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Padula WV, Kolchinsky P. Can Generalized Cost-Effectiveness Analysis Leverage Meaningful Use of Novel Value Elements in Pharmacoeconomics to Inform Medicare Drug Price Negotiation? VALUE IN HEALTH : THE JOURNAL OF THE INTERNATIONAL SOCIETY FOR PHARMACOECONOMICS AND OUTCOMES RESEARCH 2024; 27:1100-1107. [PMID: 38677362 DOI: 10.1016/j.jval.2024.04.013] [Citation(s) in RCA: 0] [Impact Index Per Article: 0] [Reference Citation Analysis] [Abstract] [Key Words] [MESH Headings] [Track Full Text] [Subscribe] [Scholar Register] [Received: 12/20/2023] [Revised: 03/08/2024] [Accepted: 04/09/2024] [Indexed: 04/29/2024]
Abstract
OBJECTIVES Decision makers considering using cost-effectiveness analysis (CEA) to inform health-technology assessment must contend with documented and controversial shortfalls of CEA, including its assumption of disease severity independence and static pricing. ISPOR has recently introduced novel value elements besides direct healthcare cost and effectiveness for the patient, and these should be captured in CEA. Although novel value elements advance our understanding of "what" should be measured (value of hope, severity of disease, health equity, etc), there is limited direction on "how" to measure them in conventional CEA. Furthermore, with Medicare empowered to set drug prices under the Inflation Reduction Act, it is not clear what role CEA might have on where prices are set, given objections to the quality-adjusted life year in conventional approaches. METHODS We critically reviewed the evidence for expanding conventional CEA methods to a more generalized approach of generalized CEA (GCEA). RESULTS GCEA accounts for methods that address objections to the quality-adjusted life year and incorporate novel value elements. Although GCEA offers advantages, it also requires further research to develop "off-the-shelf" resources to help inform, for example, maximum fair price in the context of Medicare drug price negotiation. CONCLUSIONS Should a shift toward GCEA reveal that the societal value of novel medicines exceeds their market-based costs, which will raise the key question of what market failure Medicare negotiation is meant to solve, if any, and therefore what the appropriate role of such negotiation might be to maximize the value society might garner from the development of novel medicines.
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Affiliation(s)
- William V Padula
- Department of Pharmaceutical and Health Economics, Alfred E. Mann School of Pharmacy & Pharmaceutical Sciences, University of Southern California, Los Angeles, CA, USA; Leonard D. Schaeffer Center for Health Policy and Economics, Los Angeles, CA, USA; Stage Analytics, Baltimore, MD, USA.
| | - Peter Kolchinsky
- RA Capital Management, Boston, MA, USA; No Patient Left Behind, Westland, MI, USA
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Lakdawalla DN, Phelps CE, Nguyen HH. Three Pillars of Support for Orphan Drug Programs: Individual Valuations, Societal Valuations, and Anonymous Altruism. VALUE IN HEALTH : THE JOURNAL OF THE INTERNATIONAL SOCIETY FOR PHARMACOECONOMICS AND OUTCOMES RESEARCH 2024:S1098-3015(24)02753-0. [PMID: 38977180 DOI: 10.1016/j.jval.2024.06.014] [Citation(s) in RCA: 0] [Impact Index Per Article: 0] [Reference Citation Analysis] [Abstract] [Key Words] [Track Full Text] [Subscribe] [Scholar Register] [Received: 02/21/2024] [Revised: 05/29/2024] [Accepted: 06/25/2024] [Indexed: 07/10/2024]
Abstract
OBJECTIVES To identify and describe potential societal and individual sources of support for orphan drug programs. METHODS The Generalized Risk-Adjusted Cost-Effectiveness method shows that acute illness and disability severity increase individuals' willingness to pay for health gains. We develop a social welfare function (SWF) that incorporates individuals' own values, combined with politically or ethically determined weights. We introduce the concept of horizontal equity-that individuals in similar situations should be treated similarly-into the SWF. Finally, we introduce anonymous altruism into individuals' utility functions-the desire to help others, without knowing their identity. RESULTS Combined with the empirical link between disease severity and rarity, the Generalized Risk-Adjusted Cost-Effectiveness method demonstrates heightened willingness to pay for health gains for people with rare diseases, leading rational individuals to support orphan drug programs, our first pillar of support. Adding horizontal equity to the SWF further increases societal support for orphan drug programs. Anonymous altruism, focusing most strongly on those in the most-dire circumstances, leads to altruistic support for those with severe disorders. Because innovators' economic incentives lead them to focus on larger markets, anonymous altruistic individuals will increasingly prefer public investments into rare diseases over time, as private markets systematically produce gains for common diseases. CONCLUSIONS We identified 3 supporting pillars for orphan drug programs: (1) individuals' propensity to prefer treatments for severe diseases; (2) the preference for horizontal equity in our social welfare; (3) anonymous altruism, the desire to help strangers, coupled with market incentives that underserve strangers with rare diseases.
