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An Ethical Framework for Pharmac’s Subsidy Decisions on High-Cost Pharmaceuticals
David Hadorn
13 March 2006
LECG Limited
www.lecg.com
Client Name
DRAFT
Short Title
Table of Contents
1 2 3 4 5 6 A Continuing Challenge ..........................................................................1 Stick to Your Knitting...............................................................................1 Rule of Rescue ...........................................................................................2
3.1 Need for Wiggle Room – A Tithing Approach? .................................................. 5
Set a Maximum Price per QALY .............................................................5 Coordinate PBMA with CUA ..................................................................6 Calculating QALYs ...................................................................................6
6.1 6.2 Simple Overall HRQOL Approach......................................................................... 6 Multi-attribute Utility Approach ............................................................................ 7
7 Appendix A Article in Today’s New York Times: A Cancer Drug's Big Price Rise Is Cause for Concern ..................................................................9 8 Appendix B Synopsis of New York Times article: After Dreary ’05, Drug Makers See Brighter Year Ahead...........................................................13 9 Appendix C Development of Quality of Life and Health Questionnaire (QLHQ) .....................................................................................14 10 Endnotes ...................................................................................................14
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1 A Continuing Challenge
In this report I describe how Pharmac might develop an ethical framework for deciding whether and to what extent to subsidise high cost pharmaceuticals in New Zealand. Although development and marketing of ever-more expensive drugs against cancer and other serious illnesses may represent an advance in patient care, the problem of affordability will continue to challenge patients and payers like Pharmac for many years to come. New drugs developed for serious diseases are almost always priced extremely high, based not on production considerations but rather on a corporate estimate of what the ‘market will bear’ or on the perceived clinical value of the treatment. Today’s New York Times carries a story on this topic, including the following excerpts (see Appendix A for full story): After years of defending high prices as necessary to cover the cost of research or production, industry executives increasingly point to the intrinsic value of their medicines as justification for prices. Last year, in his book "A Call to Action," Henry A. McKinnell, the chairman of Pfizer, the world's largest drug company, wrote that drug prices were not driven by research spending or production costs. "A number of factors go into the mix" of pricing, he wrote. "Those factors consider cost of business, competition, patent status, anticipated volume, and, most important, our estimation of the income generated by sales of the product." In some drug categories, such as cholesterol-lowering treatments, many drugs compete, keeping prices relatively low. But when a medicine does not have a good substitute, its maker can charge almost any price. . . . The result has been soaring prices for some drug classes, notably cancer treatments. In 1992, Bristol-Myers Squibb faced protests for its plans to charge $4,000 a year for Taxol, a breast cancer treatment. Now, most new cancer treatments are priced at $25,000 to $50,000 annually. In some cases, companies are pushing through substantial price increases on already-expensive drugs. . . . i (See Appendix B for another recent New York Times story on current high-cost drug development, including a vaccine for cervical cancer.) Without adequate restraints in place, public spending on drugs could potentially bankrupt the health care system within the next 10-20 years. Well before this occurs, the ever increasing number of ever more expensive pharmaceuticals will pose a real threat to distributive justice in terms of unfair differences in availability of expensive, effective drugs. I believe that Pharmac is in a good position to lead the world in developing a policy to deal with the threat to affordability and equity just described. The approach I will outline in this report blends cost-utility analysis (CUA) with the principles underlying New Zealand’s priority criteria approach to elective services, i.e., transparency and fairness.
2 Stick to Your Knitting
Pharmac’s principal role is to manage the pharmaceutical budget allocated by Government so as to maximise the benefits obtained from drugs purchased within that budget. This is a basically utilitarian approach, which is appropriate for an agency like Pharmac. A “Rawlsian wrinkle” can and should be built in (i.e., a concern for the least well-off) by electing not to take into account the adverse effects of coexisting conditions on health-related quality of life (HRQOL). Such conditions, common in older and lower
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income people, tend to reduce the net benefits of treatments because pain and disability are still experienced due to the other health problems.ii This is the sole concession that Pharmac should make to non-utilitarian considerations in the methods it uses for CUA, however. In all other respects, the process should be a straightforward one in which quality adjusted life years (QALYs) are calculated to provide a common currency with which to compare the outcomes of different treatments. All QALYs should be considered equal unless and until someone puts forth a convincing case that some QALYs should be considered more valuable than others, e.g., in view of the perceived urgency of the situation. I do not believe that such a case has yet been made. Pharmac must not let itself get bogged down in endless debates about such things as whether premiums should be added to some people’s QALYs, whether young people’s QALYs should be worth more or less than old people’s, whether we should strive to accommodate the Rule of Rescue (see below) within the CUA, and so forth. These essentially unanswerable questions represent angels dancing on heads of pins, and they should not be permitted to disrupt Pharmac’s legitimate search for a formal protocol for evaluating high-cost pharmaceuticals. Pharmac should, therefore, I believe, stick to its knitting and continue to perform (or to seek to perform) the most transparent, consistent, and rational CUAs of any health agency in the world. But Pharmac should not try to be all things to all people, and it should resist the urge to ‘tinker’ with the principles underlying CUA. Pharmac’s fundamental obligation is to ensure efficiency in obtaining value for public money, and ‘value’ in this setting must refer to the commonly agreed ‘final outcomes’ of health care (including pharmaceutical treatment), i.e., (1) length of life (how much longer with treatment?) and (2) quality of life (how much better with treatment?). These outcomes are appropriately captured by the QALY metric. In its CUA analyses Pharmac should rule ‘out of bounds’ any appeals to the imminence of death (‘only hope’ treatments), the visibility of predicament (‘Rule of Rescue’) or other non-rational (i.e., emotional) considerations (except for the Rawlsian wrinkle discussed above), as these contravene the basic assumption that all QALYs are of equal value.
