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Arjun Jayadev and Joseph Stiglitz Two Ideas To Increase Innovation And Reduce Pharmaceutical Costs And Prices Health Affairs, January/February 2009; 28(1): w165-w168. [Abstract] [Full Text] [PDF] [Reprints & Permissions]

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Determining Value In Pharmaceutical Innovation

Gilberto Lopes   ( 11 February 2009 )

Use Of A QALY Model In Value-Based Pharmaceutical Policy

Christine Huttin   ( 3 March 2009 )

Determining Value In Pharmaceutical Innovation 11 February 2009
Gilberto Lopes, Asst. Director for Clinical Research, Asst. Prof. of Oncology Johns Hopkins University School of Medicine, Johns Hopkins Singapore International Medical Centre Send comment to journal: Re: Determining Value In Pharmaceutical Innovation glopes{at}imc.jhmi.edu Gilberto Lopes	Jayadev and Stiglitz suggest two policies to tackle what they -- and many more, including me -- see as the greatest problem the pharmaceutical industry and regulators face today: how to reward innovation while achieving the maximum social benefit from new medications. While the two ideas are sensible, they are unlikely to work given the current state of affairs. Pay-for-value should not even need to be suggested; it should be a given. Payments for transactions in any other sector would be expected to bring value -- and the markets would punish any player who did not provide it. Unfortunately, in health care today this it is not so. The conflicts of interest of providers, suppliers, insurers, and politicians have led to a system that tends to push costs around rather than promote innovation.(1) While pay-for-value might indeed create a mechanism to spur new discoveries, we are left with the question of who should decide if a new treatment is valuable or not: policymakers, for whom an improvement of two months in lifespan might be seen as minimal, or patients, who actually might like to have the choice of living a bit longer, even if it's only for a day? A similar argument can be made for public funding of clinical trials: who decides which projects are more deserving of funding? As we can seldom foresee which candidates will truly be effective drugs, this would be likely to make the drug discovery process less and not more competitive, further stifling innovation. This brings us back to markets. The funding and provision of health care is clearly far from being a perfect one. Information asymmetries and externalities abound, as do well-intended but ill-advised government controls. That is not to say that we should not strive to make it better, as it is the only mechanism we know that can efficiently distribute scarce resources over the long term.(2) Indeed, much of the problem we have in funding health care today does not lie in the small benefits we have developed but rather in the exponentially increasing costs associated with them. After all, it has been slow incremental betterments, punctuated by the odd explosion of innovation (such as the development of antibiotics in the mid-twentieth century and of effective prevention and treatments for heart disease seen in the past 25 years), that helped us reach the results we see in medicine today. Americans live longer and better in 2009 than they did just a couple of generations ago (even though media reports sometimes seem to suggest otherwise).(3) There is a further layer to the issue. Medication prices in Organization for Economic Cooperation and Development (OECD) countries other than the United States are 18-67% lower than they are in the United States.(4) With other developed economies increasing their control over drug prices, it is likely that the United States will come to subsidize drug development not only for poorer countries but also for those that could help us share the burden. We are left with a "prisoner's dilemma" of sorts: should we control prices to decrease costs today while risking fewer future innovations, or should we continue spending as we are and risk bankrupting the nation? As it relates to the cost of developing new medications, there is a way for us to have the cake and actually eat it, too. The pharmaceutical industry players today have become too large and have lost the innovative edge they once had. It is no surprise that a substantial amount of new anticancer drugs have been developed in smaller, nimbler biotechnology companies. As such, a proposed solution would be to dissociate the industry's two main activities: drug development and commercialization. Here one of Stiglitz's earlier ideas might come to play a major role.(5) A one-time prize to a drug discoverer, with procedures collected through an auction for manufacturing licenses (instead of from a government or private foundation fund, as he had initially proposed), could be a highly successful -- and market-based -- way of inducing competition while still rewarding innovation, as the winning bidders would price drugs closer to their marginal cost. Moreover, such a process would allow for other companies to share both the risk of developing new treatments and their monetary benefits.