[e-drug] How drug prices are set

[Kirsten Myhr <myhr@online.no>]

E-drug: How drug prices are set
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[Copied as fair use. Reidenberg's invitation was never posted on E-drug, but
I have given the link to the full text under reference 1. I think this reply
to his invitation is interesting in showing the complexities facing
decisionmakers who try to contain costs. KM]

Clin Pharmacol Ther 2002; 72(1): 101-2
http://www2.us.elsevierhealth.com/scripts/om.dll/serve?action=searchDB&searc
hDBfor=art&artType=letter&id=a125901

To the editor:

In the September 2001 issue of Clinical Pharmacology & Therapeutics, Dr
Marcus M. Reidenberg confessed, �I do not understand how drug prices are
set,� inviting commentaries to explain and illustrate the process of drug
pricing.1 The relevance of the issue at an international level is emphasized
by the directive from the European Commission on transparency of
reimbursement decisions and price agreements,2 which is binding for public
institutions responsible for these affairs in the European Union. We offer a
factual example of a drug reimbursement and pricing decision that we hope
will serve to illustrate the difficulty of setting drug prices for even one
single well-defined class of drugs, 3-hydroxy-3-methylglutaryl coenzyme A
reductase inhibitors (�statins�).

Our perspective and institutional background is that of the Main Association
of Austrian Social Security Institutions/Sick Funds. The 27 Austrian social
security institutions are responsible for managing and financing basic
medical (including drug) benefits for nearly 100% of the Austrian population
of approximately 8 million. The agencies are legally independent and
nonprofit. There is currently no patient copayment scheme for drugs (with
the exception of a flat prescription fee), meaning that drugs are either
fully reimbursed by the social securities or not at all. Drug manufacturers
offer their products for listing on a supply schedule to receive
reimbursement. All key decisions on nonhospital prescription drug
reimbursement and pricing are made by the Association on the basis of
recommendations from a professional Drug Advisory Board and after
negotiations with the manufacturer, and those decisions are binding to all
agencies. We have all been serving on the Drug Advisory Board for the past 3
to 11 years, giving us first-hand experience of the decision-making process.

During the past few years a guiding rule for reimbursement and pricing
decisions of the Drug Advisory Board has evolved: that all drugs should be
made available to patients for which there is evidence beyond reasonable
doubt of true patient benefit. �True patient benefit� implies an improvement
of more than a trivial magnitude in a clinical end point (eg, reduction in
cardiovascular events). Along the same line, prices for new products are
negotiated only on the basis of documented patient benefit, usually in
relation to existing products. Considerations such as cost of manufacturing,
novel pharmacologic class, and country of origin are not taken into account.
�Evidence beyond reasonable doubt� implies results from methodologically
sound clinical trials. This is judged along the lines elaborated and applied
by the Cochrane Collaboration.

In 1997, 3 new statin drugs�atorvastatin, cerivastatin, and
fluvastatin�became available and were offered by their respective
manufacturers for reimbursement at a significant discount compared with the
statins already on the schedule for reimbursement (simvastatin and
pravastatin). Because statin drug costs accounted for a considerable
fraction of the total drug budget of the social security agencies, this
prompted the Drug Advisory Board to reassess its reimbursement strategy for
the whole class.

At the time, there was convincing evidence from randomized
placebo-controlled trials of patient benefit for simvastatin and
pravastatin. Patient benefit had been shown by a reduction of cardiovascular
events, although in different patient populations and clinical conditions.3
No such evidence was available for atorvastatin, cerivastatin, or
fluvastatin. However, it was well documented that all available statins
effectively reduce cholesterol levels; this was reflected in the respective
summaries of product characteristics, as approved by the regulatory
authorities.

To understand our decision, it is useful at this point to examine the
interests of a public health insurance fund with regard to drug purchasing.
In order of decreasing priority these interests are (1) to provide the best
effective and proven treatments (as described earlier) to insured patients,
resulting in a high degree of patient satisfaction, (2) to minimize cost to
meet perennial budgetary constraints, and (3) idealistically, to use its
purchasing power and influence to promote rational drug prescribing, reward
innovative research, and promote adequate clinical testing and
characterization of drugs. It is obvious that in times of limited
health-care funds, growing public expectations, and innovative pressure from
drug manufacturers, these legitimate goals are almost mutually exclusive and
often amount to squaring the circle.

Returning to the statin issue, the evidence-based medicine-inspired
principle of reimbursing only drugs for which true patient benefit has been
shown (goal 1) and of promoting rational prescribing (goal 3) was at odds
with the economic necessity of reducing the drug bill for statins (goal 2).
In this situation, proponents of the more economic solution argued that
statins may be considered a class of therapeutically equivalent compounds
and that patient benefit shown for some statins may be safely extrapolated
to all other class members.4 The economic line of reasoning dictated to
reimburse the newer statins and, if similar discounts could not be
subsequently obtained from the manufacturers of simvastatin and pravastatin,
to remove those products from the reimbursement list. Delisting is a routine
procedure in this type of situation.