3 Rule of Rescue
Perhaps the most significance obstacle to a rational approach to subsidy decisions for high-cost pharmaceuticals is the social and political difficulty entailed in saying “sorry, no” to patients (many of whom are desperately ill) and their doctors and advocates whose conditions might benefit from drugs deemed insufficiently cost-effective. This is especially a challenge when patients’ conditions are terminal, e.g., advanced cancer. It is part of human nature to wish to rescue endanger life. Our strong proclivity to save people whose lives are visibly threatened was originally dubbed the Rule of Rescue (RR) by Al Jonsen, who recognized the difficulties posed by RR for health car planners who are attempting to allocate resources:
Many of the technologies under assessment relieve illness or pain or disability, but do not directly save life, do not rescue people from imminent death. Those technologies that do stave off death pose a particularly daunting problem [which represents] a barrier difficult to climb, a chasm difficult to leap: namely, the imperative to rescue endangered life. . . Our moral response to the imminence of death demand that we rescue the
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doomed. We throw a rope to the drowning, rush into burning buildings to snatch the entrapped, dispatch teams to search for the snowbound.iiiiv
The phenomenon is familiar. We observe with approval the expensive rescue of a trapped miner -- even though we would have earlier rejected a utility rate increase for safety improvements that could predictably have prevented the mine accident from happening in the first place -- and at a fraction of the rescue costs. RR was paradigmatically illustrated when the world's attention was riveted on an infant, Jessica McClure, who spent 58 hours trapped in a well near Midland, Texas. In the four days following her rescue, Midland Memorial Hospital received over 2,000 phone calls (including one from President Reagan) asking about Jessica's condition, and Vice President Bush paid a personal visit. The Associated Press rated the Jessica McClure story the tenth most important of 1987 -- just after the AIDS epidemic and jetliner crashes in Detroit and Denver. A television movie was made of the event in 1989 (‘Everybody’s Baby: the Rescue of Jessical MacClure) and news agencies continue to report events in her life including her recent marriage (http://www.cbsnews.com/stories/2006/01/30/national/main1252976.shtml?CMP=OT C-RSSFeed&source=RSS&attr=U.S._1252976). My paper on the Oregon experience (JAMA 1991)v brought RR into wider circulation, while describing how RR effectively prevented the Oregon Health Services Commission from employing a CUA-based prioritisation approach. The process proposed herein for Pharmac takes this experience into account, as described below. Our perceived duty to identified victims of life-threatening circumstances is far greater than what we feel is owed to mere "statistical victims" -- whose deaths will, however, be no less real. Philosophers who have examined this psychological phenomenon have failed to discern any relevant moral differences between identified and "statistical" victims. Leon Trachtman, for example, has described
. . . the contrast between designating a single known individual for death and imposing death as a statistical certainty on an unknown and unknowable number of a social group at risk. This resembles the difference between the anonymity of the victims of the artillery man or the bomber pilot and the specificity of the foot soldier's victim -- a visible, tangible body that the soldier must pierce with his bayonet.vi
Our tendency to discount the interests of statistical victims "complements" RR as applied to identified victims -- together they result in clearly irrational policies, at least from the standpoint of lives saved and suffering prevented. In the health care arena, for example, we neglect to expend significant resources in disease prevention that could reduce far more premature death and suffering than do belated efforts to cure the diseases or afflictions which predictably occur to ultimately identifiable people in the absence of effective prevention efforts. The emotion-based RR seems clearly to be at odds with fundamental principles of distributive justice, including the insurance principle, which states that people do not owe each other costly assistance beyond what it would be rational for them to buy insurance against in prospect. That is, people planning a society of which they would be a random member would elect to apportion only a limited amount of resources for insurance against catastrophic problems, preferring to have adequate resources to devote to other wants and needs:
Most treatments are either worth their cost for everyone or worth their cost for no-one -- whether something is worth its cost is reckoned from the
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prospective, prudential standpoint of whether it would be rational for a person to buy insurance to cover it.vii
The problem is, people are not willing to gracefully accept an uninsured loss once it occurs -- we cannot follow through on our gamble that the mine will not cave in or that disease will not occur. We feel compelled, and society with us, to make up for what is now viewed as a bad bargain. Consider, for example, what public reaction would be to a proposed government policy banning the rescue of trapped miners (or little girls) if rescue costs exceeded a certain amount. Such a policy would, of course, be roundly rejected, -with the primary argument against it being the claim that "human life is priceless" – a praiseworthy but thoroughly impractical sentiment. As noted by American philosopher Alan Gibbard in the President’s Commission report:
If an illusion that we regard life as priceless strengthens the bonds of social fellowship, then whether we should indulge that illusion may depend on how much it costs to do so. With the development of new, effective extraordinarily expensive treatments, we may be increasing the economic cost of maintaining that illusion, and the cost of the illusion may begin to outweigh its benefits.viii
