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From “Price Controls” To Robust Public Conversation: How CMS Can Move Drug Price Negotiation Into The Light

Generic pharmaceutical pills sit on 100 dollar bills.

From the time that the Centers for Medicare and Medicaid Services (CMS) first provided public guidance on its intended approach for negotiating the price of the first 10 drugs selected for Medicare’s drug price negotiation program, there has been much speculation on the gaps in the available guidance. For example, it’s all well and good to say that a number of factors will be used in negotiation, but how are those factors weighted and used to determine a numeric output, the price? Following closely on the heels of such speculation has been an equal or greater amount of suggestion and recommendation for how CMS might go about this. Now that CMS has made its initial price offers to the makers of the 10 selected drugs, we remain in the dark about the method used, as all discussions are confidential.

Despite all the activity, we feel that something is fundamentally missing from the discussion—explicit consideration of how to ensure that the program meets what we believe are three critically important criteria:

  • The evaluation is robust, credible, and replicable across topics;
  • The process is open and inclusive for all relevant stakeholders; and
  • Price offers are subject to discussion and deliberation in the open.

We have developed a framework for such an approach. Not surprisingly, given our backgrounds and interests, our framework is evocative of a formal health technology assessment (HTA) process, as some have already called for on a national level and in relation to CMS specifically. But the devil, as they say, is in the details. These calls for CMS to become an HTA body have focused mainly on coordination, increasing workforce capacity, and better data, rather than the structural approach to HTA that CMS should consider.

The Institute for Clinical and Economic Review in the US and its counterparts internationally might serve as a model for some elements of the CMS approach, but these organizations focus mainly on assessing the evidence on newly approved drugs and suggesting what a fair price should be based on that evidence. CMS is tasked with evaluating whether the evidence generated over a relatively long product lifecycle justifies the already-set price or if further discounting is warranted. This raises many questions. What new evidence is good enough to move the dial? How do you pick the right comparator for a drug that’s been around this long?

Our framework attempts to address each of these challenges while remaining true to the spirit of what HTA should accomplish—credible, evidence-based decision making in the interest of population health and health-system sustainability. The approach, as displayed in exhibit 1, is intended to fully cover the negotiation timeline, with opportunities to engage with stakeholders at each key step.

Exhibit 1: Proposed framework for CMS drug price negotiation

Source: Authors’ analysis.

Selecting The Comparator(s)

The choice of therapeutic alternatives is a critically important component of the CMS process, given changes in clinical practice since the introduction of these drugs. Logically, the most straightforward comparison is to the current standard of care. However, newer agents may not have been compared to the drug of interest in a rigorous study, as the most robust randomized trials were likely those that won the drug its original regulatory approval.

We propose a flexible paradigm in which the drugs of interest can be compared to either the current standard of care or the standard that was in place when the drug was originally approved and launched. In either case, there should be a formal assessment of product value (see below) to understand how the price aligns with the drug’s benefit. If a historical standard of care is selected as the comparator, the output would be a price “premium” that could be charged for the selected drug, over the price of the comparator. If the current standard of care is chosen as the comparator, CMS already has a path to follow if the prices of the comparator is higher than the selected drug—the negotiated price on the Federal Supply Schedule or “Big 4” list becomes the default price for the selected drug—no value assessment required. If the price of the current standard is lower than the selected drug, then value assessment can proceed as described below.

Assessing Product Value

In any situation where the prices of therapeutic alternatives are lower than the price of the selected drug, it is feasible to understand the “value” that the selected drug brings—in other words, the benefits over and above alternatives in relation to the additional costs being paid. Doing so requires that there are available data to understand all of the costs introduced or saved by the target drug, its effectiveness in the real world, and quite possibly, its cost-effectiveness in relation to alternatives. Cost-effectiveness analysis (CEA) is a worldwide standard for quantifying the benefit-cost tradeoffs of funding decisions in health and can be used in this context even though a common measure for summarizing health improvements, the quality-adjusted life year (QALY) is explicitly banned by the Inflation Reduction Act’s (IRA’s) drug pricing provisions. How can this be done?

Before considering CEA, it will be important to quantify the size of the affected population and any special subpopulations for each drug of interest, by indication; and the level of unmet need that currently exists for each population. The former can be addressed through a review of the literature, the Centers for Disease Control and Prevention and other government websites, and information submitted by the manufacturer. The latter will require an understanding of how unmet need is best measured in each circumstance (for example, life expectancy, time in hospital, and so forth) but can also be informed by the same sources.

Attention can then be paid to the building blocks of a CEA. First, it is entirely feasible to identify a prior cost-effectiveness study from the literature or other authoritative source such as the Tufts CEA Registry. Our approach first involves conversion of QALYs from prior studies into an average quality of life (that is, divide the QALYs by life expectancy under any treatment arm) and life expectancy component. Considering incremental changes in these two components separately would not violate any of the IRA requirements. To convert these changes to dollar values, we propose using health years in total, a novel measure that allows for full accounting of quality of life and life expectancy changes that meets IRA requirements. Then, an “impact inventory” can be completed (as available data allow) to record all possible impacts of the drug and its alternatives, including health care resource use, medical costs, patient time burden, caregiver burden, productivity loss, and other effects. The impact of disease and treatment on caregiver quality of life can also be estimated, a critical element for diseases such as Alzheimer’s. All of these impacts can be monetized and compared, and if the drug is more effective than its comparator, a “premium” over the price of the comparator can be estimated and compared to what CMS is currently paying for the drug, and any additional discount can be calculated.