Followers of a more purist streak of evidence-based medicine argued that the
level of evidence of patient benefit should be the sole guiding star, and
they took issue with the decision to reimburse drugs without adequate
evidence. (In hindsight, these purists seem to have been proven right by the
now well-known negative benefit-risk ratio for cerivastatin.) In this
situation, we initially attempted, but failed, to obtain discounts for
simvastatin and pravastatin, which illustrates the limited bargaining power
of smaller institutions obliged to follow a transparent pricing policy in a
pharmaceutical market dominated by global players.

After lengthy discussions, and in the absence of objective standards, a
compromise was reached in which equivalent doses were established for all
statins. These equivalent doses were defined as the doses (in milligrams)
that would produce near-equivalent reductions in low-density lipoprotein
cholesterol and were based largely on extrapolation of the results from the
CURVES study5 and partly on reviews.6 Starting from these unit doses, we
added the newer statins to the schedule at a price that was set at roughly
25% below the price of statins with clinical outcome trials.

Therefore both the older and newer statins are currently reimbursed, but a
price bonus is allowed for those compounds for which there is evidence of
patient benefit. This compromise partially achieved a number of goals:
�evidence-based� statins remained on the list and continue to be available
to prescribers and patients. On the other hand, some savings were realized
because the cheaper statins took away market share, resulting in reduced
total expenditure for statins. Moreover, the desired signal�that drugs for
which patient benefit has been documented at a high standard could carry a
higher price�was sent to the pharmaceutical community.

Is this an ideal compromise? Probably not: This pricing situation is clearly
not transparent or comprehensible without explanation, and an outside reader
of the Austrian reimbursement list will likely be left as bewildered as Dr
Reidenberg was when reading the price comparisons cited in his Commentary.
Further, we have not realized the full savings potential and, at the same
time, have compromised our own principles. Expectedly, our decision drew
criticism from both sides and continues to do so. Another panel composed of
different professionals might have arrived at a very different solution to
this conundrum.7

Our example serves to illustrate the complexities and competing interests,
even within one player of the health care system, and why drug pricing will
probably continue to be a puzzling and exasperating issue to all of us. It
remains an art and not a science.

The opinions expressed in this letter are the professional views of the
authors and do not necessarily reflect the official position of the
Hauptverband der �sterreichischen Sozialversicherungstr�ger (Main
Association of Austrian Social Security Institutions).

Hans-Georg Eichler, MD, MSc
Anna Bucsics, MD
Peter Wieninger, MBA
Department of Clinical Pharmacology, University of Vienna
Hauptverband der �sterreichischen Sozialversicherungstr�ger, Vienna, Austria
Hauptverband der �sterreichischen Sozialversicherungstr�ger, Vienna, Austria
E-mail: Hans-Georg.Eichler@univie.ac.at

References
1.  Reidenberg MM. An open invitation for an explanation about how drug
prices are set. Clin Pharmacol Ther 2001;70:205-7.
http://www2.us.elsevierhealth.com/scripts/om.dll/serve?action=searchDB&searc
hDBfor=art&artType=fullfree&id=a116146
2.  Council directive of 21 December 1988 relating to the transparency of
measures regulating the pricing of medicinal products for human use and
their inclusion in the scope of national health insurance systems (directive
89/105/EEC). Off J Eur Communities 1989;L40:8.
3.  Ross SD, Allen IE, Connelly JE, Korenblat BM, Smith ME, Bishop D, et al.
Clinical outcomes in statin treatment trials: a meta-analysis. Arch Intern
Med 1999;159:1793-802.
4.  McAlister FA, Laupacis A, Welss GA, Sackett DL. Users' guide to the
medical literature; XIX. Applying clinical trial results; B: guidelines for
determining whether a drug is exerting (more than) a class effect. J Am Med
Assoc 1999;282:1371-7.
5.  Jones P, Kafonek S, Laurora I, Hunninghake D. Comparative dose efficacy
study of atorvastatin versus simvastatin, pravastatin, lovastatin, and
fluvastatin in patients with hypercholesterolemia (the CURVES study). Am J
Cardiol 1998;81:582-7.
6.  Illingworth DR, Tobert JA. A review of clinical trials comparing HMG-CoA
reductase inhibitors. Clin Ther 1994;16:366-85.
7.  Thomas MC, Mann J, Williams S. The impact of reference pricing on
clinical lipid control. N Z Med J 1998;111:292-4.




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