Since society can afford to rescue trapped miners and little girls, we should continue to do so. The cost is low and the return high in the form of societal solidarity, reaffirmation of the value of life, and in the comfort we all derive from knowing that similar help would be given to us should we ever need it. In the area of health care, however, the situation is entirely different. Here “needs” are not occasional, but constant -- nearly everyone can live longer if provided access to lifeprolonging interventions. Al Jonsen wonders if we should, therefore, "force ourselves to expunge the rule of rescue from our collective moral conscience"ix in making health policy decisions. Allan Gibbard thinks we should at least try:
Crudely put, what I am suggesting is this: that whereas cheap violations of narrow economic rationality may well be wroth in sentiment what they cost, as violations become costly, we should refine the sentiments involved. To do so is a natural, if painful, result of economic change, and it can often be desirable. One set of changes in our moral sentiments that may be called for by current technology is a refinement of our ways of thinking about risk, and about what we owe each other in the way of extra-ordinarily expensive treatments.x
Thus, it might be possible to "refine" RR in light of economic considerations. I do not believe, however, that it is possible for the rule to be "expunged from our collective moral conscience," since the moral and psychological underpinnings of RR are an aspect of the fundamental human fear of death. We are fascinated by the imminence of the victim's death and identify with him or her and with the fear of death that person feels. We therefore feel compelled to symbolically (and actually) "give the gift of life" to him or her if it is within our collective power to do so. We must, however, recognize that our "prudential tendencies" to rescue the doomed are often irrational and must not be used as a basis for health policy. In summary, the emotional upheavals characteristic of RR-relevant situations will inevitably contribute to the anguish generally associated with illness and death, especially when patients are ‘permitted’ to die earlier than is technically possible for want of resources (e.g. drugs) that are available to others but not to them. But it is to be hoped
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that the proposed process would distribute anguish more equitably, and perhaps make it easier to bear for its fairness. What is needed, and what I believe the proposed process may be able to provide (if anything can), is a method by which we can not expunge but rather refine our proclivities to rescue all endangered life so as to realize the greater ideal of a just society.
3.1 Need for Wiggle Room – A Tithing Approach?
One possible concession to the power of RR (and related emotion-based obstacles to the efficient distribution of health care) could come in the form of a ‘tithe’, under which Pharmac earmarked (say) 5% of its budget for drugs that it views as not cost-effective under its CUA protocol. Allocation of this budget could perhaps be placed in the hands of the National Health Committee and Pharmac may wish to take an arm’s length role in this process. Pharmac would be free to raise or lower this ‘tithe’ as it saw fit. This way, the vast majority of Pharmac’s budget would be based on utilitarian lines (perhaps with the Rawlsian wrinkle suggested above) while significant funds would be reserved for drugs meeting society’s for non-utilitarian desires and preferences. But, again, Pharmac should not concern or distract itself with these considerations. An alternative to this approach would see Government itself setting up a special fund for pharmaceuticals not deemed cost-effective by Pharmac, but it seems doubtful that this approach to dealing with RR would be nearly as straightforward as Pharmac acting directly.
4 Set a Maximum Price per QALY
I believe that Pharmac should set a firm ceiling on what it is prepared to pay in terms of dollars per QALY. Pharmac should make an initial determination of the maximum $/QALY value it can afford based on an analysis of currently funded drugs and existing CUA analyses. In general, Pharmac should expect to pay considerably less than this maximum, which would come into play primarily in the setting of high cost drugs. The pharmaceutical products purchased (or subsidised) at a given maximum price per QALY (MPQ) are analogous to the surgeries and other treatments provided within the ‘financially sustainable threshold’ that is now routinely calculated in waiting list management. In this latter setting, the ‘common currency’ used to compare patients is a standardised priority score. As in this latter setting, Government would be free to add or subtract funds to Pharmac’s budget in order to change the MPQ. As Prof Gillon says, if Government wishes to mandate that certain drugs be subsidised -- based on, say, RR – they should also foot the bill. Pharmac’s MPQ would likely fluctuate from year to year, based on budget, recently approved drugs, and a variety of other factors. In principle, the MPQ could serve as an index of public wealth, like gross domestic product. Government could be lobbied to provide necessary funds to raise the MPQ based on analyses of what additional drugs could be covered at different values of this measure. In this regard, the gap between currently affordable MPQ and what some might consider a more appropriate – higher – value, could at least be specified. Again this parallels the elective surgical arena, where the gap between financially sustainable thresholds and ‘clinically desirable thresholds’ (for provision of publicly funded surgery) are specified; in both cases the costs required to bridge the gap are calculable.
