Are expensive new prescription drugs worth the price?

As more and more prescription drugs hit the market with exorbitant prices, it can be difficult to know if they are worth it.

Some countries use a relatively simple cost-effectiveness analysis to decide. The UK’s National Institute for Health and Care Excellence, for example, covers medicines based on a single threshold of £20,000 to £30,000 per quality-adjusted life year (QALY) gained.

Such cost-effectiveness analysis helps countries with single-payer health care to control costs. It has been suggested that Medicare and other US insurers do the same.

But using a single threshold to decide whether a particular drug is cost-effective assumes that all patients value what a drug offers the same way. As a result, this one-size-fits-all approach can largely portray expensive drugs as not worth the price and prevent new drugs from entering the market, creating a barrier to treatment for patients who would appreciate more expensive care.

These are the conclusions of a study published in the July 2022 edition of the Journal of Health Economics. Claudio Lucarelli, an associate professor of healthcare management at the Wharton School at the University of Pennsylvania and a senior researcher at the Leonard Davis Institute, is the study’s lead author. Co-authors include Sean Nicholson, director of the Sloan Program in Health Administration at the Cornell Jeb E. Brooks School of Public Policy, and Nicholas Tilipman of the University of Illinois/Chicago. Nicholson is also a faculty member in the Department of Economics.

The researchers suggest that a better approach than relying on a single threshold would be to also consider the preferences of different patient subpopulations when assessing value. They developed a series of quality-adjusted price indices that took into account the preferences of patients and their prescribing physicians.

They focused on colorectal cancer, a disease for which the cost of drugs over 6 months rose from $127 in 1993 to $36,300 in 2005. They assessed the value of different drug regimens using a model that considers various outcome measures, convenience of administration, patient tolerance to side effects, and willingness to accept greater toxicity for greater efficacy.

Using this approach that accounts for differences in patient preferences, here’s what they found: While the new drugs’ efficiencies didn’t justify their high prices for the average population, they were justified for sicker and advanced cancer patients. According to the model, if expensive drugs were restricted on the basis of an average cost-effectiveness analysis, the sickest patients would suffer a loss of well-being.

“A uniform rule preventing patients with advanced cancer from receiving new treatments could make their disease even less tolerable because they have no choice but to use a drug that is less effective or has more side effects” , Nicholson said.

Value assessment is complicated and few studies have examined whether the value of pharmaceutical products increases or decreases once their attributes and consumers’ evaluation of those attributes are taken into account. With this study, the authors show how this can be done.

They propose that health insurance must find ways to “allow differences in value to speak out in the marketplace” – such as patients with advanced cancer placing a higher value on hope and being willing to pay more for drugs that offer the possibility of longer survival. Suggested options include (1) insurers offering a variety of plans with variable premiums that take into account differences in preferences and (2) allowing patients to internalize treatment costs at the margin by using “top-up” insurance. in which patients pay the incremental cost relative to a fully covered basic treatment.

These suggestions, along with the new model described in the article, offer new insights into how to value new and often expensive prescription drugs.

A version of this story was prepared by the Leonard Davis Institute of Health Economics at the University of Pennsylvania, and it is excerpted here with permission and with our gratitude.

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