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Affiliation(s)
- Darius N Lakdawalla
- Schaeffer Center for Health Policy and Economics, University of Southern California, Los Angeles, CA, USA
| | - Charles E Phelps
- Departments of Economics and Public Health Sciences, University of Rochester, Rochester, NY, USA.
| | - Hong-Hanh Nguyen
- Departments of Economics and Public Health Sciences, University of Rochester, Rochester, NY, USA
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Phelps CE. Values Beyond "Health" in Budget-Constrained Healthcare Systems. VALUE IN HEALTH : THE JOURNAL OF THE INTERNATIONAL SOCIETY FOR PHARMACOECONOMICS AND OUTCOMES RESEARCH 2024; 27:830-836. [PMID: 38401798 DOI: 10.1016/j.jval.2024.02.005] [Citation(s) in RCA: 0] [Impact Index Per Article: 0] [Reference Citation Analysis] [Abstract] [Key Words] [MESH Headings] [Track Full Text] [Subscribe] [Scholar Register] [Received: 08/02/2023] [Revised: 12/17/2023] [Accepted: 02/14/2024] [Indexed: 02/26/2024]
Abstract
OBJECTIVES Most current methods to value healthcare treatments only incorporate measures such as quality-adjusted life-years, combining gains in health-related quality of life and life expectancy in specific ways. Failure of these methods to recognize other dimensions of value has led to calls for methods to include additional values that are associated with the healthcare treatments but not captured directly by quality-adjusted life-years. This article seeks to provide methodologically sound ways to incorporate additional health-related outcomes, focusing on budget-constrained healthcare systems, in which using standard welfare economics methods are often eschewed. METHODS The analysis develops standard extra-welfarist approaches to maximizing aggregate health, subject to fixed-budget constraints, using Lagrange multiplier methods. Then, additional valuable health-related outcomes, eg, reduced caregiver burden, real option value, and market- and non-market productivity are introduced. The article also introduces a social welfare function approach to illuminate how disability, disease severity and other equity-related issues can be incorporated into complete welfare measures. RESULTS Resulting analysis, fully developed in an Appendix in Supplemental Materials found at https://doi.org/10.1016/j.jval.2024.02.005 and summarized in the main text, show that understanding how average and marginal healthcare costs increase with output and how health augments "additional values" provides ways to assess willingness to pay for them in these fixed-budget situations. CONCLUSIONS In budget-constrained healthcare systems, only from actual budget allocations can values both of health itself and "additional values" be inferred. These methods, combined with methodologically sound social welfare functions, demonstrate how to move from "health" to "welfare" in measuring the value of increased healthcare use.
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Affiliation(s)
- Charles E Phelps
- Department of Economics, University of Rochester, Rochester, NY, USA; Department of Public Health Sciences, University of Rochester, Rochester, NY, USA; Department of Political Science, University of Rochester, Rochester, NY, USA.
