A team of health economics experts has identified significant flaws in how drug launch prices are evaluated, challenging policymakers and industry stakeholders to reconsider current approaches to pharmaceutical value assessment.
In a newly published commentary in the American Journal of Managed Care, researchers from the Leerink Center for Pharmacoeconomics, University of Washington, and the National Pharmaceutical Council outline four fundamental reasons why comparing a drug's launch price with value-based prices derived from conventional cost-effectiveness analyses requires deeper examination.
The Gap Between List and Net Prices
The researchers, led by Dr. Melanie D. Whittington, highlight that launch prices rarely reflect what manufacturers actually receive. A recent analysis revealed an unweighted average discount of 53.5% off list prices across pharmaceutical products.
"These are not apples-to-apples comparisons because the launch price represents the list price, and a threshold-based price often refers to estimates of a net price," the authors explain.
This discrepancy creates a fundamental problem when attempting to judge a drug's value based on its announced launch price, as the actual transaction prices remain largely invisible to the public and many stakeholders.
Limitations in Measuring Complete Value
Cost-effectiveness analyses typically focus narrowly on health system costs and patient health benefits, potentially missing significant value components. The researchers note that conventional analyses often fail to capture impacts outside the healthcare system, such as patient productivity, caregiver time, and other societal benefits.
"Without accounting for a drug's impact on sectors outside of health system costs and patient health benefits, threshold-based prices from cost-effectiveness analyses are not comprehensive assessments of a drug's value," the authors write.
The team references recommendations from both the Second Panel on Cost-Effectiveness in Health and Medicine and an International Society for Pharmacoeconomics and Outcomes Research Special Task Force, which call for broader perspectives in value assessment.
Static Pricing Assumptions in a Dynamic Market
Most cost-effectiveness analyses assume drug prices remain constant over time, ignoring the reality that prices typically decline substantially after patent exclusivity expires. This methodological limitation means that threshold-based prices from conventional analyses represent an unrealistic scenario.
Dr. Louis P. Garrison, Jr., one of the study co-authors, suggests that analyses should "adjust the period of a cost-effectiveness analysis to consider the product's lifetime (rather than the more typical lifetime horizon of a patient) and incorporate expected price changes before and after exclusivity."
Threshold Uncertainty Complicates Interpretation
The researchers point out that the United States lacks an explicit or single threshold for health policy decision-making, creating significant uncertainty in determining value-based prices. While analysts often cite a threshold of $104,000 per health unit gained, this figure comes with substantial caveats and potential variability across populations.
"If threshold-based prices are estimated, using a wide range of thresholds is more consistent with the current US health care environment," the authors recommend, noting that economic theory suggests optimal thresholds may vary by disease condition.
A Call for Lifecycle Perspective
The commentary concludes with a call for a fundamental shift in focus from launch prices to the societal net benefits of medicines over their entire lifecycle.
"A focus on a drug's launch price as a proxy for the reward the product receives before loss of exclusivity may be misplaced if the goal is to have a truly dynamically efficient system that produces the optimal amount of innovation," the researchers argue.
Dr. Jonathan D. Campbell, study co-author from the National Pharmaceutical Council, emphasized, "This commentary is an important reminder that cost-effectiveness analyses include both science and judgment. That's why we ought to view them as a tool, not a rule."
Implications for Policy and Practice
The findings have significant implications for pharmaceutical pricing policies, value assessment frameworks, and healthcare decision-making. As debates around drug pricing continue to intensify, the researchers suggest that both a product lifetime view and a broader societal perspective are essential when judging and rewarding value creation in pharmaceuticals.
The research underscores the complexity of pharmaceutical value assessment and cautions against simplistic interpretations of launch prices that fail to account for the nuanced realities of drug pricing, value measurement, and market dynamics.
For healthcare decision-makers, the study highlights the importance of considering multiple perspectives and timeframes when evaluating pharmaceutical value, rather than focusing narrowly on launch prices or single-threshold cost-effectiveness analyses.
