Overpriced Drugs Can Harm More Patients Than They Help

This perspective, written by David Whitrap, was first shared in our Weekly View e-newsletter, which summarizes the week’s most significant drug pricing news. To subscribe, click here

Any discussion about health technology assessment must acknowledge the notion of tradeoffs. When society is forced to purchase a medical intervention at a price that far exceeds the intervention’s ability to improve patients’ health, there’s a real opportunity cost involved. And not just an economic cost, but a tangible health cost, too.

For example, when a closed system with a fixed budget – e.g., the Department of Veterans’ Affairs, or a state Medicaid program – overpays in one area, it needs to make it up elsewhere in the budget. So if a new medication costs $1 million more than an alternative that provides the same level of benefit, that’s $1 million less that can be spent on other services that WOULD improve patients’ health, like nursing or social work or more effective medicines.

Similarly, when the entire US health system overpays for a treatment for some patients, there’s a direct consequence: rising premiums, individuals dropping insurance coverage, and ultimately greater health losses for the patients who can no longer afford the care they need.

When ICER establishes a treatment’s health-benefit price benchmark (HBPB), we do so with an explicit focus on these opportunity costs. Our HBPB suggests the highest US price a manufacturer should charge for a treatment, based on the amount of improvement in overall health patients receive from that treatment, when a higher price would cause disproportionately greater losses in health among other patients. In short, it is the top price at which a health system can reward innovation and better health for patients without doing more harm than good.

Leading health economists and policy experts debated this very concept at this week’s Virtual ISPOR 2020 conference, and that discussion was summarized nicely by AJMC: “Linking Opportunity Costs and Value Assessments for State and Commercial Payers.”