"Obscure Newspaper Discovers 40-year-old Concept Widely Used in Medical Literature"
The concept of QALY goes back to 1976[0] and is a mainstay of cost-effectiveness literature. Fair to say there has sometimes been resistance to its application in the US, where we like to pretend that we are equitable in providing care. But odd that WSJ seems to have just discovered this idea.
I jumped into this comment thread to say precisely that. It’s absolutely outrageous how many articles about the healthcare industry basically boil down to: journalist just discovered simple, old, and public concept known to everyone even loosely in the field, relates it as a shattering innovation.
I’d say this accounts for about 30% of the healthcare articles that end up on HN. The other 70% are just garbage.
This was probably just the usual case of the article title failing the describe the content. The word obscure isn’t used in the article itself, which actually makes an effort to explain the concept for people who haven’t come across it before. And wsj published a much shorter piece in on QALYs in 2015
The relatively straightforward concept of the model is great for comparing drugs' relative effectiveness. The ICER number of $150k/QALY is wildly out of line though and will bankrupt us.
1. The $150k/QALY covers only the cost of the drug, not the cost of the physician to prescribe it.
2. The $150k/QALY pricing is based on the manufacturer's hand-picked population of patients and indications, which may benefit more from the drug than the average patient it's actually prescribed for.
3. U.S. per-capita GDP is $60k. One's person's life being extended by one year consumes the entire income of 2.5 people.
4. There is an implicit assumption that drug companies are entitled to be paid by government, the entire value that their products provide. In normal competitive markets, there is a producer surplus and a consumer surplus, i.e. prices are higher than the cost of production, but lower than the value they deliver.
A look at an actual ICER review provides more info. As an example, this is the working evaluation of Zolgensma, the most expensive drug in the world [0]
1. The ICER review considers the cost of drug as well as the non-drug related healthcare costs (see tables ES11 and ES12 among others)
2. ICER's cost-effectiveness recommendations cover specifically the patient populations that are studied. It is not scientifically valid to draw conclusions about a drug's effectiveness in populations in which the drug hasn't been studied. Companies must study drugs in prespecified patient populations in order to power their studies and create pre-defined statistical analysis plans. Studies that are not adequately powered, properly designed or that dont have predefined statistical analysis plans are not robust methods of discovering whether a drug is save and effective
3. This is a very complex topic and ICER evaluates cost-effective prices at a range of QALY thresholds because this is a subjective number (tables ES20 and ES21)
4. Because of the patent system, drug makers capture most of the consumer surplus before patent expiry,but after patent expiry then consumers capture essentially all of the consumer surplus. Something like 80% of prescriptions written in the US are for generic drugs
2. I don't think we disagree here. However, it's not possible to do a cost effectiveness study of every possible patient population. As long as the studies are funded by the drug manufacturers, the data we have will be skewed to make the drug look most effective.
3. I'm not sure it's such a complex topic. If drug companies do their jobs well and come up with genuinely useful products that extend people's quality and length of life significantly, and they price according to $150k/QALY, we will all go broke. The best we can hope for is that they fail to come up with anything useful so that we can still afford to eat. Perhaps the food companies will get wise and start charging the government $150k/yr for beans and rice for everyone in the country.
4. It's not the patent system that's causing this, it's a very complex network of regulatory and institutional capture including Medicare, PBMs, insurance companies, insurance regulation, and drug regulation. All other western countries also have patents but don't have the same drug price problems. These problems are showing up even in generic drugs now.
> It's not the patent system that's causing this, it's a very complex network of regulatory and institutional capture including Medicare, PBMs, insurance companies, insurance regulation, and drug regulation. All other western countries also have patents but don't have the same drug price problems. These problems are showing up even in generic drugs now.
I think this comment comes off as misleading, so I'm going to fill in with knowledge gained from a past career. The regulatory environment didn't create this set-up, and it's not really institutional capture. We've gotten here through the market finding it's own Nash equilibrium.
