A Q&A With Peter Bach

May 10, 2016

Peter Bach, MD, MAPP, director, Center for Health and Policy Research, Memorial Sloan Kettering Cancer Center, speaks about DrugAbacus, the importance of using value frameworks, and using the European market as a model to recalibrate the healthcare system in the United States.

Peter Bach, MD, MAPP, director, Center for Health and Policy Research, Memorial Sloan Kettering Cancer Center, has been a vocal proponent of appropriate drug pricing, particularly of anticancer agents. To this end, the Center developed a tool, DrugAbacus, which uses various measures such as efficacy, toxicity, and innovation to identify an appropriate price for an approved drug.

In an interview with Evidence-Based Oncology (EBO)’s managing editor, Surabhi Dangi-Garimella, PhD, Bach spoke about DrugAbacus, the importance of using value frameworks, and using the European market as a model to recalibrate the healthcare system in the United States.

EBO: What is the importance of the value discussion in oncology?

Bach: I think we are having the discussion of value across all domains of healthcare. In the United States, we spend more per person on healthcare than in any other country. Even after adjusting for any measures of economic productivity, we are still outspending any other country. And, it’s impossible to convince yourself that we are getting any incremental value, period, let alone any incremental value of the excess spending. If we compare ourselves with other countries, there does not seem to be any rationale, except that we simply spend more for all units of healthcare.

If you try to ask if these prices align with what matters to patients, to science, or to the society as a whole, you find the prices are disassociated from any metric of value. It makes sense in a sector, especially on the drug side, where there is government-issued monopoly, where there is unrestrained pricing power, and there is mandatory buying across all payer sectors and across all cancer drugs. We are now in a situation where a year of therapy with cancer drugs costs 3 times the median income in this country, and so it makes sense to query the high prices and try to rationalize them.

Several organizations, such as ASCO [American Society of Clinical Oncology], NCCN [National Comprehensive Cancer Network], ICER [Institute for Clinical and Economic Review], ESMO [European Society for Medical Oncology], the American Heart Association, the American College of Cardiology, along with ours, are honing in on the question, ‘could we start linking therapies to their value?’

So, the purpose of the DrugAbacus is to ask how this would work. What would the equation be? This just moves us toward health technology assessment that is being pursued or already implemented in every other Western country. This should have been instituted in the United States as well. Absent a new framework, the options include a mandatory price control, which is unattractive, or we find a balance between how we pay for therapies and how accessible they are. The other problem we face in this country is that insurers have very limited means of managing drug spending, and the way they do it is by impeding access to treatments. What I am suggesting is a value framework for finding the appropriate prices, so that when those prices are found and enabled or accepted by manufacturers, insurers respond, in turn, by ensuring there is appropriate access, because the debate about access and coinsurance is, in reality, a debate about mismatches between value and price.

EBO: Does your Center plan to expand beyond drugs prices and evaluate the value of a treatment pathway?

Bach: The idea of indication-specific pricing can address regimen-level questions. DrugAbacus purports to find appropriate launch prices for drugs based on available data. Regimens collectively cost something as well, but we are trying to understand the incremental benefit that a newly approved drug provides and whether it is priced accordingly. The approval is usually based on a comparison of monotherapy versus standard of care, or standard of care with or without the new drug. The other scenario is of stacking a very expensive new agent on top of or following or preceding, what is usually a cheaper generic treatment. So, from a mathematical perspective, [computing the value of the regimen] may not be very critical.

EBO: Improving healthcare value would need strategies to reduce spending and also reduce waste, as your recent paper in BMJ1 emphasized. In your opinion, what approaches do we need to significantly improve the delivery of healthcare in the United States?

Bach: A part of saving money is reducing the unit prices of items in healthcare, and most analysts will tell you that one of the reasons we spend more money on healthcare, per person, than Germany does, even though they cover all of their citizens and have outcomes that are as good or better than ours, and the answer is unit price. It’s not the volume of service. We may do a few more procedures per person than they do, but on balance, they have more days in hospital and more utilization of services than we do.

The reality is that the drivers of healthcare spending in the US are unit price, not volume. So we need to rationalize the price of services, not just for drugs—we pay far more for each day in the hospital; we pay our healthcare providers more money, and some of that can be adjusted by how we cost shift. The way we finance medical school education, for example, is through physician salaries. Europeans tend to directly fund their medical schools, so it’s free or not very expensive. Most of this is driven by market power, so physicians get paid more because they can extract monopoly rents by gaining control over their local markets and they extract higher wages from private insurers, something they cannot do as easily in European markets.

That’s why we are focused on drug prices. We are paying 2-to-6 times the European rates for many of these drugs. When we analyzed Pfizer’s portfolio—just their top 10 drugs—to measure the impact of Pfizer leaving the United States and paying taxes in Ireland instead,2 if we pay the prices that the Irish pay for Pfizer’s products, we found that it would save us somewhere around $6 billion. [The deal between Pfizer and Allergan has, however, fallen through following new inversion regulations by the US Treasury department.3]

So, if we want to manage healthcare spending, you can make the argument that the excess price above that, which is being paid ambiently in European countries, is actually wasted dollars. It does not make the pill any better by paying 4 times as much for it.

EBO: Can you speak about the recent grant that your Center received from the Arnold Foundation? How do you expect to use these funds?

Bach: We will continue to work on value frameworks for drug prices, continue to do regulatory and legislative analysis, and actively engage with state and federal government programs, as well as many of the private payers and large companies, trying to advance value frameworks for drugs. The primary goal is to provide proof of concept that it is possible to demonstrate that we could actually price things more appropriately that continues to spur innovation, while providing better access to patients. I think it is well within reach.

EBO

I think this is the right time to have proof of concept and start to roll out programs that could start tying drugs to their value, and that’s what the grant is intended to support.

References

  1. Bach PB, Conti RM, Muller RJ, Schnorr GC, Saltz LB. Overspending driven by oversized single dose vials of cancer drugs. BMJ. 2016;352:i788. doi: 10.1136/bmj.i788.
  2. Pfizer would cut its corporate tax bill if it merges with Allergan. NPR website. http://www.npr.org/2015/11/02/453885663/pfizer-would-cut-its-corporate-tax-bill-if-it-merges-with-allergan. Published November 2, 2015. Accessed April 27, 2016.
  3. Humer C and Banerjee A. Pfizer, Allergan scrap $160 billion deal after U.S. tax rule change. Reuters website. http://www.reuters.com/article/us-allergan-m-a-pfizer-idUSKCN0X3188. Published April 6, 2016. Accessed April 27, 2016.