Most of us are aware that the United States spends far more on prescription drugs than other high-income countries do. Probably less well known is that Americans also use more drugs and treatments that provide only marginal clinical benefit. So why do people around the world not only spend less, but receive medicines that are more effective?
In part, it’s because most other countries rely on comparative effectiveness research (CER) to assess the relative clinical value of a drug. This means experts review scientific studies evaluating the effectiveness and safety of the drug compared to existing therapies, and policymakers base coverage and pricing decisions on the findings. The research is typically done by government-supported agencies.
Peer countries have other powerful tools at their disposal. Purchasing power — achieved through public or private insurance programs — is one. Another is a willingness to omit drugs from formularies if prices are out of line with value. The combined use of these tools results in significantly greater negotiating leverage, lower drug prices, and better value for patients and payers.
In the U.S., there have been some attempts to link drugs’ clinical value to their prices through CER. These efforts have generally not been coordinated, however, and they’ve had only a limited impact. They include:
- The federal National Center for Health Care Technology and Office of Technology Assessment. Both were eventually defunded in the 1980s and 1990s after political battles that included pressure from drug and device companies against certain uses of such research.
- The Veterans Health Administration (VHA), a public program that utilizes CER and actively negotiates its pharmaceutical formulary. However, its impact is limited to its patient base, about 9 million members.
- Federal CER funding provided through the Medicare Modernization Act (2003) and American Recovery and Reinvestment Act (2009). These funds were split across agencies, and in the case of ARRA, included language restricting their use for coverage recommendations.
- The CER-focused Patient-Centered Outcomes Research Institute (PCORI), created through the Affordable Care Act (ACA) in 2010 with approximately $3.5 billion over 10 years. PCORI funding has just been renewed, but there has been limited impact to date, which can be attributed partly to its research focus and legislative limitations that prohibit it from issuing coverage recommendations or using certain cost-effectiveness measures.
- The largely philanthropically funded Institute for Clinical and Economic Review (ICER), which conducts CER research but has no explicit authority over public or private payers.
- Fragmented efforts led by individual private insurers.
In many cases, lobbying by pharmaceutical and device companies has sidetracked efforts to promote comparative effectiveness research, particularly if the research might impact drug coverage decisions for public programs. For example, PCORI’s authorization included direct limits on the use of CER for Medicare coverage recommendations.
Meanwhile, current U.S. policies prevent the use of CER in public programs. Most notably, the Centers for Medicare and Medicaid Services cannot directly negotiate drug prices for Medicare Parts B and D. At the same time, Part B cannot exclude eligible drugs from coverage, and Part D plans are limited in their ability to exclude drugs from their formularies. State Medicaid programs have not been able to implement closed formularies that prioritize lower-cost, clinically equivalent drugs.
The effects of these choices can be striking when compared to our international peers. In 2018, Dartmouth researchers highlighted that the U.S. Medicare program had paid $2.9 billion between 2009–15 for a dry-eye drug with marginal efficacy data that was not approved in Europe, Australia, or New Zealand. Canada’s public formularies did not cover the drug after the country’s CER agency recommended against it because of questions about “clinical importance.”
How could the U.S. health system strengthen comparative effectiveness research and wring greater value out of our pharmaceutical spending? Here are some suggestions:
- Build on the VHA model. The VHA benefits from statutorily capped drug prices, unified bargaining, direct negotiation with drug companies, and a closed formulary. Mirroring these approaches in Medicare and Medicaid would require large-scale legislative amendments.
- “Import” CER through international reference pricing. Featured in recent congressional and administration proposals, international reference pricing would use drug prices in peer countries as benchmarks for regulating or negotiating U.S. prices. For example, H.R. 3 would allow the Secretary of the U.S. Department of Health and Human Services to negotiate the price of certain Medicare drugs using an international benchmark as a price ceiling and mandate that the same price be given to private insurers. Similarly, the Trump administration’s long-awaited proposed rule would peg prices for Part B drugs to a “basket” of international prices.
- Empower an existing CER entity. Certain private and publicly supported U.S. organizations could act like health technology assessment agencies in other countries. ICER, for example, is gaining traction as a quasi-independent reviewer of new drugs and other health technologies, and can serve as a starting point for pricing discussions. The group could have greater impact if it was formally authorized to provide coverage recommendations to public payers, and if it evaluated more existing drugs. PCORI has also been given new life, though the institute’s record suggests it will not make a significant difference without more freedom to operate. Neither organization is likely to make much of an impact as long as Medicare and other public programs cannot exercise more coverage discretion regarding these recommendations.
- Combine approaches. The way forward may be a combination of tactics. For example, international reference price ceilings could be used in tandem with VHA-like formulary discretion. Or an official U.S. health technology assessment unit could operate alongside expanded negotiating power for Medicare Part D plans.
Regardless of the path taken, success appears contingent on the willingness of Congress and the administration to make hard decisions. Patients, whether they have insurance or not, are increasingly finding drugs to be unaffordable. With an increased role for CER, U.S. payers — both public and private — could garner price concessions and prioritize clinically effective drugs.
