Demonstrating Value for Money of Biopharmaceuticals

---

BY GEORGE W. TORRANCE, PhD AND DANIEL T. GRIMA, M.Sc

What is Value?

Everyone wants a product to be valuable. The manufacturer wants the product to provide value in excess of its development, production and marketing costs. Regulators want the product to provide value in excess of placebo or alternative treatments. Patients want the product to provide value greater than that provided by current treatments. Reimbursement agencies and other payers want the product to provide value in excess of its costs and in excess of other funding options.

There is only one way that a product can provide such value. It has to improve health. That is, it has to improve survival or reduce morbidity, reduce side-effects or adverse events, or improve health-related quality of life. Or, more correctly, the sum of its total impact on all of these areas must be positive; the bigger the better.

While all value studies are comparative, the definition of value and the comparator change with the viewpoint taken. The manufacturer measures value as return on investment compared to pursuing other potential compounds in development. The regulator is concerned with safety and efficacy compared to either placebo or alternative treatment. Patients are concerned with improving or maintaining their current health. Payers want similar outcomes as patients, though in terms of the health of their defined population. Payers, however, are restricted by budgets and must also consider the cost of the therapy relative to other health-care options. That is, they must consider whether the therapy provides good “value for money.” Value for money is what “health economic evaluations” measure. When applied specifically to pharmaceuticals, these studies are often called “pharmacoeconomic studies.”

A health economic evaluation can be defined as a comparative analysis of alternative courses of action, considering both their costs and consequences, over a specified time frame and from a specific perspective, with a purpose to inform decision-making. It should be noted that economic evaluation is not intended to be an automated decision-making system, but only an aid to intelligent decision-making by thoughtful decision makers who can and should consider factors not incorporated into the study. These factors may include equity, social preferences, overall affordability and political considerations.

How is Value for Money Measured?

The most common economic evaluation is called a cost-effectiveness analysis. It compares the extra cost and the added benefit of one therapy relative to another, and can be represented as:

Valuing Benefits

The most familiar therapy benefits are those demonstrated within clinical trials. These include improvements in survival, increases in physical or emotional functioning, decreases in pain, etc. Often, however, the downstream impact of the changes in the clinical end points in the trial must be captured to fully evaluate a therapy. For example, a statin may lower lipid levels within a trial. The true measure of the statin’s benefit, however, is the reduction in mortality due to cardiovascular events that occur without treatment. Therefore, when we have compared statin therapies the cost-effectiveness framework considered is the added cost per life year gained, as projected from the clinical trial end point of reduction in lipids. The projection of the lipid reductions to those final end points involves disease simulation models, which are produced based on historical disease data. Similarly, trials of insulin and oral diabetic therapies focus on glucose control, but the economic evaluation of these therapies must project that glucose control to estimate the life years gained.

Such an end point works well for life-saving interventions, but what of other types of therapy?

Economic evaluations of such therapies may focus on other clinical outcomes, such as hip fractures avoided in osteoporosis, days of stable analgesia in pain control, days of remission in depression treatment, or proportion of patients pain-free at four hours in migraine therapy. These outcomes are referred to as natural units as they relate specifically to the condition in question.

A specialized form of cost-effectiveness called cost-utility analyses uses outcomes measured in terms of quality-adjusted life years gained. The measure is a comprehensive and integrative assessment of health outcome that considers survival (years of life) but adjusts those years for the quality of the patient’s life during the years. For example, five years of life with uncontrolled pain or adequate analgesia would both result in five life years; however, the former would produce lower quality-adjusted life years. The advantage of this measure is that it can integrate into a single metric change in mortality, morbidity, side-effects, adverse events and even health-related quality of life. The weights used in this integration are time in the health state and the quality of the health state. Quality is measured on an interval scale called a utility scale, on which dead has a score of 0.0 and perfect health has a score of 1.0. States worse than dead can exist and have scores less than 0.0.

The scores for the health states come from the preferences of individuals for the states, measured with special instruments based on utility theory. Essentially, individuals rate each state according to its desirability. The more desirable or preferable the state, the higher the score. When conducting a study, analysts can measure these utilities themselves working from first principles, but that is time-consuming and costly. A more efficient and more widely used approach is to include in the study a system like the Health Utilities Index®. Using the Health Utilities Index, the patient’s health status at each point in time is entered into the system, which calculates the appropriate utility scores.

Valuing Costs

When focusing on costs, both expenditures and savings need to be considered. For example, expenditures can extend beyond the acquisition cost of the drug to include the cost of treating side-effects, laboratory monitoring, program costs (e.g., for vaccination programs) and administration supplies (e.g., for injectables). The improvements in health status produced by a therapy also result in economic outcomes, usually cost savings. Using the statin example, reductions in lipid levels can be translated into reductions in future coronary events (e.g., angina) and lower medical costs.

The full range of economic considerations includes health-care costs (e.g., hospitals, physicians, drugs), productivity costs (e.g., lost work time, reduced work productivity), and patient or family costs (e.g., transportation, babysitting, family caregiver/helper time, home modifications). Which types of costs should be included in a cost-effectiveness analysis? Specific types of costs are included or excluded depending upon the perspective taken. For example, an analysis can take a health-care system perspective, in which case all health-care costs and savings are included, regardless of who pays or saves. However, in a health-care system perspective, productivity costs or savings would not be included.

Alternatively, an analysis can take the perspective of a particular payer — for example, a provincial government. In that case, only costs and savings that fall on the provincial government are included. The societal perspective is the comprehensive perspective that includes all costs and all savings no matter what type of cost or who incurs it. Usually studies are conducted from a number of relevant perspectives including the societal one. Many countries have guidelines indicating the perspective(s) that they require (e.g., in Canada it is recommended that the primary analysis be conducted from the societal perspective).