(6) Finally, although there is an inherent ethical difficulty in placing a monetary value on human life, taxpayers have a right to know that public funds will be disbursed in the most cost-effective and socially effective way possible. As the government share of health care funding increases, we will face the difficult task of deciding which improvements are worth their cost or not. Any system that proposes to do so should include personal responsibility and risk sharing throughout the whole U.S. population, at the risk of being bankrupt even before it begins to exist. References 1. Porter M and Teisberg E. Redefining health care: creating competition value-based competition on results. Harvard Business Press, Boston, USA, 2006. 2. Newhouse J. Pricing the priceless: a health care conundrum. Massachussets Institute of Technology publishing, 2002. 3. Centers for Disease Control and Prevention. Life expectancy at birth, at 65 years of age, and at 75 years of age by race and sex: United States, selected years, 1900-2005, in Health, United States. Available online at http://www.cdc.gov/nchs/data/hus/hus07.pdf#027. Accessed on 9 February 2009. 4. U.S. Department of Commerce. Pharmaceutical Price Controls in OECD Countries (Washington: U.S. Government Printing Office, 2004). 5. J. Stiglitz. Making globalization work. WW Norton and company, New York, NY, 2006 6. Lopes G, Gluck S. Health economics in the journal of clinical oncology and an assessment of the societal costs and benefits of adjuvant trastuzumab. J Clin Oncol. 25 (22): 3382-3383, 2007.
Use Of A QALY Model In Value-Based Pharmaceutical Policy 3 March 2009
Christine Huttin, Professor University Paul Cezanne and endepusresearch Inc Send comment to journal: Re: Use Of A QALY Model In Value-Based Pharmaceutical Policy chris.huttin{at}comcast.net Christine Huttin	Some recent policy proposals were suggested in Health Affairs to address current uncertainties faced by the pharmaceutical industry. Among the ideas discussed to increase innovation and reduce or contain pharmaceutical costs and prices, Arjun Jayadev and Joseph Stiglitz suggested that the use of a value-based approach for pricing could maintain fair incentives to innovators while improving better access to affordable medicines to consumers. However, the feasibility of such a policy requires the possibility to adjust the benefits for different types of drugs and therefore rely on statistical evidence provided by the various health care technology agencies and the types of systematic reviews available on different medicines and medical technologies. A value-based pricing policy in pharmaceuticals relies on the reliability of technical methods to assess the different values from medical technologies and consensus on ways they are compared to meet objectives of a national health policy. The value-based approach for pharmaceutical pricing especially will require assessing the marginal clinical benefit of additional drugs. Jayadev and Stiglitz propose to assess these benefits through the impact on quality-adjusted life years (QALYs). However, QALYs are controversial in outcomes research; to advance the policy idea of using them to raise value-based measures to adjust pricing of different medicines, it is relevant to summarize the current debate about such measures. They remain by far one of the most widely used outcome measures in economic evaluation of health care. They are especially attractive for policymakers and professionals such as physicians since they are easy to use and represent concepts that can easily be explained to patients. They provide useful measures to physicians since they integrate individual preferences and can be used in their treatment choices. Such approaches have shown, however, limits in cost-effectiveness studies. A major area of limitations has been in the area of measurement of nonfatal health outcomes for different disease stages and disease areas. They are criticized in the way health states have been defined at different stages (e.g. see Boyle and Torrance). Moreover, QALYs do not integrate well physical, mental, and social dimensions. More accurate measures of health outcomes at different stages of disease severity should therefore be discussed as technical tools to introduce a value-based pricing policy (e.g. approaches using health status indicators described by Torrance, 1986; Nord, 1992; or the WHO initiative called ICIDH, which refers to impairment and handicap and, unlike QALYs, relates disabilities to social environments). For these types of reasons, health policymakers usually tend to prefer other types of measures than QALYs to integrate differences of disease states at different periods of life into stratifications of economic evaluation of medical technologies. QALY measures have been progressively replaced by disability-adjusted life-years (DALY) measures since the original contribution from Murray (1994), in global comparative health assessment, especially to measure the burden of disease and provide a health outcome measure that affects social welfare (following Rawls’ theory of justice). However, if QALYs and their use