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Mulligan K, Baid D, Doctor JN, Phelps CE, Lakdawalla DN. Risk preferences over health: Empirical estimates and implications for medical decision-making. JOURNAL OF HEALTH ECONOMICS 2024; 94:102857. [PMID: 38232447 DOI: 10.1016/j.jhealeco.2024.102857] [Citation(s) in RCA: 0] [Impact Index Per Article: 0] [Reference Citation Analysis] [Abstract] [Key Words] [MESH Headings] [Track Full Text] [Subscribe] [Scholar Register] [Received: 08/03/2023] [Revised: 01/05/2024] [Accepted: 01/08/2024] [Indexed: 01/19/2024]
Abstract
Mainstream health economic theory implies that an expected gain in health-related quality of life (HRQoL) produces the same value for consumers, regardless of baseline health. Several strands of recent research call this implication into question. Generalized Risk-Adjusted Cost-Effectiveness (GRACE) demonstrates theoretically that baseline health status influences value, so long as consumers are not risk-neutral over health. Prior empirical literature casts doubt on risk-neutral expected utility-maximization in the health domain. We estimate utility over HRQoL in a nationally representative U.S. population and use our estimates to measure risk preferences over health. We find that individuals are risk-seeking at low levels of health, become risk-averse at health equal to 0.485 (measured on a 0-1 scale), and are most risk-averse at perfect health (coefficient of relative risk aversion = 4.51). We develop the resulting implications for medical decision making, cost-effectiveness analyses, and the proper theory of health-related decision making under uncertainty.
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Affiliation(s)
- Karen Mulligan
- Sol Price School of Public Policy, University of Southern California, Ralph and Goldy Lewis Hall 312, Los Angeles, CA, 90089, USA; Schaffer Center for Health Policy and Economics, University of Southern California, 635 Downey Way, Verna & Peter Dauterive Hall, Los Angeles, CA, 90089, USA
| | - Drishti Baid
- Sol Price School of Public Policy, University of Southern California, Ralph and Goldy Lewis Hall 312, Los Angeles, CA, 90089, USA
| | - Jason N Doctor
- Sol Price School of Public Policy, University of Southern California, Ralph and Goldy Lewis Hall 312, Los Angeles, CA, 90089, USA; Schaffer Center for Health Policy and Economics, University of Southern California, 635 Downey Way, Verna & Peter Dauterive Hall, Los Angeles, CA, 90089, USA
| | - Charles E Phelps
- Department of Economics, University of Rochester, 238 Harkness Hall, 280 Hutchison Road, Box 270156, Rochester, NY, 14627, USA
| | - Darius N Lakdawalla
- Sol Price School of Public Policy, University of Southern California, Ralph and Goldy Lewis Hall 312, Los Angeles, CA, 90089, USA; Schaffer Center for Health Policy and Economics, University of Southern California, 635 Downey Way, Verna & Peter Dauterive Hall, Los Angeles, CA, 90089, USA; School of Pharmacy, University of Southern California, 1985 Zonal Ave, Los Angeles, CA, 90089, USA.
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DiStefano MJ, Zemplenyi A, Anderson KE, Mendola ND, Nair KV, McQueen RB. Alternative approaches to measuring value: an update on innovative methods in the context of the United States Medicare drug price negotiation program. Expert Rev Pharmacoecon Outcomes Res 2024; 24:171-180. [PMID: 37961908 DOI: 10.1080/14737167.2023.2283584] [Citation(s) in RCA: 0] [Impact Index Per Article: 0] [Reference Citation Analysis] [Abstract] [Key Words] [MESH Headings] [Track Full Text] [Journal Information] [Subscribe] [Scholar Register] [Received: 09/20/2023] [Accepted: 11/10/2023] [Indexed: 11/15/2023]
Abstract
INTRODUCTION The United States has begun assessing the value of pharmaceuticals to inform negotiated prices in the Medicare program. Given strong political objections in the United States to the use of QALYs, Medicare will need to adopt an alternative approach to measuring value. AREAS COVERED In this narrative review, we identified six alternative approaches to measuring value (equal value life-years, health years in total, generalized risk-adjusted cost-effectiveness, severity weighting based on absolute or proportional shortfall, comparative effectiveness based on conventional clinical endpoints, and comparative effectiveness based on both conventional endpoints and patient-centric value elements) and five criteria for assessing these approaches (responsiveness to concerns about discrimination, feasibility, transparency, flexibility, and the ability to incorporate factors beyond traditional value elements). EXPERT OPINION Four of the alternatives are broadly aligned with the cost-effectiveness framework, but none fully addresses all aspects of the stated concerns that QALYs may be used to unintentionally implement discrimination. We note, however, that the extent to which these concerns lead to discrimination in practice is unknown. Finally, we recommend an approach for measuring value in terms of comparative effectiveness that combines quantitative ranking and weighting of distinct criteria (including patient-centric value elements) with deliberation.
