Value and Cost-Effectiveness Analyses Should Be Included in Reimbursement Decisions

February 2015 Vol 8, Special Issue: Payers' Perspectives in Oncology - Health Economics
Kate Smith

San Francisco, CA—Drug reimbursement decisions should incorporate value and cost-effectiveness, suggested Andreas Laupacis, MD, MSc, a palliative care specialist and Executive Director of the Li Ka Shing Knowledge Institute of St Michael’s Hospital, Toronto, Ontario, Canada, during the Special Symposium on Quality at ASH 2014. Dr Laupacis has chaired many drug reimbursement committees in Canada.

He called cost-effectiveness “an ethical although admittedly imperfect tool with which to make tough policy decisions.” Such calculations are “often messy,” because they usually lack validated surrogate markers of long-term clinical outcomes, they are based on assumptions of a drug’s efficacy outside of clinical trials, and they involve modeling and sensitivity analyses.

Nevertheless, Dr Laupacis said that cost-effectiveness is an important component of reimbursement decisions.

Using cost-effectiveness calculations, Canadian drug reimbursement committees decide whether to pay for a drug out of the public purse, to decline to pay because the drug is not cost-­effective, or to pay for a restricted indication, such as a certain stage of cancer, Dr Laupacis indicated.

Cost-effectiveness determinations help committees allocate resources fairly, he explained. “Resource allocation decisions must be made, ad hoc or in a planned manner. Doing so in a planned manner is better,” Dr Laupacis said.

“If we pay for a very expensive drug or any intervention with very little value, we won’t be able to pay for something else with potentially more value,” he noted. “In the vast majority of circumstances, we have to ask how much value we are getting for the additional cost.”

In the United States, payers can dictate their reimbursement based on reliable cost-effective analyses.

Negotiating Cost with Manufacturers
As of the past few years, Canadian drug reimbursement committees have been able to negotiate prices with manufacturers. This has been an improvement over the previous structure, in which the manufacturer submitted a price for consideration, with no opportunity for adjustment.

“This meant we often suggested that drugs not be funded, because at the price they charged, the drugs were not cost-effective,” Dr Laupacis said.

“That changed recently, and if a drug is not felt to be cost-effective at the price submitted by the manufacturer, we have the ability to negotiate in an attempt to find a price at which it becomes cost-effective,” he indicated.

“Unfortunately, that price is not made public, and I find that unacceptable,” Dr Laupacis added. “People can find out what I charge for a consult, but we don’t know the price our government has negotiated with the manufacturer.”

Regardless of a drug’s cost-effectiveness and perhaps a reasonable price, which is negotiated with the manufacturer, Dr Laupacis acknowledged that drug prices are still “massively higher” than they used to be, and are “generally not massively better” than the current best treatments.

“For the way forward, there are no easy solutions,” Dr Laupacis concluded. His suggestions for payers are to:

  • Focus on getting high-quality information about effectiveness of drugs to accurately drive cost-effectiveness ratios
  • Negotiate prices aggressively based on­ cost-effectiveness
  • Use tools such as value-based discounts
  • Involve patients in the dialogue.
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Last modified: May 4, 2015
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