Drug Innovations Aren’t Created Equal As CMS Will Soon Find Out

Newly approved prescription drugs are often called innovations. This is especially true in drug industry and investor circles. And the fear expressed by these stakeholders is that legislative policies, such as the Inflation Reduction Act’s drug pricing provisions, will reduce investment in research and development, which in turn will lead to fewer innovations down the road.

There is some truth to this. The Congressional Budget Office estimated that the IRA’s drug price negotiations would result in “less innovation,” specifically two fewer drugs being brought to market over the next decade, five fewer pharmaceuticals in the following 10 year period, and eight fewer drugs in the decade after that. And other estimates suggest much steeper declines in approvals over time. In these studies, the tacit assumption is that all newly approved drugs are innovative. Looked at from a societal value perspective this is not necessarily the case.

Technically, an innovation is a practical implementation or application of a concept which results in the introduction of new or improved goods or services. By virtue of an approved new molecular entity being novel, for example, it comports with the idea that it is an innovation.

Similarly, a repurposed drug used for a different disease or condition or a new formulation for the same disease, constitute innovations.

But not all pharmaceutical innovations are created equal. Some new products aren’t better than existing standards of care. As such they can hardly be viewed as innovative. Others are breakthrough medications. Still others offer improvements to varying degrees compared to existing drugs. This can include new formulations or even routes of administration that can produce substantive health gains.

Take, for instance, Coartem Dispersible, a pediatric formulation of the anti-malarial Coartem (a combination of artemether and lumefantrine). Doctors and caregivers had to crush bitter-tasting antimalarial tablets for children to swallow. However, the more convenient sweet-tasting Coartem tablets disperse quickly in small amounts of water, making it easier to give to children and ensure effective dosing. In a similar vein, combining several active ingredients in one pill, once daily single tablet HIV formulations are conducive to better patient adherence than multi-tablet regimens.

Difficulties in measuring innovativeness

Measuring innovativeness is therefore challenging. Counts of new molecular entities approved by the FDA are often cited as measures of innovation, but this very crude measure only gauges quantity and not innovativeness and doesn’t take into account new indications, dosages and formulations.

And so there need to be ways in which to calculate the extent to which new products are innovative by giving rise to better health outcomes, beginning with conceptualizing a categorization of innovativeness. According to Morgan, Lopert and Greyson, FDA approvals can be categorized as “incremental, substantial or radical” innovations.

To illustrate how this can work in practice, the French health authorities rank pharmaceuticals in terms of their incremental benefit compared to existing treatment options on a scale that ranks improvement levels. I constitutes a major improvement; II, important; III, moderate; IV, minor; and V, no improvement. If we translate these levels to the categorization of FDA approvals in the paragraph above, “major” denotes a radical or breakthrough innovation, while “important” and “moderate” correspond with substantial, and “minor,” incremental innovations.

When it comes to assigning an adjective descriptor to certain breakthrough medicines like the chronic myeloid leukemia drug Gleevec (imatinib) there’s a consensus view that these are radical innovations. In the early 2000s Gleevec altered the treatment landscape while significantly improving the health of certain cancer patients. Also, drugs such as histamine H2 antagonists, for example, revolutionized treatments of peptic and duodenal ulcers in the early 1980s. What was once treated by way of invasive surgery could be remedied by an oral tablet.

Disagreement exists, however, where there’s incremental or substantial innovation. And most progress in drug development is measured in terms of incremental innovations. In a study published by the Journal of the American Medical Association, researchers Egilman, Rome and Kesselheim found that the majority of the 50 top-selling brand-name drugs in Medicare (compiled from a 2020 dataset) received low or incremental therapeutic benefit ratings by health technology assessment agencies in three peer nations, Canada, France and Germany.

Last month when CMS selected 10 drugs for price negotiation it did so from the top 50 list of pharmaceuticals in terms of gross Medicare spend, from June 2022 through May 2023. While this wasn’t the only selection criterion, it was a very important one as the drugs ultimately chosen represented 20% of overall Medicare gross expenditures.

