My colleague Peter Pitts has written an article on a Democrat proposal to submit the price and use of a new drug for binding arbitration before Medicare or another government program pays for it. Arbitration is supposed to be a fair way to impose drug prices, but it is price controls all the same.
As with everything, proof in practice is more instructive than proof in principle. So, let me provide you with a real-world example of how such arbitration would proceed. Proponents use the German approach to pricing arbitration as a wonderful example of how spectacular arbitration is. There, the process comes after a company and the committee set up to determine prices can’t agree on reimbursement levels for the medicine in question.
Throughout, the goal is to set a price for a drug based upon the additional value it generates and converting that into a price premium compared to the average price of an existing drug for a condition selected by the committee.
The selection of comparator (as well as the reference price) is one critical element. The other is whose value is being measured. Interestingly, the German approach does not use quality-adjusted life years to make value determinations. The Germany process defers to an independent group to determine what comparator to use and whose value should be preferred.
In the US, proponents of pricing arbitration envision the Arnold Ventures funded group ICER serving as the arbitration organization, or something else that John Arnold would pay for by sponsoring its formation or operation. The Center for American Progress, in particular, loves the idea of the ICER driven pricing deals.
ICER puts limits on how many people could use a drug using a price that is sensitive to insurer and PBM profits. And that price is also based on a comparator that ICER also selects. The cheaper the comparator, the greater the hurdle for a new drug regardless of benefits, particularly since the goal is to save insurers money and maintain the PBM spread between net and list pricing.
Here’s an example of how the binding arbitration proposal in the US would work using a real-world example and ICER’s most recent analysis of a new drug:
Spravato, a new drug for major depression was recently approved, a form of ketamine that quickly improves mood without resort to ketamine’s hallucinogenic effects.
ICER’s initial review of the drug determined Spravato was effective but said that at the list price it was not cost effective and could only be used by a small percentage of people.
ICER’s comparator? Injectable Ketamine which is now used to knock out animals and some patients. The ketamine that, in the ICER preferred formulation, has the same mechanism of action at PCP. What’s more, ICER’s comparator is not even approved for treating depression. Untested, off-label use of ketamine. You might know it as Cat Tranquilizer, Cat Valium, Jet K, Kit Kat, Purple, Special La Coke, Super Acid, Super K, and of course, Special K, the medicine preferred by Bill Cosby.
You read that right. ICER used a form of a date rape drug as the comparator for determining price and is recommending the use of a date rate drug as a more cost-effective treatment.
That might sound extreme, but in fact, the capricious and one size fits all selection of comparators is a hallmark of every price negotiation. Standard of care is chosen to make price decisions. Benchmarks are adjusted, goal posts are moved to maximize rebates, not well-being. Drugs that require price cuts based on comparators are often not sold in a particular market because they lose money. Advocates of arbitration claim that is just an example of value-based care. Yet in Germany, 82 percent of drugs that were withdrawn because they didn’t meet the comparator price-value threshold were recommended by at least one guideline. Hence, drugs recommended because of their clinical benefit were no longer available.
Early assessment of new medicines is fraught with danger because prediction is not just political, it is unscientific and uncertain. ICER’s involvement assures that such arbitration related assessments and comparisons will be downright immoral.