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5 Coordinate PBMA with CUA
The principle of programme based marginal analysis (PBMA) is widely accepted in New Zealand health administration circles, although the extent and nature of PBMA implementation likely varies considerably. Not much was said in the background material about the methods currently used by Pharmac to determine which drugs to ‘delist’ (or ‘de-subsidise’) when new drugs are subsidised whose cost would break the budget if other drugs were not de-listed. Presumably such decisions are based on CUA but whether and how candidates are identified for possible de-listing and confirmatory CUA is unknown to this writer.
One possible embellishment on whatever the current process is might be to encourage advocates of new drug funding to identify candidates for delisting, if such are needed to ‘make room’ for the desired new drug. This technique, while perhaps not particularly practical, rather neatly parallels the strategy used by Pharmac to enhance competition amongst pharmaceutical companies.
6 Calculating QALYs
The proposed focus on CUA and specification of an MPQ would draw new attention to the methods used by Pharmac to calculate QALYs. As long as Pharmac has nominally been using $/QALY as only one factor in a multi-factorial decision, Pharmac’s avowed willingness to ‘trump’ CUA considerations (however rarely this actually happens) has probably distracted interested parties from the details of CUA – which however fascinating they may be to some are dry as dust to most people. The new approach, if implemented, would likely motivate pharmaceutical companies, doctors, and patient advocates to overcome any reticence to familiarise themselves with the various methodological considerations that attend the practices of estimating health outcomes and costs and assigning values to the outcomes. The standardisation of values across different outcomes requires use of a generic measurement or valuation scheme onto which outcomes from many different kinds of treatments can be mapped (i.e., placed in accordance with the magnitude of desirability of those outcomes). There are two basic ways to develop such a scheme.
6.1 Simple Overall HRQOL Approach
The simplest valuation approach would be to use a 0 – 100 scale representing death to best possible HRQOL. The results of health outcome questionnaires, as reported in published studies, would be mapped onto this scale, based on the reported mean values of before and after health status. For example, suppose a sample of patients scored mean 3 on a five-point scale where zero the worst and 10 was the best. Suppose further that half of these patients took some drug and the other half took a placebo; suppose even further that after treatment the drug group scored mean 4 while the placebo group continued to score a mean of 3. Assuming this difference was statistically significant, the change of 1 level in 5 represents a 20 percent improvement, which on a 0 – 100 scale represents 0.20 QALYs (assuming the benefit last a full year - perhaps Pharmac should require that outcomes be reported no less than one year after initiation of treatment). Continuing this example, if Pharmac QALY Price was (say) $10,000, it would be willing to subsidise this drug at a maximum cost of $2,000 per year. (Often the actual price paid would be less due to negotiations and deal-makings of various kinds.)
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6.2 Multi-attribute Utility Approach
A more complex but more nuanced approach to converting health outcomes into a common currency is to make use of a scheme of weighted health states, as explained in Pharmac’s background material. That material describes how a descendent of the original Rosser-Kind Index called the Quality of Life and Health Questionnaire (QLHQ), was tested by Pharmac analysts for this purpose. Pharmac analysts (Mssrs Metcalfe and Sharplin) were able to map results from various other questionnaires onto the simple 4 x 4 matrix (levels of suffering vs. levels of limits on activities). Each of the 16 cells (e.g., mild suffering and moderate limits) was assigned a numerical weight based on empirical preferences derived from various kinds of people in the United States. Pharmac abandoned its work with the QLHQ when it received negative feedback from external peer reviewers. The main objection was that the questionnaire was little known compared with those that have been used in most health outcome studies.xi This was true enough, although the QLHQ has been used in some health outcome studies (including advanced cancer patientsxii and head injury patientsxiii and there is no scientific reason why it could not have been used in many other studies. See Appendix C for further discussion of the QLHQ. In my opinion, the greatest limitation of the QLHQ was not mentioned by critics, namely that the suffering dimension is limited to physical suffering, e.g., pain, nausea, shortness of breath. Psychological suffering (e.g., anxiety and depression) was not included due to concerns about over-inclusiveness in what was contained in the suffering dimension. However, further experience and reflection leads me to believe that the original approach used by Paul Kind and Rachel Rosser was more appropriate, i.e., a 4 x 7 level matrix of disability and ‘distress’, which included both physical and psychological distress or suffering. The 7th dimension of suffering was death, which (when weighted at zero) permits mortality or life-expectancy considerations to be factored into the QALY calculation. The absence of this capability in the QLHQ is also a considerable drawback. Finally, the QLHQ weights are more than ten years old and derive from the United States. Accordingly, I recommend that Pharmac develop a refinement of the Rosser Kind Index, perhaps reducing the number of distress levels from 7 to 5 or 6 for ease of computation and outcome mapping. New Zealand values should be obtained for health state weights, perhaps using the kind of process described in the J Clin Epidemiol papers cited in Appendix C. A search for preference subgroups across demographic lines would be worthwhile, although whether Pharmac could or should develop separate subsidy schedules for different ethnicities, say, based on differences in preferences is perhaps doubtful. In any case, evidence to date shows that people think relatively alike in valuing pain and disability (and relief therefrom). Once the matrix of weighted health states is in place, the results of health outcome studies (e.g., drug studies) could be used to map patients into the various cells of the before-andafter / treated-untreated matrices. For each drug and target population one set of beforeand-after treatment matrices (e.g., 4 x 7 levels of disability and distress in the original Rosser Kind Index)) must be generated for both treatment and control groups. ‘Difference scores’ between before and after values would be calculated and compared across treated and control subjects, with the arithmetic difference between these difference scores constituting the net health gain produced by the treatment.xiv The assignment of patients to the weighted cells in the matrices of disability x distress determines the value of the service. By multiplying the number of patients in each cell by the weight of that cell and then adding the resulting products, the value of the health service can be calculated. In this fashion, health outcomes can be mapped and compared relatively objectively and transparently.
