ICER’s President Discusses The Future of Formulary Design

During PBMI 2018, Steve Pearson, MD, explained how payers can improve access to high cost drugs without sacrificing affordability.

He started his presentation by posing that very question: “do we need to choose between affordability and access?” Dr Pearson, Founder and President of the Institute for Clinical and Economic Review (ICER), answered by saying that “The short answer is ‘no,’ but the long answer is complicated.”

Dr Pearson first explained how ICER determines its fair price measures for new drugs coming to the market. He said that three factors go into determining what “fair price” means, including supply and demand on the free market, the costs of development and a reasonable profit margin for drugmakers, and the value of the product to patients and health systems. 

He then broke down how ICER measures cost-effectiveness. Dr Pearson said that value-frameworks play a role, and that what cost-effectiveness really comes down to is how a new drug compares to the alternative courses of action in terms of both costs and outcomes. 

The goal, according to Dr Pearson, is to determine cost effectiveness threshold per quality adjusted life year added. The ideal medication would be more effective and less costly, however the most common scenario is a new medication that is more effective and more costly.

“What do we want to do with a new treatment that is less effective and more costly? We want to find the closest trash can and make sure it gets in there,” Dr Pearson said during his presentation. “Similarly, when we have a new treatment that is more effective and less costly, that’s the one we put people on horseback and send them out into the community and make sure patients get them.”

He explained that cost effectiveness is determined by ICER’s $50,000 to 150,0000 per QALY value-based benchmark. This benchmark takes into account and averages the societal willingness to pay, the individual willingness to pay, and the opportunity cost for the health system. 

According to Dr Pearson, ICER’s cost-effectiveness reports can then be used by payers to determine coverage decisions and help with pricing negotiations. Additionally, they can be used by drugmakers to determine a price point that will increase utilization by negotiating with payers based on the ICER findings. For example, the PCSK9 inhibitor Repatha was recently identified by ICER as needing a 50% discount from its current price in order to be cost-effective. After the FDA recently expanded the indication of Repetha, the drugmaker announced it would lower its prices based on ICER’s targeted cost-effectiveness price. 

Value-Based Plan Designs and Formularies

Dr Pearson explained that affordability and access can be increased through value-based negotiations with drugmakers. These novel benefit designs can be developed by applying ICER’s drug value assessments. 

He outlined the first option, which involves developing a special tier, step therapy, or exclusion of drugs whose best-negotiated price is still higher than the value-based benchmark. This would involve having drugs that are clinically beneficial but outside the value benchmark to trigger a special tier of the formulary. However, Dr Pearson said that exclusion can be problematic.

“It’s not my favorite,” he said of excluding drugs. “Because it is a way of thinking about cost-effectiveness and thinking about expanding the negotiating power, but it has certain limitations, including the fact that you have to be very careful any time you exclude something from any health benefit package, to make sure that there are safe guards or other processes.”

Dr Pearson then explained that this leads to the second option for value-based plan design, which is including drugs on formulary but only paying up to the value-based price benchmark. He explained that this design is known as a value-based reference payment plan.

He concluded by noting that cost pressures in the specialty drug space are likely to continue and intensify, and that solutions are needed to address this pressure. Dr Pearson also added that the strategy of using cost-effectiveness benchmarks as a pricing tool has passed the “prove it” stage—and is a very viable option for future plan design.

“The argument that makes sense for patients and policymakers and for everybody is that if we can get our pricing in alignment with value—that doesn’t mean its going to be cheap,” he concluded. “But if we are going to discriminate that way,  we want to make sure that patients get access to the drugs that will make a real difference, without wasting money.”

—David Costill