Pricing Drugs Based on Their Value to Patients

The cost of prescription drugs has jumped roughly 10 percent a year since 2014, and total spending is predicted to hit $610 billion in the next four years, making it the fastest-growing segment of health care costs. High drug prices, which stem from myriad dysfunctions in the pharmaceutical market, are not only devastating for patients and their families, but a huge burden for public health systems. States are struggling to cover medications for people enrolled in Medicaid, and governments are forced to decide whether to cut essential services or ration care.

Our team is working to balance the market and expand access to needed treatments by supporting initiatives that increase supplier competition and payer negotiating leverage; make the drug approval process more effective and efficient; and test new approaches to align all stakeholder incentives. Our goal is to produce the best health outcomes at the lowest cost.

One of our largest grants in this area supports the Institute for Clinical and Economic Review (ICER). This nonpartisan research organization evaluates all available evidence to determine the clinical and economic value of new FDA-approved medicines. By independently establishing a value-based price benchmark for each new treatment, ICER has emerged as an important player in the drug pricing debate. Used in negotiations between payers and drug makers, ICER’s reports are credited in helping establish innovative payment contracts and instances of fair pricing in the United States. For example, before launching the new eczema treatment Dupixent earlier this year, manufacturers Regeneron and Sanofi consulted with ICER and chose a launch price that aligned with the drug’s value as determined through ICER’s research — a price significantly lower than industry analysts expected.