Putting Cost Ahead of Medical Outcomes – Pacific Research Institute

Putting Cost Ahead of Medical Outcomes

Unlike most markets, prices do not convey value in health care. In light of this problem, the Boston-based Institute for Clinical and Economic Review has been attempting to calculate the value of new medical technologies in order to assign a reasonable price to the latest innovations.

The Blue Shield of California Foundation supports ICER’s research, and Blue Shield of California, with 4 million members, has indicated it wants to use ICER research when making coverage decisions. Beyond California, Steve Miller, chief medical officer of Express Scripts, the nation’s largest Pharmacy Benefit Manager, said, “We plan to reference the findings from this independent, trusted organization in our subsequent negotiations with manufacturers.”

The accuracy of ICER’s research is, consequently, of great importance to Californians. Unfortunately, ICER’s methodology raises many questions.

Centrally planning the pricing decisions and best practices for any industry is an impossible task, but the consequences are particularly troubling for innovative industries such as health care. The problems of the National Institute for Health and Care Excellence in the U.K. exemplify the problem, and are a cautionary tale for ICER, which is taking methodology cues from NICE.

NICE is the public body that establishes health guidelines and assesses the value of new medical treatments for the National Health Service, Britain’s government-run health care system used by 90 percent of Britons. The recommendations from NICE have become increasingly controversial as critics claim that NICE guidelines are becoming more and more detached from the actual practice of health care.

Patients groups also oppose the body’s rationing practices. According to the Independent, one “woman awaiting a transplant for a rare condition that has destroyed her kidneys had her operation canceled at the 11th hour because the government refused to pay for the drug she needs to prevent the organ being rejected.”

Both NICE and ICER methodologies also rely heavily on “Quality Adjusted Life Years.” QALY is supposed to be a benchmark for allocating scarce health care resources. According to the QALY methodology, expenditures that increase quality adjusted life years more should be prioritized.

NICE has been widely criticized for using QALYs. According to the European Consortium in Healthcare Outcomes and Cost Benefit Research (a project of the European Commission) analysis based on QALYs produces results that are inconsistent and wrong, and the body recommends that NICE abandon its use in its value-based assessments. Just as troubling, the “quality” of the life years is determined not by the individual patient or doctor, but by a health care researcher or actuary far removed from the actual medical decision.

ICER’s use of QALYs raises important questions regarding the results from its value assessments.

Another question regarding ICER’s methodology is its focus on direct medical costs. The costs and benefits from health care expenditures go beyond the near-term direct medical costs. In the near-term, the benefits from effective health care spending enable people to enjoy higher quality and more productive lives than if they were denied treatment. Such benefits are not inconsequential and should be incorporated into a therapy’s value.

A drug’s value also depends upon the lifetime health care expenses and lifetime health benefits. For instance, hepatitis C is a leading cause of liver failure and the need for liver transplants. As of 2014, the average cost for a liver transplant in the U.S. was over $700,000. Transplants are performed only after years of treatment with drugs that have major side effects and are only 50 percent effective.

By comparison, what is the value of the new hepatitis C therapies that cost significantly more than current drugs (upward of $80,000), but only requires 12 weeks of treatment and cure the vast majority of patients? Not only is an expensive liver transplant completely avoided, but patient outcomes, drug adherence rates, and patient well-being during treatment are all significantly improved.

Yet ICER’s California arm, the California Technology Assessment Forum, said such new therapies are “a low value to health systems due to the immediate budget impact imposed by its high cost.”

For most markets, a good’s price indicates its value – the concepts are inseparable. But not in the health care sector. In the absence of an effective price system, ICER is attempting to be the NICE of the U.S. and determine which innovations are valuable for patients. This is a herculean task at best, and when coupled with ICER’s unanswered methodological questions, Californians should be wary of basing their families’ health care coverage decisions on ICER’s conclusions.

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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