in cost-effectiveness have been challenged in policy circles over the last ten to fifteen years, they may become again a leading technique to stratify clinical benefits, with the current stage of knowledge at an individual level of health risks and ways to improve utility measurement with bioinformatics databases. Already in major disease areas such as cancer, the use of genetic data at an individual level allows adjusting predictive diagnostic tools for each patient and provides physicians with the necessary accurate information for adjusting their professional guidelines with an incorporation of data at the individual level. In the U.S. especially, this policy option could benefit from some state experiences such as Oregon, where cost-effectiveness has been used for health care allocation decisions. For instance, some adjustment methods have been tested to find relevant dispersion weights for individual clinical benefits (Oregon Service Commission). It becomes, therefore, more relevant again to propose QALYs also for health policymakers but to discuss for which diseases and in which disease stages they can especially be useful for stratification of clinical benefits. The link with a pricing policy could then be possible through the use of sensitivity analysis. Since such measures can be used at a policy level, where they can shift treatment decisions, it becomes important to explore how and in which conditions a QALY model can be put in a context to adjust a value-based pricing policy for pharmaceuticals. This leads, then, to consideration of other types of limitations of QALY modeling, the ones in relation with other utility models, especially nonexpected utility models (Doctor and al., 2004). Behavioral theories such as prospect theory and its recent developments (especially the controversy on violation of assumptions related to the loss function) become, for instance, very useful in using QALYs in appropriate frameworks. It particularly helps select sets of clinical choices in different frames and contexts. New ways to estimate loss aversion take more into account different contexts and diseases, and different estimations are calculated to integrate the process of decision making. Clinical pathways are more or less lengthy, and uncertain processes and measurements of clinical benefits at the individual level need to integrate such sources of variations. Traditionally, scientific developments of economic evaluation have focused on methodologies to optimize efficiency. However, other criteria such as equity are usually a major priority in national health policies, especially in socialized health care systems. In the U.S., with the new health care administration, the national debate is also now more open to including a fair distribution of the benefits of medical technologies to the U.S. population. So far, the efficiency criterion remains dominant in the ways economic evaluation results have been assessed by health care technology agencies for health care decisionmakers; however, affordability has also been introduced in the decision-making process, and the type of scientific evidence coming from such studies is negotiated with governmental agencies and also needs to represent an affordable cost-benefit ratio or cost-quality ratio, to match political, moral, ethical, financial, or social objectives of the government. The introduction of such divergences of objectives between governments and companies during the decision-making process usually interferes, afterwards, in the ways it is weighted, and can play a role in reimbursement decisions by national agencies. However, in the U.S. system, strongly driven by strategic priorities in advancing medical research, the emphasis remains on new technical developments. This discussion on use of QALYs for a value-based pricing pharmaceutical policy adds a useful contribution to the national policy debate; the inclusion of process measures may also be useful to the current discussion on how cost-effectiveness thresholds can be better weighted to take into account dynamic efficiency and not only static efficiency to better sustain innovation (Jena and Philipson, 2008). References: Doctor JN, Bleichrodt H, Miyamoto J, Temkin N, Dikmen S. A new and more robust test of QALYs. Journal of Health Economics 23(2004): 353-367. Huttin C, Discussion about QALYs, Hibernia College, December 2008. Jena AB, Philipson TJ. Cost-effectiveness analysis and innovation. Journal of Health Economics. 2008 Sep; 27(5):1224-36. Murray CJ, Quantifying the burden of disease: the technical basis for disability adjusted life years, in Global comparative assessments in the health sector, WHO, Geneva, Murray and Lopez, 1994. Nord E methods for quality adjustment of life years. Social science and medicine, 1992, 34:559-569. Oregon Health Services Commission. Priorization of health services: a report to the governor and Legislature. Portland, State of Oregon, 1991. Rawls A theory of justice, Cambridge, Harvard University Press, 1971. Torrance GW Measurement of health state utilities for economic appraisal: a review. Journal of health economics, 1986, 5:1-30