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Mortality considerations are much less frequently an issue than quality of life outcomes, but at times life-expectancy will be an issue, one way or another (usually to lengthen it, but not always). Methods exist to estimate the life-expectancy implications of mortality statistics, as commonly reported (e.g., the Decreasing approximation of life-expectancy method). The presence within the modified RKI of a ‘dead’ cell, weighted zero, should sufficiently accommodate mortality considerations, although some modeling work would be useful here. The above described process represents the kind and level of objectivity tempered with public input that I believe will be required to withstand scrutiny of CUA results in the new era of prioritisation – as pioneered, perhaps, by Pharmac. Before concluding, it is worth noting that CUA analyses are able to place the results of pharmaceutical trials into proper clinical perspective. So often the results are presented as (say) “a 20% decrease in mortality”, which usually translates into something like a 4% death rate rather than a 5% death rate – often not even clinically significant, even if statistically significant. Such a one-percent reduction in absolute mortality risk (as opposed to the figure of a 20% relative risk reduction) implies that about 99 people would need to take the drug in order for one additional person to survive to whatever time point was assessed in the study. Modeling and assumptions will need to be made throughout the CUA process, as always. It may be useful (and perhaps even necessary) to develop formal policies and procedures regarding how this will be done. A certain degree of subjectivity will be inevitable but can be substantially reduced when placed in an agreed framework. Sensitivity analyses can be conducted around any subjective areas in order to determine if further attention to these areas might be indicated. Finally, the apparent formulaic or mechanistic nature of the proposed valuation process could make many people nervous, and perhaps rightly so. The 5% ‘tithe’ proposed above to fund non-cost-effective drugs might help in this regard, but a case could also be made that additional input regarding matrix cell assignment should be sought before assignments are finalised. This input could take the form of other analyses or information provided by medical or patient advocacy groups, or even testimonials from patients, family members, or health providers. Perhaps the receipt of such input could be an appropriate role for the kind of ‘ethics committee’ that Prof Gillon recommends. Decisions by Pharmac on mapping placement, in consideration of all evidence, would be final. Note again that what would be contestable is the number of patients assigned to the respective cells in each matrix – not the values assigned to those cells, as these stay fixed based on the empirical data obtained previously.
