr. Freund: That is one example of disruptive care patterns that will help everyone. Intermountain which always has been an innovative health system, and its partners, are trying to use their knowledge, money and purchasing power to create generics that will keep the price lower and keep care more affordable to them. Hopefully, that savings will be passed on to their patients. From an employer view point, I believe the idea is to use their own purchasing power to negotiate a better price and use their business acumens to figure better and less costly ways to deliver services. In that case, if they are successful, it will disrupt the entire delivery system.

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