Weighting And Integrating Negotiation Factors

While value assessment is a necessary component of any price negotiation, it is not sufficient. CMS has named multiple important factors for negotiation, including health equity, unmet need, costs, and comparative clinical effectiveness. The performance of the drug in addressing these elements can be weighted and scored using an approach known as multicriteria decision analysis, allowing upward or downward adjustment of the value assessment output depending on the magnitude of the drug’s impacts. We consider manufacturer-specific factors such as research and development (R&D) costs, extent of federal research support, and so forth to be of second-order importance, as the selected drugs have likely generated revenue far in excess of R&D investments or cost of goods. Our framework does allow for these elements to have a modest effect if they are in fact relevant for a given situation.

Deliberating On The Evidence

The weighting process described above could be used directly by CMS in arriving at a price offer, but we feel that any deliberation on how various factors impact the offer is best done the way that the Institute for Clinical and Economic Review and other health technology assessment bodies worldwide do it—through the work of an advisory committee that is independent of the organization making the decision or recommendation. There are more than 1,000 advisory committees to the federal government, including the Medicare Evidence Development and Coverage Advisory Committee (MEDCAC). A separate committee, modeled on a structure and governance similar to MEDCAC’s, could be convened to assess the available evidence, analyses, and negotiation factors for each drug. Members would have expertise in key and relevant areas (clinical evidence synthesis, health economics, deliberative processes, bioethics), be representative of the relevant stakeholder communities, and be bound by confidentiality and conflict-of-interest policies. The committee would be chaired by a patient or other unaffiliated member, who would be responsible for ensuring meeting flow, enforcing rules of engagement, and facilitating deliberation.

We imagine a committee process that would take place over one to two days to evaluate all selected drugs during a given cycle. Reports from CMS would be available to review in advance, and the meetings would be held in public with opportunities for stakeholder comment. Committee votes could take multiple forms and allow the committee to weigh in on the incremental benefit offered by the drug over alternatives, key uncertainties in the data, additional benefits not quantified in the analysis, equity concerns, and last but not least, the price offer itself. As with MEDCAC, votes and recommendations would be non-binding but would be a matter of public record offered for CMS consideration.

Meaningfully Engaging With Stakeholders

As part of its guidance, CMS scheduled patient “listening sessions” in the fall of 2023 to understand the impacts of diseases that the first 10 drugs address as well as the benefits and risks of these medicines. While this was an important first step, the engagement was criticized for its brevity, limited capacity for patient and caregiver speakers, and the one-way nature of the discussion.

We propose a number of steps for the agency to meaningfully engage with the patient and caregiver community, across all four components of our proposed framework. Patients and caregivers (as well as clinical experts and the general public) should be able to offer suggestions for the therapeutic alternatives CMS will compare to the drugs of interest, based on personal experience, treatment guidelines, and available evidence. Patients and caregivers in particular should have an opportunity to identify the measures and outcomes that matter most to their management of disease, as this is the most appropriate lens through which submitted evidence should be viewed. Finally, certain stakeholders may have access to evidence of the drugs’ real-world impacts on clinical outcomes, adverse events, quality of life, productivity, and other social impacts, and costs of managing disease and treatment. These data should be available to complement what the manufacturer is submitting and what CMS obtains via published or publicly available materials. The timeline for negotiations is brisk, but these procedures are important touchpoints for establishing legitimacy and can be feasibly embedded in even the most ambitious process.

Summary

Implementing a framework such as ours would be a significant effort for CMS, one that will require additional recruiting and capacity-building as well as a commitment to transparency and public engagement throughout the process. Our approach is borne of a conviction that negotiation for the sole purpose achieving the lowest possible price will send the wrong signals to industry and the wider public about the benefits of pharmaceutical innovation, and that the appropriate tool for negotiation is an ascertainment of the value these drugs provide. There is clearly more work to be done, such as an examination of the feasibility of our framework components given regulatory and statutory authority. But our framework is not really new—it instead builds on a strong tradition of global HTA, one that had its roots right here in the US with the creation of the Office of Technology Assessment in the 1970s. Many stakeholders are concerned that the CMS approach will be just a monologue about price cuts; we hope instead that CMS will embrace the fundamental aspect of successful HTA—a conversation.

Authors’ Note

The research described was funded by a research grant from the Commonwealth Fund, for which Dr. Ollendorf was principal investigator. Helen Mooney divested of interests in Johnson & Johnson, AbbVie, Abbot, Merck & Co., Organon & Co., and Bristol-Myers Squibb prior to joining PORTAL. The research described was funded by a research grant from the Commonwealth Fund, for which Marie Phillips was a research team member. Anirban Basu performs consulting work with Salutis Consulting, LLC. Current work was part of a contract with Tuft University with Salutis Consulting, LLC. The Institute for Clinical and Economic Review has suggested a separate method for price negotiation to the Centers for Medicare and Medicaid Services.

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