The massive increase in the cost of US prescription drugs has caused a seismic ripple through the health industry, as healthcare providers, managed care organizations, and patients scramble to rationalize and understand what is in their respective best interests. Does an increase of survival rate by two weeks really warrant a price tag twice that of a competing drug? Do side effects actually make a seemingly less expensive drug substantially more once the course of treatment is complete? And simply, is more expensive better and/or safer?

The Wall Street Journal, recently published New Push Ties Cost of Drugs to How Well They Work , in which it was noted that Express Scripts, one of the country’s largest PBMs, is seeking deals with pharmaceutical companies that will price some cancer drugs based on how well they work, otherwise known as pay-for-performance. The article cites Tarceva, (Astellas Pharma) a drug that is indicated for both lung and pancreatic cancers, the latter being a patient population that sees less of a benefit from this particular drug. Express Scripts is proposing based on Tarceva’s performance among these pancreatic patients that their costs should be lower than those taking it for lung cancer.

Pay-for-performance is an exciting and interesting drug purchasing concept, but it is not without real risks. Specifically, how is the performance metric determined, and in whose benefit (the purchasers, the provider or the patient?).

Tying acquisition costs to benefits creates tough choices for prescribers and patients, especially those that carry a larger burden of the cost share. If pay-for-performance models become the norm with large payers like Express Scripts, it is safe to assume that the cost differences will trickle down to the patient. Can we really ask a patient who was recently diagnosed with cancer, or her provider for that matter, to have to make the choice between a low cost drug that will extend your life by 2 weeks vs. a high cost one that will extend your life by 2 years?

What is the definition of performance? The WSJ article only mentions effectiveness as the lever for pricing adjustments, leaving the risk side of the risk-benefit equation off-balance, and omitting the concept of long term value. The safety profiles of every medication differ and the downstream medical costs to treat side-effects can be large. For example, according to the AdverseEvents Explorer RxCost analytic, that calculates downstream medical costs from drug side effects, Sutent’s side effects, another drug indicated for pancreatic cancer, account for approximately $576 in downstream medical costs per prescription vs. Tarceva’s $219.

The most expensive option isn’t always necessary and the cheapest upfront isn’t always the most prudent. Performance needs to be a holistic, standardized measure that takes into account not only progression free survival or cure rates, but overall safety and measures such as the downstream costs of the drug’s side effects. Real world data and big data analytics provide an avenue to allow for the creation of transparent metrics that can be applied to almost any pricing decision. Independent, unbiased data sources allow payers such as Express Scripts and managed care as a whole, to push back against high drug prices and will drive pharma to sponsor more economic and valued based research that will add to the pool of evidence

The outrage over the costs of drugs is justified. However, solutions such as pay-for-performance, need to go beyond simply reducing short-term acquisition cost and work to reduce total healthcare costs.

To see how AdverseEvents Explorer powered by RxCost can help with your price negotiations, request a free trial.


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Jim Davis

Jim Davis

Executive Vice President

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Jim Davis

Written by Jim Davis

As Executive Vice President, Jim is responsible for the commercialization strategy for Advera Health Analytics.