Learning The Right Lessons From The Race For An Effective Covid-19 Treatment

On June 29, 2020 Gilead announced its price for remdesivir – an antiviral medication that has shown efficacy shortening the recovery time for patients with Covid-19. This price announcement provides several important lessons for the U.S. healthcare system.

First, and perhaps most important, innovation is essential for winning the war against Covid-19. Innovation requires money and risk taking. Gilead may spend up to $1 billion developing remdesivir according to the company’s recent call with investors. In addition to these expenditures, Gilead donated 1.5 million vials of the drug, which was the “entirety” of their drug supply through the early summer.

And, Gilead is not the only company taking these risks or spending this exorbitant amount of money.

Pfizer, for example, is repurposing two drugs that are potential treatments for Covid-19. The company has also shifted “production at four manufacturing plants to make 20 million vaccine doses by the end of the year and hundreds of millions more in 2021…Pfizer is also willing to spend $1 billion in 2020 to develop and manufacture the vaccine before they know if it will work.”

Many physicians are becoming “cautiously optimistic” about the availability of efficacious drugs precisely because of these investments and the financial risks that have been undertaken in order to speed these treatments to patients.

With respect to the question of value, the lesson is clear. The high cost of innovation includes the large sums of money invested, the lost options of investing in other potential opportunities, and, separate from these costs, the many financial risks that have been incurred.

Second, as currently conducted, the third-party value assessments conducted by the Institute for Clinical and Economic Review (ICER) are counterproductive. In an attempt to be relevant during the pandemic, ICER has been consistently updating its cost-recovery and cost-effectiveness benchmarks for remdesivir based on incomplete data and the information from press releases.

As I noted previously, there are many reasons to be suspicious that ICER’s value assessment models provide a useful framework to understand the value of remdesivir. This latest value assessment by press release raise additional questions.

In its price announcement, Gilead noted that by reducing the time to recovery by four days on average, remdesivir reduces hospital expenditures by an average of $12,000. These savings alone far exceed the 5-day treatment list price of $3,120. The actual value of the medicine also includes many other benefits.

Some of these benefits, such as the ability to go back to work sooner, are tangible. Others, such as the value of overcoming a devastating disease quicker or the security provided by the knowledge that a treatment exists should you become extremely ill with Covid-19, are intangible. ICER’s models rarely account for these benefits when attempting to measure the value of a drug, and when they do, these benefits are inevitably underappreciated.

ICER’s response also reveals one of the inherent biases of the organization. According to ICER “if further data do not show a clear mortality benefit for remdesivir, then the price of the drug should be dramatically reduced.” Clearly, reducing the mortality rate is incredibly important – but it is not the only valuable goal.

What if remdesivir proves to not impact mortality, but could keep all other patients out of the hospital? Wouldn’t that be incredibly valuable? Further, under this assumption, wouldn’t the hospital system be better positioned to save more patients since the risk of being overrun by patients with Covid-19 would be eliminated? In this case, remdesivir would not reduce the mortality rate, but doctors would be empowered to do so because of its existence.

As is typical, ICER’s analysis underappreciates the importance of unquantifiable benefits and takes a dangerously narrow view of value. As a result, ICER’s analyses could become an obstruction to continued innovation.

A third lesson is that the U.S. drug pricing system is confusing and needs to be simplified. In its announcement, Gilead stated that remdesivir’s price will be $390 per vial, or $2,340 per patient. However, “because of the way the U.S. system is set up and the discounts that government healthcare programs expect” the price for government purchases will be $520 per vial or $3,120 for a 5-day treatment.

The higher list price the price for U.S. government purchases does not accurately reflect what patients will pay. For example, since the medicine will be administered as part of a hospital stay, the costs are covered under Part A for Medicare patients. Part A reimburses hospitals using a fixed payment, therefore whether the medicine is a net cost to the hospital depends on many factors. But, from a patient perspective, the costs that they will need to pay does not change.

As these complexities aptly demonstrate, the drug supply chain is rife with problems. As I have argued (herehere, and here), these problems harm patients on net. The announcement spotlights this problem and emphasizes that increased price transparency is urgently needed.

Winning the war against Covid-19 requires innovation. Remdesivir is one of the dozens of treatments and vaccines that the pharmaceutical industry is developing to treat this disease. But, we need to ensure that the pricing environment encourages innovation in order to make these a reality.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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