Value-Based Pricing Is in Place, but Prices for a Single Drug Vary

Value-based pricing has become an important topic of discussion in healthcare in the United States. Although value-based pricing is intended to regulate prices of drugs based on their actual value, prices for a single drug can still vary significantly.

Authors Anna Kaltenboeck, MA, and Peter B. Bach, MD, both of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center, suggested that value-based pricing has refined itself and now can initiate any change to traditional payment models for drugs, which does not necessarily consider the final price of the product.

“The current system, in which prices reflect 'what the market will bear,' has been plagued by price hikes on legacy drugs and wide dissociations between prices of drugs and their benefits,” the authors of an article, published by JAMA, stated. “The cost of a year of life gained with cancer treatment has been increasing annually by $8500 as a result of accelerating prices for new oncology drugs.”

There is an indication-specific pricing approach that suggests the same drug can have higher and lower prices when the benefits in its indications differ substantially. This specific approach has previously been implemented by both Express Scripts and CVS Caremark for cancer drugs, while Novartis has announced that its drug tisagenlecleucel (Kymriah) will have indication-specific prices.

“Importantly, the approach is not stand-alone, it is a subpart of value-based pricing, in which a drug’s price is linked to its benefits,” the authors explained. “If prices are not anchored to an external reference, such as a standardized cost per [quality-adjusted life-year] multiplier per indication, indication-specific pricing could allow pharmaceutical corporations to charge even higher net prices for their products.”

The authors also discussed approaches for altering the mechanisms of drug payments. For example, they discussed outcomes-based contracting, which involves refunding the cost of a drug when it fails to fulfill its therapeutic effect in a patient—suggesting that a drug that does not help a patient should not cost them anything. Although this approach has been seen to lower the net price, it is often still many times over the estimated value of the drug.

In addition, the authors discussed the approach of mortgage pricing, which is the extension of the payment for a treatment over many years. Therefore, this approach can spread the treatment cost for an insurer over many years but does not specifically address the high price overall.

“Value-based pricing is being promoted as a response to high drug prices,” concluded Kaltenboeck and Bach. “But as the term gains traction, distinctions in both method and likelihood of improving aligning prices with value should be carefully considered.”

Reference

Kaltenboeck A, Bach PB. Value-based pricing for drugs: themes and variations. JAMA. 2018;319(21):2165-2166. doi: 10.1001/jama.2018.4871.