Considerations for the use of dynamic drug pricing in cost-effectiveness analyses

To better inform the Inflation Reduction Act’s drug price negotiation provisions, a new Health Affairs Forefront article calls for dynamic drug pricing in cost-effectiveness analyses to provide a more realistic and accurate assessment of the cost of new medicines over time. 

“The advent of the Inflation Reduction Act (IRA) makes the inclusion of dynamic drug pricing in cost-effectiveness analyses (CEAs) even more important, as the law includes manufacturer rebates that are tied to inflation and Medicare price negotiations that will alter the price of certain drugs prior to and after their loss of exclusivity.” 

A new commentary published in Health Affairs Forefront seeks to make the case for incorporating dynamic drug pricing in CEAs. The article entitled ‘The Case For Including Dynamic Drug Pricing In Cost-Effectiveness Analyses Under The IRA’ has been written by Melanie Whittington, Peter Neumann and Joshua Cohen of the Center for the Evaluation of Value and Risk in Health at Tufts Medical Center, and co-authored by Jon Campbell of the National Pharmaceutical Council.  

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CEAs are an important tool for healthcare decision-makers to inform coverage, reimbursement and pricing decisions for drugs and other products. In the US, CEAs are used by the Institute for Clinical and Economic Review (ICER) as well as manufacturers to establish a ‘fair price’ for drugs. CEAs assume the price of the drug will remain the same throughout the course of the analysis but, as the authors note, this can ‘misrepresent the total drug cost over time.’ CEAs do not consider pricing fluctuations, such as decreases due to competition from generic drugs or biosimilars, or increases due to inflation or patent exclusivity. Dynamic drug pricing that considers how drug prices may change over time ‘better represents a drug’s added cost.’

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Impact of the IRA and recommendations 

The authors argue that the IRA’s drug pricing provisions means dynamic drug pricing in CEAs is even more important.  

“We concede that the IRA also brings uncertainty about how the Centers for Medicare and Medicaid Services (CMS) will negotiate drug prices, and there is political uncertainty about its future; but all things considered, it is still better to make assumptions about future price declines rather than omitting them entirely.” 

They go on to make two specific recommendations to advance the use of dynamic drug pricing: to incorporate dynamic drug pricing into the base case of CEAs and to conduct empirical research addressing dynamic drug pricing parameters for the purpose of CEAs. 

However, despite putting across several arguments and recommendations for the use of dynamic drug pricing, as the authors note, their uptake is limited. Some consensus guidelines exist but, as ICER state in their updated Value Assessment Framework, ‘best practices across health technology assessment entities do not exist.’ ICER has outlined that they will be engaging with stakeholders to explore dynamic drug pricing in CEAs. Despite a lack of consensus, the authors encourage stakeholders to immediately consider dynamic drug pricing in their CEAs. 

“Although further research will support how best to do so, this should not stop CEA practitioners from incorporating dynamic drug pricing in their work now. CEA should remain a tool to inform decision-making; not a rule but addressing drug price dynamics is a step forward in making its projections more realistic.”