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7 Appendix A Article in Today’s New York Times: A Cancer Drug's Big Price Rise Is Cause for Concern
A Cancer Drug's Big Price Rise Is Cause for Concern By ALEX BERENSON Published: March 12, 2006
On Feb. 3, Joyce Elkins filled a prescription for a two-week supply of nitrogen mustard, a decades-old cancer drug used to treat a rare form of lymphoma. The cost was $77.50. On Feb. 17, Ms. Elkins, a 64-year-old retiree who lives in Georgetown, Tex., returned to her pharmacy for a refill. This time, following a huge increase in the wholesale price of the drug, the cost was $548.01. Ms. Elkins's insurance does not cover nitrogen mustard, which she must take for at least the next six months at a cost that will now total nearly $7,000. She and her husband, who works for the Texas Department of Transportation, are paying for the medicine by spending less on utilities and food, she said. The medicine, also known as Mustargen, was developed more than 60 years ago and is among the oldest chemotherapy drugs. For decades, it has been blended into an ointment by pharmacists and used as a topical treatment for a cancer called cutaneous T-cell lymphoma, a form of cancer that mainly affects the skin. Last August, Merck, which makes Mustargen, sold the rights to manufacture and market it and Cosmegen, another cancer drug, to Ovation Pharmaceuticals, a six-year-old company in Deerfield, Ill., that buys slow-selling medicines from big pharmaceutical companies. The two drugs are used by fewer than 5,000 patients a year and had combined sales of about $1 million in 2004. Now Ovation has raised the wholesale price of Mustargen roughly tenfold and that of Cosmegen even more, according to several pharmacists and patients. Sean Nolan, vice president of commercial development for Ovation, said that the price increases were needed to invest in manufacturing facilities for the drugs. He said the company was petitioning insurers to obtain coverage for patients. The increase has stunned doctors, who say it starkly illustrates two trends in the pharmaceutical industry: the soaring price of cancer medicines and the tendency for those prices to have little relation to the cost of developing or making the drugs. Genentech, for example, has indicated it will effectively double the price of its colon cancer drug Avastin, to about $100,000, when Avastin's use is expanded to breast and lung cancer patients. As with Avastin, nothing about nitrogen mustard is changing but the price. The increases have caused doctors to question Ovation's motive — and left lymphoma patients wondering how they will afford Mustargen, which is sometimes not covered by insurance, because the drug's label does not indicate that it
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can be used as an ointment. When given intravenously to treat Hodgkin's disease, its other primary use, the drug is generally covered by insurance. "Nitrogen mustard has been around forever," said Dr. Len Lichtenfeld, the deputy chief medical officer of the American Cancer Society. "There's nothing that I am aware of in the treatment environment that would explain an increase in the cost of the drug." Dr. David H. Johnson, a Vanderbilt University oncologist who is a former president of the American Society of Clinical Oncology, said he had contacted Ovation to ask its reasons for raising Mustargen's price. "I'd like to have some evidence from them that it actually costs them X amount, so that the pricing makes sense," Dr. Johnson said. "It's unfortunate that a price adjustment had to occur," Mr. Nolan said. "Investment had not been made in these products for years." Ovation, a privately held company, also needs the money to conduct research on several new drugs for rare diseases, Mr. Nolan said. He acknowledged that Merck still made Mustargen and Cosmegen, an antibiotic that is used to treat a rare childhood kidney cancer, for Ovation. He said he was not sure when Ovation would begin producing the drugs, and a Merck spokesman said that Merck would continue to provide the drugs to Ovation as long as necessary. But people who analyze drug pricing say they see the Mustargen situation as emblematic of an industry trend of basing drug prices on something other than the underlying costs. After years of defending high prices as necessary to cover the cost of research or production, industry executives increasingly point to the intrinsic value of their medicines as justification for prices. Last year, in his book "A Call to Action," Henry A. McKinnell, the chairman of Pfizer, the world's largest drug company, wrote that drug prices were not driven by research spending or production costs. "A number of factors go into the mix" of pricing, he wrote. "Those factors consider cost of business, competition, patent status, anticipated volume, and, most important, our estimation of the income generated by sales of the product." In some drug categories, such as cholesterol-lowering treatments, many drugs compete, keeping prices relatively low. But when a medicine does not have a good substitute, its maker can charge almost any price. In 2003, Abbott Laboratories raised the price of Norvir, an AIDS drug introduced in 1996, from $54 to $265 a month. AIDS groups protested, but Abbott refused to rescind the increase. And once a company sets a price, government agencies, private insurers and patients have little choice but to pay it. The Food & Drug Administration does not regulate prices, and Medicare is banned from considering price in deciding whether to cover treatments. While private insurers can negotiate prices, they have limited leeway to exclude drugs from coverage based on price, said C. Lee Blansett, a partner at DaVinci Healthcare Partners, which works with drug makers on pricing and marketing. "Price is simply not included in whether or not to cover a drug," Mr. Blansett said. The result has been soaring prices for some drug classes, notably cancer treatments. In 1992, Bristol-Myers Squibb faced protests for its plans to charge $4,000 a year for Taxol, a breast cancer treatment.
