Article 6

Overview of Drug Pricing Influences and the QALY Model

  • The letter outlines significant issues surrounding the high cost of drugs in the United States and the economic model known as QALY, which influences drug pricing.

Introduction to QALY Model

  • QALY: Stands for “Quality-Adjusted Life Year.” It places a dollar value on the health that medicines can restore.     - This economic model helps determine how fairly to price healthcare.     - The concept is being utilized by the Institute for Clinical and Economic Review (ICER), a nonprofit organization, to apply pressure on pharmaceutical companies to reduce drug prices.

Recent Examples of Drug Pricing

  • Praluent: A cholesterol-lowering drug initially priced at $14,600 but later offered at $4,500 after rebates.

  • Aimovig: A new migraine medication priced up to $10,000 but sold for $6,900.

  • Zolgensma: A gene therapy for children initially projected to be priced at $5 million, ultimately priced at $2.1 million.

ICER's Impact on Drug Pricing

  • The QALY model is being applied by ICER to review drug effectiveness and subsequently influence pricing.

  • Pharmaceutical companies are beginning to align their pricing strategies in response to ICER's recommendations due to bipartisan political pressure for lower drug prices.     - Example: Novartis set Zolgensma’s price in line with ICER's recommendations.     - Other companies have also reduced prices based on ICER assessments.

The Mechanism of QALY Calculation

  • Understanding QALY:     - One year in perfect health = 1 QALY.     - A year affected by health issues may be valued less than 1 QALY depending on severity.     - For a 55-year-old with a potential lifespan of another 24 years:         - Perfect health = 24 QALYs.         - Untreated rheumatoid arthritis may yield only 10 QALYs.         - If a drug improves the patient's condition, resulting in an increase of 5 QALYs, the total would be 15 QALYs.

  • Monetary Value Assigned: ICER sets the maximum value of a QALY at $150,000.     - Example costing for a drug adding 5 QALYs:         - Total value = 5 QALYs × $150,000 = $750,000.         - Annualized cost = $750,000 / 24 years = $31,250 per year.

Comparison to Other Countries

  • In many developed countries, similar QALY frameworks are used to negotiate drug prices, leading to lower drug costs than those typically seen in the U.S.

  • Example: In England, branded prescription drugs can be priced at less than half that of U.S. costs due to these assessments.

  • The U.K.’s National Health Service (NHS) has used QALYs to refuse coverage for high-priced medications, like Vertex Pharmaceuticals' Orkambi, valued at £104,000 ($132,000) annually.

Ethical Implications of QALY Model

  • The approach raises ethical questions regarding the commodification of health and life.

  • The Obama administration had previously banned the use of QALYs in Medicare due to cultural resistance to valuing human life quantitatively.

  • Current sentiments in the healthcare sector highlight a dichotomy between imposing costs on life-saving treatments and the practical need for pricing guidelines.

ICER's Established Role and Funding

  • ICER, founded in 2006 under the auspices of Harvard Medical School, adapted the QALY model for the U.S. market, focusing initially on expensive medical procedures.

  • The organization gained significant funding from John Arnold, contributing $27.6 million through his foundation, emphasizing the need for transparency and value-based conversations in drug pricing.

Critiques of the QALY Model

  • Some industry critics argue that QALYs are not a perfect measure of a drug's value, as they don't factor in novelty or the impact of a drug on caregivers.

  • There are claims that the valuation methods in QALY calculations can be arbitrary and lack scientific rigor.

  • ICER counters that it engages proactively with stakeholders in developing its assessments and its methodologies are published in peer-reviewed journals.

History of QALY Development

  • The QALY concept was developed in the late 1960s by economists in the U.S. and Canada to assess healthcare cost-effectiveness.     - Alan Williams of Britain contributed to a universal scoring system taking into account various quality of life components.     - The National Institute of Health and Care Excellence (NICE) was established in the U.K. to utilize the QALY methodology for healthcare funding decisions, setting a threshold of £30,000 ($38,000) per additional QALY.

Conclusion

  • As drug prices and healthcare costs rise, the QALY model and ICER's analyses are becoming key tools in shaping the future of pharmaceutical pricing and access in the U.S. health system.

  • This ongoing dialogue reflects a broader cultural shift in the U.S. regarding how we evaluate healthcare value and allocate resources.