For the most part, American drug coverage is driven by traditional American employer-based insurance or by insurers who make the majority of their money via employer-based insurance. Medicare provides general drug coverage via Medicare Part D, but Part D is optional for patients, and administered via traditional insurers. For some specialty drugs, Medicare provides drug coverage via medical coverage, but those prices are specifically set based on the average prices paid by commercial insurance. I can't recall how specifically Medicaid handles drug coverage, but it's not a large enough segment of the population to distort the market by itself. Therefore, consider the playbook for a drug manufacturer looking to maximize profits:
The playbook for a drug manufacturer looking to maximize profits in Europe looks like this:
* In northern Europe, price your drug based on some value per QALYs as outlined in national regulations
* Most of the rest of Europe, assemble a team analyze the bidding and tendering rules and devise a pricing structure around those rules
The relationship between different tendering systems might be complex, because some countries may require that they get the lowest price offered to any of their neighbors, while others are willing to grant complete exclusivity in a class in exchange for more favorable pricing (ie, beating out similar but different competitor drugs). You're going to need a team of specialists to navigate the terrain, but fundamentally the principles are simple.
By comparison, the playbook for a drug manufacturer in the US looks like this:
* Raise list prices noticeably
* Negotiate with insurers for formulary access in exchange for rebates
* Offer co-pay assistance programs for patients
* Next year, repeat
List prices are essentially just the starting positions in the US, and are essentially made-up. Insurers will negotiate for rebates, in exchange for not requiring prior authorizations or setting high co-pays or coinsurance. Prior authorizations are generally effective at dissuading doctors from prescribing a certain drug (because it's more paperwork), but the efficacy of prior authorizations goes down as competitor drugs also require prior authorizations (or if there are no competitor drugs). From the manufacturer side, the only way to circumvent prior authorizations would be have pharma reps help fill out that paperwork, but that's illegal for multiple reasons (as I understand it, this one of the crimes that brought down Insys Therapeutics).
Co-pays are generally less effective in dissuading prescribing by doctors. That's because co-pay assistance programs let drug manufacturers cover the patient copays, a) makes the drug manufacturer look good in front of the end consumer, and b) let's the drug manufacturer price discriminate based on patient income after-the-fact. An insurer could choose the nuclear option and ban any drug that has co-pay assistance, but that's a heavy-handed method not popular with patients or employers (especially if the manufacturer structures the co-pay assistance as a separate charity).
Insurers will respond by banding together behind PBMs. The PBM will get a cut of the rebates that they negotiate, so higher prices will make it easier to negotiate with them. Medicare drug coverage is split between being run by traditional health insurers via Medicare Part D (most conventional medications), or having prices set as fixed discount on average prices via Medicare Parts A, B and C (most specialty drugs). Medicaid will be the same way, with a steeper required discount. The drug manufacturer can think about Medicare and Medicaid after thoughts.
Additionally, the drug manufacturer knows that costs will ultimately be passed to employers. While insurers and PBMs need to negotiate for those rebates, they don't need to negotiate that hard since the cost will ultimately be passed onto insurers. As long as the PBMs are negotiating a better deal for insurers than what insurers would have gotten on their own, everyone in the negotiations will be happy with the rebates.
Fundamentally, rising prices are a result of the system being stuck in a Nash equilibrium that's extremely favorable to drug manufacturers that understand the game, which means raising prices.
As a side note, we're starting to get integrated health systems (where the insurer and hospital network are the same company) a side effect of hospital systems consolidating, that can buck this trend. In general, the average working American sticks with the same employer-provided insurance for less than 2 years, since they'll either switch jobs or their employer will shop around for cheaper insurance. Because they tend to dominate specific locales, the integrated health systems tend to stick with patients longer, and therefore have much stronger incentives to find cost effective care for their patients than traditional insurers.
The NHS price cap on drugs here in the UK is somewhere in the low tens of thousands per QALY. This does drive down drug costs, but also means that some treatments just aren't available.
>This does drive down drug costs, but also means that some treatments just aren't available.
If you aren't rejecting some treatments, you aren't controlling healthcare costs. A drug or device must be safe and effective to gain market authorisation, but the threshold of efficacy is statistical significance rather than clinical significance. Many drugs and devices on the market are almost useless - not actually useless, but very nearly so.
The usual examples of controlling care costs are stupendously expensive novel treatments for rare and serious diseases, but an equally serious problem is marginally effective or ineffective treatments for common complaints.
[0] https://academic.oup.com/heapol/article/21/5/402/578296