Value-Based-Pricing: But Value to Whom?

By David Witmer posted 11-30-2016 13:11



The national debate over escalating drug costs continues to be front page news with no end in sight. New “specialty” drugs increasingly have per patient costs in the tens of thousands of dollars for a course of therapy. But it’s not just new therapies that have seen escalating prices. Older therapies have also seen sharp increases in costs with some price increases greatly exceeding 100%. Value-based pricing seems to have emerged as a commonly proposed solution.

Conti and colleagues shared a unique perspective on this recently in JAMA. (Pharmaceuticals and Public Health). They argue that pricing based on value to the individual patient results in extremely high price points that result in the drug actually providing very limited value to society at large. For example, they point out that only about 10% of patients who need treatment for hepatitis C infection actually receive care because the price is out of reach for all but a very small minority of patients. They make a good argument that pricing should take a broader perspective of treating the population as a whole and that by doing so policy makers could then focus on outreach and clinical care. This is a great commentary and well worth the read.

It also appears that current approaches to value-based pricing may really be more focused on value to the shareholder than to the patient. Certainly, no one would argue that there is a need for manufactures to recoup investment on new entities and earn a generous return on investment (ROI). But what would prices look like if we were to extend these value-based models to existing therapies? What “value” would be placed on therapies such as polio vaccine, measles vaccine, etc.?  In the case of many older therapies there is often still tremendous value, but should the health care system pay the “value-based” price or the price that generates a reasonable profit? Does this explain why prices are suddenly skyrocketing for older products that have been on the market for decades? The cynic in me would say that too often these “strategies” really represent more of an argument to support raising prices as opposed to achieving a fair ROI.

Of course the elephant in the room remains the lack of transparency with respect to drug pricing. Without transparency, there remains too much opportunity for manipulation. Discussion of prices becomes little more than a game of smoke and mirrors. Does anyone really support drug prices that would generate exorbitant returns on a product that had minimal development costs (or whose development costs were long ago recouped) and minimal costs to manufacture? I would hope not. Yet value-based pricing would seem to infer that the price point is set not on the basis of establishing a fair ROI, but rather would result in virtually limitless returns. Any discussion of pricing without a discussion of ROI seems woefully incomplete. Greater transparency would be a good place to start. At the very least it would result in a more open and honest discussion of the situation and more meaningful discussion of strategies to address the problem.

The current trajectory is clearly unsustainable. Where would you start?

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