When a pharma spokesman advocates value-based pricing

by Daniel R. Hoffman, Ph.D.

Published May 21, 2015, 4:55 p.m. ET

The Forbes columnist and pharma cheerleader, John La Mattina, left Pfizer in 2008 as their R&D head with a $22.6 million package after spending $1 billion of the company's money on an HDL-cholesterol enhancer that never got past the FDA. This week he wrote an item attacking two members of the Harvard Medical School faculty because they dared to criticize the industry's basis for pricing its drugs.

The interesting fact here is the only thing Drs. Jerry Avorn and Marcia Angell did, was show that pharma's lobby, PhRMA, has been using phony evidence to justify exorbitant pricing for over 50 years. During this time the industry tried justifying high drug prices by claiming they were necessary for the R&D to develop better, new drugs. Avorn and Angell merely made the case that pharma wildly exaggerates its real R&D expenses. Yet La Mattina claims their criticisms miss the mark entirely because, in his view, drug prices are justified by their value, not their ability to recoup R&D costs.

If La Mattina's efforts to exonerate pharma weren't such transparent jive, they would be quite amusing. Think about it. Avorn and Angell show that pharma's explanation of R&D costs as the basis for high drug prices is baloney, so La Mattina accuses them of pursuing a wrong direction in trying to understand drug prices. According to La Mattina, pharma is not wrong when it uses an irrelevant argument supported by phony cost numbers. Instead he claims that Avorn and Angell miss the point behind drug pricing. That's like saying traffic cops are at fault for excessive speeding by motorists.

With a writer less disingenuous it would be reasonable to ask whether he has thought through the consequences of his position. The idea of value-based pricing for drugs is actually fair and sensible, but doubtlessly a true version of drug value is not what La Mattina has in mind. The concept of value involves how well a drug can improve the length and quality of life compared to available alternatives. That means if a branded drug can relieve a condition or cure an illness, but a cheaper generic can do it as well, then the high-priced brand confers negligible value even if it preempts much higher costs for subsequent treatment.

A drug's value can also vary enormously across the range of patients with the same illness. A drug for hepatitis-C that costs $1,000 a pill brings far less value to the vast majority of people with that disease than it does for those approaching liver failure and likely to require an organ transplant. A fair percentage people with hep-C will not develop detectable liver problems and, for most of those that do, the disease will progress slowly enough that they can safely wait for the availability of either a lower-priced competitor or even a generic. In this case an assessment of value requires provider systems or payers to stratify their patients and identify those for whom $1,000 a day represents a real value.

Pharma's entire history has been marked by extravagantly funded marketing campaigns and political payoffs intended precisely to deny value as the basis for drug prices. The industry launches new products at high prices with outcomes only marginally better than those of older, cheaper products. At the same time it tries to obscure the true efficacy and safety of its new products by publishing data only on those studies that show favorable results for its drugs.

Pharma then relies on an asymmetry of information by convincing prescribers of drug value, even though physicians don't pay for drugs and very few of them possess the scientific background to accurately assess what the salespeople are telling them.

Does Dr. La Mattina really want value assessments to provide the basis for drug prices? That involves a retrospective assessment of outcomes, the way NICE does it in the United Kingdom and IQWIG evaluates drugs in Germany. When early drafts of the Affordable Care Act contained a provision for merely an advisory commission to perform a similar function here, pharma funded its Republican shills and Tea Party yokels to scream, "Obama is creating death panels."

Value assessments involve some straight-up calculations: if you produce x results, you get paid y; if you produce less than x, say something such as w, then you get paid less than y by z amount. But pharma's prices have never been based on such truly quantified outcomes assessments. The industry typically uses the term "value-based pricing" in a loose and meaningless manner, similar to the way it describes its new me-too drugs as "breakthroughs."

If Dr. La Mattina weren't such a pharma courtier, it would be tempting to tell him to be careful about what he ostensibly wishes to see. But he knows it is as likely this country would adopt a call for rigorously basing drug prices on value as to see pigs flying. So instead La Mattina just performs his liveryman's task for pharma by writing a bogus critique against two of best public advocates in academic medicine.