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Affiliation(s)
- Michael J DiStefano
- Center for Pharmaceutical Outcomes Research, Department of Clinical Pharmacy, Skaggs School of Pharmacy and Pharmaceutical Sciences, University of Colorado Anschutz Medical Campus, Aurora, USA
| | - Antal Zemplenyi
- Center for Pharmaceutical Outcomes Research, Department of Clinical Pharmacy, Skaggs School of Pharmacy and Pharmaceutical Sciences, University of Colorado Anschutz Medical Campus, Aurora, USA
- Center for Health Technology Assessment and Pharmacoeconomics Research, Faculty of Pharmacy, University of Pécs, Pécs, Hungary
| | - Kelly E Anderson
- Center for Pharmaceutical Outcomes Research, Department of Clinical Pharmacy, Skaggs School of Pharmacy and Pharmaceutical Sciences, University of Colorado Anschutz Medical Campus, Aurora, USA
| | - Nicholas D Mendola
- Center for Pharmaceutical Outcomes Research, Department of Clinical Pharmacy, Skaggs School of Pharmacy and Pharmaceutical Sciences, University of Colorado Anschutz Medical Campus, Aurora, USA
| | - Kavita V Nair
- Department of Neurology, School of Medicine, University of Colorado Anschutz Medical Campus, Aurora, USA
| | - Robert Brett McQueen
- Center for Pharmaceutical Outcomes Research, Department of Clinical Pharmacy, Skaggs School of Pharmacy and Pharmaceutical Sciences, University of Colorado Anschutz Medical Campus, Aurora, USA
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Phelps CE. On the (Near) Equivalence of Welfarist and Extra-Welfarist Methods to Value Healthcare With Implications for Assessing Equity. VALUE IN HEALTH : THE JOURNAL OF THE INTERNATIONAL SOCIETY FOR PHARMACOECONOMICS AND OUTCOMES RESEARCH 2023; 26:1601-1607. [PMID: 37597613 DOI: 10.1016/j.jval.2023.08.001] [Citation(s) in RCA: 0] [Impact Index Per Article: 0] [Reference Citation Analysis] [Abstract] [Key Words] [MESH Headings] [Track Full Text] [Subscribe] [Scholar Register] [Received: 03/04/2023] [Revised: 07/28/2023] [Accepted: 08/02/2023] [Indexed: 08/21/2023]
Abstract
OBJECTIVES While welfarist economics (WE) methods rely wholly on individuals' valuations, extra-welfarist (EW) methods seek alternative measures of value. Major reviews of the EW literature conclude that EW studies almost universally replace "utility" with "health" as the maximand. This analysis seeks to understand what conclusions are necessary and sufficient to make EW and WE methods concurrent and discusses implications for measuring social value. METHODS Using standard WE methods, I demonstrate that EW is equivalent to WE with 2 key restrictions-individuals have constant returns to health in producing utility and health budgets are fixed. Fixing budgets removes a key WE step, determining the marginal rate of substitution between consumption and health, the willingness to pay for health gains. RESULTS Because EW methods equate with WE with these 2 restrictions, I show how formal models to construct aggregated social welfare functions (SWFs) in WE frameworks lead directly to SWF models using EW models of value. I also show that, in fixed-budget health systems, when SWFs place different values for improving health of different subpopulations, aggregate health output fails as a SWF criterion. I demonstrate how different societal values can and should enter EW SWF models using WE criteria. I also discuss the implications when either of these key restrictions does not properly represent people's preferences. CONCLUSIONS Once EW methods are shown to be a restricted form of WE methods, those WE methods can illuminate how best to measure SWFs in EW environments.
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Affiliation(s)
- Charles E Phelps
- Departments of Economics and Public Health Sciences, University of Rochester, Rochester, NY, USA.
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