I Am Paying for Your Expensive Medicine

NOV. 7, 2015 [Ezekiel J. Emanuel]

Ezekiel J. Emanuel Continue reading the main story Share This Page

YOU may not know it, but you could be on the hook to pay at least $124
this year for a drug you probably don’t take.

The drug is a new class of cholesterol-lowering agents called PCSK9
inhibitors. Its cost and how we are paying for it illustrate why we all
need to care about not only our own health care bills but also those of
our neighbors. And it helps focus the debate about drug prices on two
questions: What is the value delivered by the drug, and can that be linked
to its price? And how should such value-based prices be implemented?

In July, the Food and Drug Administration approved the first of two new
PCSK9 inhibitors that lower the bad type of cholesterol, LDL. Studies
suggest that they can reduce it by up to 60 percent, compared with a
placebo, and reduce it up to 36 percent more than statins and a drug
called ezetimibe. However, there are no definitive data on how much
these drugs actually reduce heart attacks, strokes and deaths from heart
disease. Researchers suggest they might decrease the likelihood of such
bad outcomes. For example, one preliminary study found that taking the
drug lowered the overall chances that a patient would experience a heart
attack or stroke, or hospitalization or death from heart disease, to
1.7 percent from 3.3 percent. The definitive studies will be out in 2017.

Drugs like these can help us lead longer, more productive lives. The
problem is that the companies producing these drugs — Amgen, Sanofi and
Regeneron — announced that the retail price for a prescription would
be more than $14,000 per patient per year. The price is particularly
steep given that these drugs may need to be taken for the rest of the
patients’ lives. How much patients pay directly would depend on their
insurance plan.

But the high prices insurers will have to pay will eventually be reflected
in higher premiums for all of us. According to a recent article in The
New England Journal of Medicine by Kevin A. Schulman and his colleagues
at Duke, even if the price came down to about $11,000 per patient per
year, and only 1.1 million of the roughly 23 million middle-age Americans
with high cholesterol actually took these drugs, the bill would be so
high that for a typical insurance plan, “annual insurance premiums
would increase by $124 for every person” in the insurance plan. The
authors point out that “taxpayers will have the additional burden of
paying for similar increases in” the costs for Medicare to cover such
drugs. The same is true for Medicaid and the Veterans Affairs department.

To protect patients, many policy makers and academics are proposing
various changes in drug benefit arrangements such as separating out
deductible limits for drugs from deductibles for other health benefits
and limiting co-pays for these drugs to $100 to $250.

These proposals are a good start and necessary, especially for low-income
Americans who struggle the most to pay out-of-pocket medical costs. But
they will not solve the systemic problem of super-high drug costs. Someone
— even if it’s a less than sympathetic insurance company — still has
to pay the full bill. A growing chorus is arguing that we should start
paying for value in health care. Paying for value is the common-sense
idea that prices should be linked to benefits; high prices would have
to be justified by high health benefits.

What would paying for value look like in the case of PCSK9 inhibitors? We
have estimates of the benefits in terms of lowering risks from
cardiovascular disease. At what price would those benefits be a good
value?

In the rest of the economy we let individuals determine value. They
decide whether a new gadget is worth the expense when they spend their
own money on a television, a car or a smartphone. And in health care
many want only patients to determine value.

But as these PCSK9 inhibitors make clear, it is not just patients’
perspectives we need to take into account. Patients get the benefits,
but all of us are paying the bill. As Dr. Schulman and his colleagues
show, the nature of the way we pay for health care — through private
and public health insurance pools, which spread financial risk and costs
among large populations — means we all pay for an exorbitantly priced
high cholesterol drug even if we don’t have high cholesterol and we
don’t take the drug. The high costs are hidden in our ever-increasing
insurance premiums and taxes. Because we all pay, all Americans have to
have a voice in determining value.

As the PCSK9 story is making clear, the drug cost debate is now
beginning to focus on two questions that are currently unresolved:
First, how do we determine value so the perspectives of all Americans are
considered? Second, how do we implement and enforce that determination
of value?

The traditional answer to the first question is to determine the
cost-effectiveness of the new drugs by assessing how much they improve the
lives of patients measured by quality-adjusted life years (QALY). This
is certainly an important measure for patients. The controversy centers
on how much we should pay for each additional year of life. Is it
$50,000? $100,000? More? In England they have a flexible target, wherein
above $45,000 per QALY drugs require an increasingly stronger case for
coverage. But even if we use a much higher target in the United States
— say, $150,000, which is about three times the median household income
— it turns out these PCSK9 inhibitors still fail the value test. The
drugs would cost patients as much as $300,000 for every quality-adjusted
life year they add. Their price would have to shrink by more than half,
to roughly $5,000 per patient per year, to make the $150,000 level.

The answer to the second question is just as unsettled. Many people hope
that the drug industry will self-regulate, using value-based pricing
of its new drugs. But if past experience is any indication of future
behavior, self-regulation may be a pipe dream. Recent price increases
for generic drugs long off patent and patented drugs in which there is
no additional research aren’t encouraging signs.

In the United States, government regulation is usually a solution of last
resort when industry self-regulation fails. But if insurance premiums
keep going up $124 per person because of a single drug, Americans may
find it more appealing.

Ezekiel J. Emanuel is an oncologist and a vice provost at the University
of Pennsylvania.

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A version of this op-ed appears in print on November 8, 2015, on page
SR9 of the New York edition with the headline: I Am Paying for Your
Expensive Medicine. Today's Paper|Subscribe