Darius Lakdawalla, PhD, explains that moving to value-based pricing system can be thorny when not everyone has the same definition of value.
Just as beauty is in the eye of the beholder, the value of today’s miracle therapies—ones that can add years to the life of a cancer patient or cure hepatitis C virus (HCV)—often turn on what attributes matter to patients. For all the talk of moving toward value-based healthcare, this is the hard part: the things that may matter most are the hardest to measure, according to Darius Lakdawalla, PhD, the Quintiles chair in Pharmaceutical Development and Regulatory Innovation at the University of Southern California and the chief scientific officer at Precision Health Economics.
Lakdawalla offered his keynote lecture, “An Economic Perspective on Value Frameworks,” at the spring meeting of the ACO and Emerging Healthcare Delivery Coalition®, which met May 4-5, 2017, in Scottsdale, Arizona. The coalition is an initiative of The American Journal of Managed Care®.
To open his talk, Lakdawalla started with the one part of healthcare where there is broad agreement among Americans: no matter where they sit on the ideological spectrum, they are fed up with the cost of prescription drugs. The Kaiser Health Tracking Poll, in fact, has found that Democrats, Republicans, and Independents alike, believe that the government should do something to help those with chronic conditions afford their therapies, something that Lakdawalla noted has been unheard of among conservatives until recently. “This is one of the few bipartisan issues in the United States,” he said.
As the furor has escalated, manufacturers have tried to quell the uproar by finding ways to show that drugs have value—that they help health plans avoid downstream costs, that they have fewer side effects than drugs they replace, or that they extend life by months or years or even cure disease. But this is where things get tricky, Lakdawalla said. As the system strives for a greater alignment of value with pricing, “it’s never clear what people mean by value.”
While some think the solution is moving to a single-payer system, where the government controls pricing and can block a drug from the market if it costs too much, Lakdawalla said that doesn’t solve the whole problem. “Even if we had a single-payer system in the United States, this would still be an issue,” he said. “Patients often view the world very differently than a single payer would.”
Payers view the value of a drug based on the months or years it adds to the average person. He used the example of the early immunotherapies to treat melanoma, which only added 3 to 4 months to life on average, but could considerably extend life for about 20% of patients. To a patient in danger of dying, the chance of being part of that 20% is a risk worth taking.
Enter value frameworks, which are systems that can assign weights to a drug’s various attributes—its cost, its survival benefits, its side effects—and help health systems, physicians, and patients decide which therapy is best. Various value frameworks have arisen in healthcare in recent years, from medical societies like American College of Cardiology, as well as from the Institute for Clinical Economic Review (ICER), which tries to perform the value calculation based on assumptions about attributes.
But this leads to what Lakdawalla called “a very thorny problem.” While some attributes come in hard numbers, like the results of a randomized clinical trial, others are much harder to quantify. “People have to make a lot of ad hoc assumptions of certain attributes,” he said.
While he did not address this, ICER, has stirred controversy with some of its reports—drug manufacturers have pushed back hard when the group has assigned list prices thousands of dollars below the wholesale price, based on its determination of value.
All this raises the obvious point, Lakdawalla said: “What does value mean if we’re going to move to a value-based pricing system?”
Economists have spent years developing systems to evaluate the value of healthcare as an investment, and there is much to learn from this work, he said. “An investment is some kind of decision where you pay now, and receive productive benefits later,” he said. This way, one knows if the money paid in is worth it.
The trouble with healthcare, he said, is that many equations leave out factors like being able to return to work, which should be part of the discussion. And many don’t think that healthcare budgets should be driven solely by cost-benefit calculations.
In large measure, he said, the answer starts with the patient. Decisions about whether to use an expensive drug for a patient with a life-threatening illness must start with a conversation about that patient’s goals and expectations. “The patient has to enter the discussion,” he said.
But since the public pays for so much healthcare, this also becomes a political discussion. In the United States, he said, “the problem is that the payment is divorced from the consumption” of healthcare. “In some sense, we are all the payers, the premium-paying beneficiary, the taxpaying voter. That’s where I would start the discussion.”