Tough choices about expensive drugs

3 min read
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First Published: 
Dec 2008

Key Learnings contained in this article:

The UK ‘s National Institute for Health and Clinical Excellence (NICE) has recently ruled that four drugs used to treat advanced kidney cancer are not effective enough to warrant their coverage by the National Health Service (NHS). NICE estimated that the drugs cost between £71,500 and £171,300 per QALY, far exceeding the typical NICE cut-off of £30,000 per QALY.

This isn’t the first controversial decision by NICE. The BMJ reports on a survey of England ‘s primary care trusts (with which patients can lodge an ‘exceptional request’ for drugs to be funded that are not approved by NICE), showing large differences in the policies and processes for approving such requests or appeals.

Moreover, the impact of NICE decisions does not remain solely in the UK . The US has been watching and studying NICE, as part of an effort to rein in the more than US$2 trillion (16% of US GDP) it spends on healthcare each year. A bill was introduced into the US Senate to establish the Health Care Comparative Effectiveness Research Institute, which would review evidence and conduct studies to determine which drugs and devices provide the best clinical outcomes. Annual funding for the institute after 5 years is projected to be US$300 million.

Another strategy used by the US to manage such high-cost medications is to incorporate co-insurance into the tiered drug co-payment system. In the tiered system, drugs are prioritised to tiers 1, 2, or 3 based on the payers’ preference for the drugs, and patients are required to pay a fixed fee (a ‘co-pay’ based on the tier, see below).

Typical co-pays for tiered drugs in the US healthcare system

Tier 1 (typically generic drugs): $5 to $10

Tier 2: $20 to $30

Tier 3: over $50

Co-insurance is sometimes referred to as tier 4 drugs, but instead of a fixed amount for co-payment, the consumer is charged a percentage of the overall drug cost (usually 20% to 33%). Co-insurance is applied to drugs with very high price tags, such as the latest biologic drugs developed for cancer and other chronic illnesses that require long-term therapy. For a drug that costs $100,000 per year, the tier 4 co-payment (or co-insurance cost) could be more than $30,000 for the patient.

Sir Michael Rawlins, who (in an interview with The Observer) vehemently criticised the pharmaceutical industry for ‘perverse incentives’ to increase the price of drugs, also pointed out that “we have a finite amount of money for healthcare, and if you spend money one way, you can’t spend it in another”. Nonetheless, the cost-effectiveness criteria used by NICE may be under review next year.

Another proposal under consideration by the NHS is to base drug pricing on the value a drug offers, not on the cost to develop it. Currently, the UK Department of Health negotiates with the Association of the British Pharmaceutical Industry to set price controls and profit caps for pharmaceutical manufacturers.

With rumours of co-pays being instituted in the NHS and a US presidential election in full swing (see the August 21 edition of the New England Journal of Medicine for a review of each candidate’s health care plan) , health economists will be making more of these decisions with other stakeholder.

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Mary Gabb
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