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Now, most new cancer treatments are priced at $25,000 to $50,000 annually. In some cases, companies are pushing through substantial price increases on already-expensive drugs. Last year, Genentech raised the price of Tarceva, a lung-cancer drug, by about 30 percent, to $32,000 for a year's treatment. In an interview last month, Dr. Susan Desmond-Hellmann, the president of product development for Genentech, said that the company had raised Tarceva's price because the drug works better than Genentech had anticipated. "Tarceva was a more powerful and more active agent than what we understood at the time of launch, and so more valuable," she said. In an environment of soaring cancer drug costs, Mustargen's previous price was a comparative bargain, giving Ovation the opportunity to raise it substantially, said Dr. Richard Hoppe, a professor of radiation oncology at Stanford University and an expert in treating cutaneous lymphoma. Mustargen's patent protection expired many years ago, so any company can make it. But because its sales are tiny, no drug maker has invested in a generic version. "There's only one company that makes the drug, and they can decide what it's worth," Dr. Hoppe said. Nitrogen mustard was initially tested as a chemical weapon. Its properties as an anti-cancer agent were discovered more than 60 years ago; today, it has been superseded by newer, less toxic medicines, and it is a niche product, with sales of only $546,000 in 2004, according to IMS Health, a market research firm. Still, Dr. Hoppe and other oncologists call nitrogen mustard an effective treatment for cutaneous lymphoma, which initially appears as a rash but can turn deadly if it spreads inside the body. Some patients need only tiny amounts of the ointment, but others must apply it every day across large areas of their bodies. For instance, Ms. Elkins has a severe case of lymphoma and must cover much of her body with Mustargen each day, a process that requires her to refill her prescription every two weeks. She said that the ointment was working, so she and her husband would find a way to pay for it. Mr. Nolan of Ovation said that his company intended to work to improve access to insurance coverage for Mustargen. But Ovation has just begun to petition insurers to cover the drug. Meanwhile, patients are paying Mustargen's new, higher price out of pocket. This is not the first time that Ovation has sharply raised the price of a drug it owns. In 2003, the company bought Panhematin, a treatment for a rare enzymatic disease called porphyria, from Abbott Laboratories. While Abbott still produces Panhematin, Ovation raised Panhematin's price, which had been $230 a dose, to $1,900, according to Desiree Lyon, executive director of the American Porphyria Foundation. "It was a major increase," Ms. Lyon said. But she said that Ovation had worked to improve insurance coverage for Panhematin and to find ways for patients to get the drug even if they could not afford it. Ovation also financially supports the porphyria foundation in its efforts to increase awareness of the disease and of Panhematin as a treatment, she said. But many patients who rely on expensive drugs are stuck in a bind. Don Schare of Saratoga, Calif., said he paid $1,260 last month for 200 grams of nitrogen mustard cream, about 10 times what he paid for his prior prescription. Mr. Schare, 69, said he was covered by the new Medicare Part D drug program and by supplemental insurance from AARP, but that neither of his plans covered Mustargen.
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Jeffrey Malavasic, 58, a retired railroad worker in Florence, Ore., said he had decided to fill only half of his Mustargen prescription when he learned of the price increase. He used the drug sparingly in the past and will be even more frugal, he said.
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8 Appendix B Synopsis of New York Times article: After Dreary ’05, Drug Makers See Brighter Year Ahead
After Dreary '05, Drug Makers See Brighter Year Ahead
By ALEX BERENSON Published: February 3, 2006 Drug industry executives are voicing new hope that their companies are past the worst of the scientific, political and legal problems that dogged them through 2005. After a long drought in finding new medicines, drug companies are filling their early-stage pipelines with promising new treatments, executives and analysts say. . . . The most promising product in Merck's pipeline is Gardasil, a vaccine for cervical cancer that analysts say could become a multibillion-dollar seller. . . . Sidney Taurel, the chief executive of Eli Lilly, noted several recent Food and Drug Administration approvals, including cancer drugs from Pfizer and Bayer; a rheumatoid arthritis treatment from Bristol-Myers; and Exubera, an inhaled insulin from Pfizer whose approval last week received attention as a significant new approach to controlling diabetes. "There have been a number of product approvals which are showing the world that the industry has not lost its capacity to innovate," Mr. Taurel said. "There is a resurgence of productivity in research and development.". . . Tony Butler, a senior industry analyst at Lehman Brothers, said he believed the industry might be through the worst of its crisis. "I am optimistic," Mr. Butler said. "I see light at the end of the tunnel, revenues improving off of a low base. And I see pipelines improving, midstage pipelines that I've never seen before." The recent approval of cancer drugs like Sutent, from Pfizer, and Nexavar, from Bayer, has increased hopes that drug makers will be able to find new treatments as scientists unlock the pathways of disease at the cellular level, said Robert Hazlett, an analyst at SunTrust Robertson Humphrey. In the long run, Mr. Hazlett says, new drugs will be crucial to increasing sales and profit. What we're seeing is that there is a glimmer of hope on the horizon and that these companies can return to growth post-2006," he said. "It's funny how some new drug approvals bolster the spirit of companies." . . .