Interpreting the Cost-Effectiveness Results

The new treatment can be more or less costly than the comparator. It can also be more or less effective than the comparator. This leads to four possible outcomes (see Fig. 1): Case 1, the new treatment is more effective and less costly; Case 2, the new treatment is more effective and more costly; Case 3, the new treatment is less effective and more costly; and Case 4, the new treatment is less effective and less costly. Cases 1 and 3 provide clear-cut results. In Case 1, the new treatment is said to “dominate” the comparator, and is clearly preferable (win/win). In Case 3, the new treatment is said to “be dominated” by the comparator, and is clearly inferior (lose/lose). Case 4 is uncommon, but when it does occur it normally results in rejection of the therapy being considered unless the cost savings are substantial and the lost efficacy small. Case 2 is the most common outcome, as most products are priced at a premium when they provide clear efficacy benefits. Case 2 requires that the incremental effectiveness be compared to the incremental cost to determine if the “bang for the buck” is sufficient; i.e., if it exceeds the decision-maker’s threshold for “value for money.”

Why Evaluate Value for Money?

In Canada, the registration (licensing) of new pharmaceutical products is the responsibility of Health Canada’s Therapeutic Products Directorate. This is the Canadian equivalent of the United States Food and Drug Administration. The registration decision is based solely on safety and efficacy. Economic evaluation is not considered.

Pricing of patented pharmaceuticals and generic drugs in Canada is regulated by a federal agency, the Patented Medicine Prices Review Board (Ottawa, ON). The objective of this board is to ensure that prices charged for patented medicines and generics are not excessive. The board regulates prices of drugs by considering a number of factors including the prices of other drugs to treat the same disease, the prices of the drug in selected countries and the annual consumer price index.

Reimbursement is more complex. In Canada, each province is a single insurer for most costs of health care (e.g., hospitals, physicians and, for some patients only, drugs). All Canadians in the province are covered, with funding coming from federal and provincial taxes. In terms of drug coverage, all provinces insure drugs for the elderly and the poor, while some provinces cover additional groups. Most of those remaining are covered by private drug insurance plans. However, plans do not cover all therapies. The rationale for such restrictions is fourfold:

1. Funds for health care are always limited.

2. Therefore, choices must be made.

3. Choices should be based on costs and consequences.

4. Estimates of costs and consequences should be evidence-based.

In order to select the therapies for coverage, all provinces require economic evaluation studies to support a request for reimbursement status. In the future this review may be co-ordinated through a national process called the common drug review (CDR).

All provinces endorse a common set of guidelines for conducting these studies. The guidelines represent the current scientific standards in this field and were developed with input from industry, academia and government. The guidelines are maintained by the Canadian Coordinating Office for Health Technology Assessment (CCOHTA). Ontario also has its own similar guidelines.

The provinces typically have economic evaluation studies reviewed by external experts. For example, in Ontario the reviews are conducted by the Drug Quality and Therapeutics Committee of the Ministry of Health and

Long-Term Care; and in Alberta by the Expert Committee on Drug Evaluation and Therapeutics of Alberta Health and Wellness. The external experts on these committees use the current scientific standards in their review. Thus, good methods are important to receiving a favourable decision. For example, a review of the 95 submissions in British Columbia from 1996 to 1999 showed that the success rate for studies that complied with the CCOHTA guidelines was 42 per cent versus 20 per cent for that of the other studies.

Regulation and Reimbursement Worldwide

When looking beyond Canada, the environment becomes more diverse. All developed countries regulate drugs for safety and efficacy with systems that have evolved to have many similarities. Many countries — but not all — also regulate price or reimbursement status (i.e., formulary status) for government-funded programs, or use other methods to control access. However, the systems vary widely, reflecting the local health-care system and political pressures.

Regardless of these differences, economic evaluation studies are required, or helpful, in most countries. In Australia, such studies are required even for product registration (licensing). In France and Italy, studies are helpful in differentiating products during price negotiations with the government. In Australia, Canada, Finland, the Netherlands, Norway, Portugal, the United Kingdom and selected managed care organizations in the United States, economic evaluation studies are required for reimbursement/access decision-making. In all other countries, such studies — while not required — are nevertheless helpful as they can be used in marketing or sales activities to differentiate a product from its comparators or to address issues of “value for money” when a new product results in drug-budget increases. In those countries where economic evaluations are required, official guidelines exist; while in other countries, unofficial guidelines or accepted methodological standards are common.

Conclusions

High-quality health economic evaluation studies are required for pricing, reimbursement or access in much of the developed world. This trend has been accelerating over the past decade and is unlikely to reverse as long as pressures continue for control of health-care spending. While the eventual application of health economic evaluation studies differs by country, the core methodology and principles are well specified in guidelines and in the current literature. As such, biopharmaceutical companies should plan to incorporate such studies in their product development process to avoid future roadblocks to market success due to questions regarding their products’ “value for money” proposition.

George Torrance, BASc, MBA, PhD is professor emeritus at McMaster University in Hamilton, Ont., and vice-president of Innovus Research Inc., a contract research organization with offices in Canada, the United States and the United Kingdom. Torrance pioneered many of the methods used today in health economics.

Daniel Grima, M.Sc. is the Toronto-based director of Health Economics and Outcomes Research at Innovus Research Inc. His recent focus has been on the use of health economics and outcomes research to support products throughout their development and life cycle, from Phase I market assessments, through reimbursement submissions to post-marketing research.