Have you ever wondered how pharmaceutical companies decide whether that pill you take costs $3 or $3,000? Or why some new drug, or a potentially life-enhancing procedure, may not be covered under your insurance plan?
In the U.S., the Food and Drug Administration determines whether a drug or treatment is safe enough for patients. However, the agency doesn’t have any input on the cost. That decision is often based on recommendations by a nonprofit research group you may not be familiar with — the Institute for Clinical and Economic Review, or ICER. It’s a 13-year-old, independent, nonpartisan, nonprofit, research organization in Boston, funded, in part, by health insurance companies. Its primary funder is the Laura and John Arnold Foundation. ICER calls itself “the nation’s independent watchdog on drug pricing.”
For some patients, ICER recommendations may mean the difference between receiving a new blockbuster drug or sticking with a tried and true, proven generic.
However, not everyone agrees with the way ICER determines drug prices. The Alliance for Aging Research (AAR) says ICER’s calculations discriminate against older adults. AAR, a 36-year-old Washington, D.C.-based nonprofit funded, in part, by pharmaceutical companies, recently launched an information campaign claiming that because of the way ICER determines drug costs, “sick and older patients are more likely to be denied access to medications that could help improve their condition or quality of life.”
ICER evaluates the clinical and economic value of prescription drugs, medical tests and other health care delivery innovations, according to the organization. It uses an economic formula that relies on clinical data to calculate a drug’s cost-effectiveness.
ICER also looks at how a drug affects patients’ lives, a measure called “quality-adjusted life years,” or QALYs. It’s considered the gold standard and has been used in the U.S. and around the world for the past several decades.
“As an aging research organization, we have particular concerns about entities that rely on the use of ‘quality adjusted life years’ as the main feature of their cost effectiveness.”
Treatments for patients with serious illnesses have the greatest opportunity to demonstrate more QALYs gained, thereby justifying a high price. A treatment may also extend life with little to no improvement in quality.
If a drug extends the life of a person by a year, but the person has serious side effects or is in pain, that’s valued less than a year of a fully healthy life, according to Mirelle Jacobson, a health economist and professor of gerontology at the University of Southern California.
“One way to think about it is if a government or insurer has a limited budget, they need to decide how to spend that money,” Jacobson says. “So, they have to decide, how do we cover one drug versus another, and which ones should we cover, within a class?”
Although one drug may be more effective than another for a specific individual, coverage decisions are based on how well drugs work at the population level.
Another factor ICER considers is how much future medical costs might be offset by a new treatment, says David Whitrip, ICER’s vice president for communications and outreach. For example, a new drug that extends patients’ lives by five years could remove the need for $200,000 worth of hospitalizations over that time.
“These calculations all go in to determining a fair price for that drug in the United States, to pay that level of benefits and that level of economic savings for the health system,” he says.
ICER develops a suggested value-based price benchmark, although unlike many other countries, it has no government authority to dictate what the actual price of treatment is or who may or may not cover it.
Whitrip points to a multi-stakeholder process that brings patients and clinical experts into the mix. “What we’re trying to do is bring the backroom, closed-door conversation out into the public and apply a more rigorous, independent analysis of the evidence, and we’re giving patients a seat at the table. That’s something they haven’t had,” he says.
A Bias Against Older Patients?
But Sue Peschin, president and CEO of the Alliance for Aging Research, says ICER’s process for determining drug costs is discriminatory. ICER’s methods, basically, assume that covering treatment for a younger and healthier patient is more cost-effective for an insurer than treating an older and sicker patient, according to the Alliance’s campaign website.
“As an aging-research organization, we have particular concerns about entities that rely on the use of ‘quality adjusted life years’ as the main feature of their cost effectiveness,” Peschin says. “It discriminates, in our view, against people by age and by disability.”
Peschin says ICER’s approach is too general and doesn’t look enough at subgroups within patient categories.
The ICER-Facts webpage is supported by pharmaceutical giant Pfizer, which naturally raises some conflict-of-interest questions. However, Peschin says the company had no input in to the organization’s messaging or tone.
As for ICER, its analytical work is supported by foundation grants, although pharmaceutical and pharmacy benefit management companies fund some non-clinical workshops, according to Whitrip.
What happens to the patients in all of this?
Whitrip says ICER has an interactive process with numerous public comment periods and ongoing patient engagement. The organization holds public meetings where reports are deliberated by an independent panel of experts.
But Peschin argues the process isn’t patient-centered enough, especially when it comes to older adults. “They [ICER} have an approach that’s geared toward the payer community,” she says, adding that ICER’s methodology doesn’t do enough to incorporate the patients’ perspective of what matters into the equation. “It’s a way to rationalize restricting,” she says.
Just because there’s a new drug available doesn’t mean it’s the best choice for a specific patient. Often the generic or a long-standing name brand works just as well and there’s more data on long-term side effects.
Tips for Navigating Drug Prices
If your doctor thinks a new drug might be helpful and it’s not covered under your insurance plan, Whitrip suggests reaching out directly to the drug company. Many pharmaceutical makers offer discount coupons or other financial assistance.
At some point, someone has to determine the most cost-effective use of our finite health care dollars, USC’s Jacobson notes. “I would prefer not to have any constraints and be able to have insurers never deny me anything, but that’s ignoring the fact that my premiums will go up in the future,” she says.
Peschin suggests that patients research the health insurance plans they’re considering as much as possible, making sure any medications they regularly use are on the plan’s formulary list. She also recommends patients talk with their health care providers about the medications they’re taking.
“Ask if there are other, more cost-effective options, or ones with fewer side effects,” Peschin says.
It also helps to do a little comparison shopping along the way, since retail prices for the same drug can vary widely.
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