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9 Appendix C Development of Quality of Life and Health Questionnaire (QLHQ)
The QLHQ was developed to serve as a generic scheme onto which health outcomes of all kinds, measured by any validated instrument, could be reduced to a common currency of valuation. This development process was reported in several peer-reviewed publications (available on request). Many features of this process are relevant to the process proposed herein for Pharmac. In ‘The role of public values in setting health care priorities’ (Social Science and Medicine 1991)xv, I argued that public values should be incorporated into priority setting by way of values for outcomes as opposed to values for programmes (e.g., heart transplants vs. child care). This conclusion basically reinforced the concepts pioneered by Kind and Rosser. In ‘Multitrait-multimethod analysis of health related quality of life measures’ (Med Care 1991),xvi Ron Hays and I showed that the clinical elements later incorporated into the QLHQ could be reliably assessed and discriminated using separate, independent methods of evaluation. The QLHQ is the only questionnaire to have been subjected to this form of testing; most have looked only at the statistical correlations across different items within the same questionnaire. For analytic reasons, such internal cross-checking is insufficient to establish construct (i.e., convergent and discriminant) validity (see Campbell and Fiske). This finding also supports the use of similar two-construct approaches to measuring HRQOL, including the proposed modified Rosser-Kind Index. In ‘Improving task comprehension in the measurement of health state preferences’ (J Clin Epidemiol 1992),xvii my colleagues and I showed that a paired comparison task (similar to Point Wizard) produced somewhat more reliable estimates of health state preferences than did a direct rating task. Also, informational cartoon figures depicting various levels and combinations of suffering and disability were found to improve comprehension of the rating task. Such figures can also be useful for standardising responses across ethnic or cultural lines (as discussed in that article). In ‘Large-scale outcome evaluation: How should quality of life be measured? Part I’ (J Clin Epidemiol 1995),xviii my colleagues and I described the process of assigning public values to the various combinations of suffering and limits on activities embodies in the QLHQ. A search for preference subgroups (i.e., subgroups like old and young or male and female whose preferences regarding suffering and disability may, in theory, differ from each other) was unrevealing. Finally, in Part II of this article my colleagues and I described the use and further validation of the QLHQ in a cohort of patients with advanced cancer.xix Taken as a whole, I believe (with acknowledged bias) that the QLHQ has a better scientific pedigree than most other generic health outcomes questionnaires. However, as noted in the text, the QLHQ has several flaws and I do not advocate its use. A more appropriate approach would be to develop a new instrument based on the Rosser Kind Index, as also discussed in the text. The theoretical and empirical support for the QLHQ, just described, can be expected to apply equally well to this new instrument, as the principles underlying its development would be identical to those used for the QLHQ.
10 Endnotes
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i
Berenson A. New A Cancer Drug's Big Price Rise Is Cause for Concern. New York Times 12 March 2006, http://www.nytimes.com/2006/03/12/business/12price.html?_r=1&th=&oref=slogin&emc=th&pagewanted= all Electing to disregard this factor is also desirable from a methodological perspective, thus killing two birds with one stone. A. Jonsen. Bentham in a box: technology assessment and health care allocation. Law, Medicine and Health Care 1986; 14: 172-174
iv v iii ii
Hadorn DC. Setting health care priorities in Oregon: Cost-effectiveness meets the Rule of Rescue. JAMA 1991; 265: 2218-2225.
vi vii viii
L. Trachtman. Why tolerate the statistical victim? Hastings Center Report 1985; 15: 14. Ibid., p. 171.
A. Gibbard, The prospective pareto principle and equity of access to health care. The President’s Commission for the Study of Ethical Problems in Medicine and Biomedical and Behavioral Research. 1983. Securing Access to Health Care: The Ethical Implications of Differences in the Availability of Health Services. Volumes 2. Washington, DC: U.S. Government Printing Office, 1983 (Henceforth referred to as the “President’s Commission-Securing Access.”), pp. 153-178 at p. 177.
ix x xi
Supra note iii. A. Gibbard, supra note viii, at p.177.
Criticisms were also received by Pharmac regarding the QLHQ on other grounds, including that it does not permit assessment of states worse than death and that its weights were not derived from risk-based measures, as required by contemporary neo-classical economists. Neither of these issues seems particularly relevant in this context. Hadorn DC, Sorenson J, Holte J. Large-scale outcome evaluation: How should quality of life be measured? II: Questionnaire validation in a cohort of patients with advanced cancer. J Clin Epidemiol 1995; 48: 619629.
xiii xii
Steadman-Pare D, Colantonio, A; Ratcliff, G et al. Factors associated with perceived quality of life many years after traumatic brain injury. J Head Trauma Rehab.2001; 16:330-342.
Standard deviations around the mean scores would be required in order to specify the distributions of patients across cells. These are almost always provided in study reports. A bivariate normal distribution would be assumed (i.e., levels of distress and disability both normally distributed) during the mapping process.
xv xvi
xiv
Hadorn DC. The role of public values in setting health care priorities. Soc Sci Med 1991; 32: 773-782.
Hadorn DC, Hays RD. Multitrait-multimethod analysis of health related quality of life measures. Med Care 1991; 29: 829-840.
Hadorn DC, Hays RD, Uebersax J, Hauber T. Improving task comprehension in the measurement of health state preferences: A trial of informational cartoon figures and a paired comparison task. J Clin Epidemiol 1992; 45: 233-243.
xviii
xvii
Hadorn DC, Uebersax J. Large-scale outcome evaluation: How should quality of life be measured? I: Calibration of a brief questionnaire and a search for preference subgroups. J Clin Epidemiol 1995; 48: 607618. Hadorn et al. 1995; supra note xii.
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Metadata
Title
An Ethical Framework for PHARMAC's Subsidy Decisions on High-Cost Pharmaceuticals
Abstract
In this report I describe how Pharmac might develop an ethical framework for deciding whether and to what extent to subsidise high cost pharmaceuticals in New Zealand. Although development and marketing of ever-more expensive drugs against cancer and other serious illnesses may represent an advance in patient care, the problem of affordability will continue to challenge patients and payers like Pharmac for many years to come.
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