Manufacturers set prices for their products that best represent their value while providing the greatest financial return on investment. Thus, conventional wisdom would suggest that manufacturers set a higher price for a product with greater clinical benefit. But in the minds of payers, do higher prices really translate into greater perceived therapeutic effectiveness? The authors explore the question of how price influences the perception of a product’s clinical effectiveness and positioning for use.
Welcome to our new, recurring column, Pharma Insights. In each issue of Journal of Clinical Pathways, we will provide a different perspective on the opportunities and challenges felt by the pharmaceutical industry as the health care landscape evolves around value-based delivery. We will spotlight the insights of our colleagues at Precision for Value, with backgrounds ranging from former population managers within payer and health systems to national leading economists to highly experienced pharmaceutical consultants and marketers. Along with these insights, we will also discuss our own research and reflections from our engagement with those producing medications and those determining how to best fit them into today’s economic realities.
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For our first column, we chose one of the hottest topics regarding medications at this time: price. Hundreds of articles and editorials have recently commented on the escalating prices of medications, and, in light of the purpose of this column, we chose to explore how price can influence the perception of a product’s clinical effectiveness and positioning for use. Our own informal research helps to highlight our industry observations in this area.
First, it is important to note that the process of determining the launch price of a medication often starts early in development. Price assessment and expectations can fluctuate until launch—with attention to changes in the therapeutic landscape, the product’s clinical trial results, and competitive pricing—eventually arriving at an intended price that best represents the product’s value while providing the greatest financial return on investment. Frequently, it seems that focus on the latter outweighs the former, due in part to disparities between the ways in which manufacturers and customers perceive value.
With that environment in mind, how should a manufacturer price a product that demonstrates significant clinical improvements? Conventional business wisdom suggests that greater clinical benefit demands a higher price—in part to reinforce the belief among customers that the product is indeed superior. But in the minds of payers, do higher prices really translate into greater perceived therapeutic effectiveness?
To exemplify a phenomenon we have observed in multiple pricing analyses across different therapeutic areas, we conducted a survey of 25 representatives of payer organizations, covering more than 200 million people in the United States. Survey participants were asked to provide their opinion of the therapeutic effectiveness of a new, fictitious product for the treatment of rheumatoid arthritis in comparison with adalimumab (Humira®). About half of our respondents were told there was parity between the price of the new drug and the price of adalimumab. The remaining respondents were told the drug had a premium price that was 20% higher than that of adalimumab. All respondents were provided with identical clinical profiles for the drug: the new product showed significant improvements in efficacy, resulting in physical improvement as well as reduced depression and anxiety. It also came in a twice-daily oral dosing form, whereas adalimumab is administered via biweekly injections.
Contrary to conventional wisdom, the perception of the actual therapeutic superiority of the new product versus adalimumab was lower among the group given a premium price for the drug than among the group told the prices were equivalent, even though both groups were given identical information about the clinical parameters of the drug. It is fair to assume that this devalued perception of the new drug among payers would impact coverage for the new product, which, in turn, would be likely to influence its use.
It is clear that payers are under significant pressure to manage the financial allocations for the provision of health care for the populations they serve. The reaction by these payers to pricing information, however, suggests a rather immediate jump past consideration of clinical efficacy to assumptions about product value. In some cases, existing treatments are deemed to be “good enough,” particularly when the prices of these treatments decline after patent expiration. This is certainly a major factor in the slower-than-predicted uptake of the new lipid-lowering proprotein convertase subtilisin/kexin type 9 (PCSK9)–inhibiting products alirocumab and evolocumab. Although these high-priced products showed great promise upon their approval by the US Food and Drug Administration, most payers have restricted access of these drugs based on the belief that statins (most of which are available in generic form) are good enough for the vast majority of the patients in need of lipid-lowering therapy.
The balance between demonstrating product value and maximizing investment return will grow more complex under the impact of overall cost pressures, especially as we experience an era of true breakthrough innovations and, even, cures (as we have seen with hepatitis C). Finding common ground between these opposing forces will be the focus of Pharma Insights in a future issue.