To arrive at its initial offer price for the drugs CMS selected for negotiation it must assess comparative effectiveness as a value proxy relative to existing standards of care. In turn, drug companies that make the products will do their own analysis which will form the basis for counteroffers.

Besides the fact that CMS can’t incorporate measures such as cost-per-Quality-Adjusted-Life-Year into its evaluation, it’s unknown precisely how CMS will go about assessing value. This will not be easy for CMS to accomplish alongside its other duties. It may be more feasible to designate a separate HTA entity whose sole job is technology evaluation. There’s certainly precedent in other peer nations with respect to how government entities attempt to align price and value.

Aligning price and value

The key question when conducting comparative effectiveness evaluations is whether the pharmaceuticals being analyzed are clinically better than existing standards of care. And if so, then HTA must probe whether the incremental benefit is worth the price premium?

As was said above, among the top-selling prescription drugs sold to Medicare most were not considered high value products.

Furthermore, other high-profile studies reinforce the issue of limited value of many recently or newly approved drugs. An analysis published in Health Affairs of the 46 new molecular entities approved by the FDA in 2017 found that there was consistent agreement across HTA agencies in Canada, France and Germany that 17 (37%) of the pharmaceuticals provided “no or minor additional benefits” compared to existing standards of care. Only four were determined to have “moderate to considerable” added benefits by all three agencies. Of the remainder, 19 had not been evaluated by any of the three agencies, while for six NMEs there was disagreement regarding their value.

And according to a comprehensive study published in June in the British Medical Journal less than half of new and supplemental indications approved drugs in the U.S. and Europe during the 2011-2020 period offered “high therapeutic value” compared to existing treatments. Authors suggested that when “first or supplemental indications do not offer added therapeutic value over other available treatments, that information should be clearly communicated to patients and physicians and reflected in the price of the drugs.” In other words, the authors want there to be better alignment of price and value.

We also observe problems of misalignment with direct-to-consumer advertised drugs, as their clinical effectiveness is often only marginally better than existing and generally much cheaper standards of care.

To test whether frequently advertised branded drugs represent significant advances over existing treatments, researchers from Yale, Harvard, and Dartmouth assessed the therapeutic value of drugs subject to the most direct-to-consumer television advertising from 2015 to 2021.

For each drug, researchers obtained therapeutic value ratings from health technology assessment agencies in Canada, France and Germany. These entities determine ratings based on factors such as the drugs’ added therapeutic benefit (which incorporates multiple measurable dimensions), safety profile, and strength of evidence, as compared to existing therapies.

Fewer than one-third of the most commonly advertised drugs were rated as having “high therapeutic value,” defined as providing at least moderate improvement in clinical outcomes relative to existing treatment alternatives.

Critics of DTC advertising have long argued that the practice contributes to the (over)use of higher-cost drugs over generics and less expensive alternatives.

DTC advertising was even the subject of a Trump Administration executive order which would have required drug companies to include price information in commercials for their products. Subsequently, a court injunction scuttled the effort. But, the idea put forward by the Trump Administration suggested that consumers must be apprised of value metrics, which include price and costs, along with benefits, safety and other factors.

In conclusion, having marketing authorization in and of itself does not tell us anything about a product’s innovativeness or value. FDA approval only says that a drug has demonstrated that it’s better than placebo. It also doesn’t indicate how to price a newly approved drug, and once that price is set whether there is alignment of price and value.

Given that pharmaceutical innovations are not created equal it’s the job of payers but also entities like CMS and others involved in HTA to evaluate drugs’ innovativeness.

Problems can arise when drugs are priced at levels incommensurate with their value. In an optimally functioning pharmaceutical market prices ought to reflect value. But because of a host of factors which make the market sub-optimal, including monopoly rights for drug makers and a high degree of market concentration on the payer side, third party payment, information asymmetry and lack of transparency, price and value may be misaligned. Accordingly, HTA’s difficult task is to assess the value of products in order to attempt to achieve better alignment.