Breaking Down the Value of Prescription Drugs to Different Constituencies
By Jennifer Nason, Senior Director of Communications, MassBio
We’re at an inflection point, with science that’s been tested for decades finally becoming a reality for patients and a payer system that has not caught up with this level of innovation. Myriad factors are combining to alter the status quo – with policymakers demanding action, and healthcare stakeholders agreeing that we must come up with real solutions to. If we don’t come together and address the value equation as an industry and ensure patient access to all new therapies, government or other stakeholders will – and they will likely get it wrong.
This is the impetus behind MassBio's Value of Health series, a major initiative to explore the future of the biotech industry through the prism of drug pricing. Guided by experts, we produced a series of three whitepapers and related events in 2019 that together sought to answer the question: is the current biotech pricing model sustainable, and if not, what needs to change? The below is a section of the first whitepaper, Part I: How to Deﬁne the Value of Prescription Drugs to Ensure Patient Access.
“Value” Means Something Different to Everyone
Key constituencies measure value differently, and it’s critical to understand where each are coming from as the industry tries to agree on a common value equation.
Patients want to be healthy and productive. They want to trust that their doctors and payers act in their best interest and will do everything they can to restore their health. They want new, safe, and effective treatments to come to market quickly, and do not want hurdles to access them. They seek drugs with limited side effects, that are convenient to administer, and allow them to go about their normal daily routine. Patients tend not to think about healthcare costs until they’re faced with the bill or until someone they love gets sick. It’s personal.
When state and federal policymakers consider the value of prescription drugs, they are largely driven by two considerations: 1) what their constituents are saying about their experiences accessing their prescriptions, especially their out-of-pocket costs; and, 2) the impact of drug prices on state Medicaid and federal Medicare budgets. Considerations about patient access and policy’s impact on the innovation of new therapies tend to be tertiary.
Payers think ﬁrst and foremost about the budget impact of prescription drugs. Their value equation carefully considers many different factors including comparative effectiveness and patient population size so they can best gauge whether covering a drug improves outcomes for their covered lives at a reasonable cost. Payers also budget annually and have to contend with patients’ ability to change insurers annually, thus, limiting their consideration of long-term costs avoided in their value equation.
Providers have a multifaceted view of prescription drugs’ value. Depending on the provider, they can administer drugs in-patient, out-patient, or through doctor’s ofﬁce visits. Increasingly, new, specialty therapies are administered only in hospital settings. This can create a value-add for the provider through hospital markups on drugs, but can also present providers with signiﬁcant reimbursement challenges depending on the type of drug, especially with public payers.
Investors understand that biotech is a risky business and has a high percentage of failure. But they also expect to receive big returns for the associated risks— especially since these returns can take upwards of 10 years to come to fruition. Investors must think about new paradigms in healthcare, how new therapies can positively impact the practice of medicine, and who will have access to them at the time of approval. In a way, investors have to understand the current and future perspectives of all the other stakeholders, or they can- not be successful.
We’re always making tradeoffs in the U.S. on what we spend on education, the military, healthcare, and other important areas, but what sets healthcare apart is denying access to care is “un-American” to some and those that put this care out of reach are subject to major public scrutiny. In this environment, there is an expectation that sick people will be taken care of, and value is not often a consideration. If there is any discussion or debate over value to society, it’s increasingly only based around price.
It’s no surprise that it’s near impossible to satisfy each constituent, since each views the value of drugs in such different ways. It’s up to us, as an industry, to develop a clear and consistent case for value that incorporates these various viewpoints and more importantly, speaks to them.
How the Industry Makes the Case for Value
Traditionally, biopharma companies overwhelmingly consider four factors when setting price and making their case for value:
- Costs of R&D
- Cost of production / commercialization
- Financial returns to fuel future innovation
- Value of the therapy to patients, the healthcare system and society in terms of improved outcomes & cost avoidance
However, as the pricing debate grows and becomes more top of mind to the average American, the ﬁrst three factors above are becoming less relevant in terms of proving value of a therapy. Healthcare stakeholders must understand the need to cover costs of R&D, production, and future innovations, but, the more effective and contemporary methodology when it comes to price and value is around improved outcomes and cost avoidance.
Does your therapy improve patient health? Does it solve an unmet medical need? Is it incrementally or substantially better than the current standard of care? Does it improve ease of use or compliance? Are there fewer side effects for the patient? Does it improve their quality of life and possible longevity? Do you have data to back this up? These are critical questions to ask when making the case for value.
Can you show that your drug prevented chronic care, a costly hospitalization, or an organ transplant? Can you prove that your drug allowed a patient to go back to work and contribute to society? Can you demonstrate the impact to the caregiver? Cost avoidance is likely the hardest to measure, but the most important. It requires the ability to track real-world evidence from patients— often over many years—and relies on our capacity to track non-healthcare expenses, like increased worker productivity.
- When making your case for value, prioritize methodology around improved outcomes and cost avoidance.
- Create the necessary mechanisms to track these outcomes and costs avoided early on—even before clinical trials.
- Start making the case for value to payers, providers, and patients during clinical trials or earlier (even during discovery/preclinical development) and prior to regulatory approvals.