Melanie Whittington, PhD is the head of the Center for Pharmacoeconomics, MEDACorp, an affiliate of Leerink Partners. She is also Senior Fellow with the Center for the Evaluation of Value and Risk in Health (CEVR) at Tufts Medical Center, and a member of the Congressional Budget Office’s Panel of Health Advisers.
Center for U.S. Healthcare Policy Research:
How did you become interested in health economics?
Melanie Whittington:
I always planned on being my small town pediatrician. Then, the summer before my senior year of college, I spent time in Panama on a medical brigade, and it opened my eyes to a different health system and how access and infrastructure can impact health outcomes. I decided to pursue a master’s degree in health sciences and public health before going to medical school.
But about two weeks into my master’s program, I really fell in love with research that evaluates health systems and policies. I ended up not going to medical school and instead pursuing a PhD in Health Services Research. During one of my first classes in my PhD program, Dr. Jon Campbell, who is now the Chief Science Officer of the National Pharmaceutical Council, gave a lecture on pharmacoeconomics and showed the class a cost-effectiveness analysis model. I thought it was a really cool way to use evidence and math to inform hard decisions. I still believe that to this day.
I have built a lot of economic models throughout my career, and I understand their abilities, limitations, areas for improvement, and their potential applications. I think economic models are underutilized by stakeholders within the biopharmaceutical ecosystem, and they could be a useful tool for companies and investors to try to understand and explain all the things their innovations can do for patients, the health system, and society more broadly. And so that’s what I am trying to do at the Leerink Center for Pharmacoeconomics. I want to infuse some health economic principles into drug development and investment and use economic modeling as a storytelling tool.
Center for U.S. Healthcare Policy Research:
Your research has helped us understand how conventional health technology assessment (HTA) would benefit from an expanded understanding of the value of medicines. Can you explain?
Melanie Whittington:
Some health technology assessment bodies use cost-effectiveness analysis, either explicitly or implicitly. The results are dependent on decisions that the analyst makes and are sensitive to the assumptions and parameters that are used in the model.
There have been a variety of economic evaluations, including my own, that have produced a different cost-effectiveness estimate under different decisions or assumptions. For example, if you consider societal impacts, like patient productivity or caregiver time, you could get a different finding than if you only focus on health system costs.
Do I know all of the societal benefits that should be included in all HTA assessments? No. Do I think that including societal spillovers results in a different estimate most of the time? Yes.
Similarly, economic evaluations, including my own, have shown that if you incorporate how a drug’s price is expected to change over its lifecycle, you could get a different finding than if you held the drug’s price constant.
Do I know the optimal share of a drug’s lifecycle value that should be rewarded to the innovator? No. Do I think that incorporating changes to a drug’s price over its lifecycle would result in a different estimate most of the time? Yes.
Cost-effectiveness is not a perfect science, and the findings will be dependent on structural and parameter assumptions and decisions. Conducting sensitivity and scenario analyses and transparently reporting assumptions and areas of uncertainty are good practices, but users of their findings should still understand what is and is not modeled and interpret them accordingly.
I was part of the Generalized Cost-Effectiveness Analysis (GCEA) Best Practices report, and it is intended to be a framework that is broader than conventional cost-effectiveness analysis by including elements like severity, productivity, and caregiver time. It also attempts to forecast costs more realistically by accounting for how a drug’s price might change over its lifecycle.
GCEA is not intended to be a price setting tool. It’s simply intended to be a structure to help explain some of the health system and societal impacts that may result from a health technology. It’s a framework to quantitatively assess what you might have to believe to find the market-based price “cost-effective”.
Center for U.S. Healthcare Policy Research:
How has economic modeling for drug pricing evolved in the last ten years?
Melanie Whittington:
There have been a lot of developments over the past decade.
The Second Panel on Cost-effectiveness in Health and Medicine came out in 2016, and it introduced an impact inventory that showcased the societal perspective alongside the healthcare sector perspective. In the societal perspective, you may be thinking about additional things like productivity or education – all of the things that a healthcare technology could do even beyond impacts to the healthcare system. In 2018, we had the ISPOR Value Flower come out, and that introduced these additional elements of value, like insurance value, severity of disease, and value of hope.
In the 2010s, there was a lot of commentary on how we defined value outside of the health system. In the 2020s, we have started to see the methods being developed to be able to quantify those other elements of value. This includes things like the generalized risk-adjusted cost-effectiveness
(GRACE) approach.
One new thing we introduced in the GCEA Best Practices Report was dynamic pricing and a product lifetime time horizon accounting for stacked cohorts. In a cost-effectiveness analysis, you’re already extrapolating costs many years into the future. The GCEA framework is acknowledging that a drug’s price is going to change across its lifecycle and people start the drug at different points across its lifecycle. The GCEA framework evaluates a drug over its expected time in the market, whereas the traditional CEA framework evaluates a drug over the expected lifetime of a patient who starts the drug at launch.
Center for U.S. Healthcare Policy Research:
You’ve written that “Healthcare policies and healthcare investment are intersected. Society wants policies that promote efficient healthcare. Society also wants new healthcare treatments.” Can you unpack this?
Melanie Whittington:
We’d probably all agree that the efficient use of resources is important. I think everybody would also agree that we want more innovation – that we have great drugs on the market now, but there is still a huge need for more. I think we want efficiency and we want innovation. And I don’t think that has to be an either/or.
Innovators and investors often talk about the importance of market-based pricing as an incentive for investment in innovation. This can mean drug prices that are “high” over the patent period, but after that, generics and/or biosimilars can enter and we can see substantial price drops.
What is neat about economic modeling is that you can incorporate these expected market dynamics over the lifecycle of that drug to show that, even at U.S. market-based prices that may be “high” over the patent period, it’s still possible to promote efficiency in the healthcare system.
This kind of application of economic modeling can show that high drug prices over the patent period can still achieve system efficiency, because patents will eventually expire and copies will eventually enter and substantially reduce the price. This involves thinking beyond the first couple years that a drug is in the market though.
For us to be thinking about what health policies we can create that promote efficiency and still incentivize innovation, we need to be talking to investors and drug developers. We need to understand how the policy signals that we’re sending today are going to impact the innovation that comes to market 10 plus years in the future.
Center for U.S. Healthcare Policy Research
What do you learn when you have these conversations with those making investments in the healthcare marketplace?
Melanie Whittington:
The biggest thing that I have learned, and I’ve learned some of this from J&J’s work, is that it requires a ton of risk and private capital for pharmaceutical research and development (R&D). R&D is expensive. It’s also risky. We have to realize that it is a business and returns are required.
I understand that health economics and healthcare investment have different objectives, but there is room for better alignment in the pricing assumptions to promote efficiency and incentives for innovation. We could do that by attempting to account for some market dynamics like future generic entry in our health economic models.
Center for U.S. Healthcare Policy Research:
There’s been a lot of discussion around the argument that the United States pays more for drugs than other wealthy countries. You recently challenged some of the assumptions in that debate and called for more nuanced approaches. What does that include in your view?
Melanie Whittington:
Over the patent period, branded drug prices in the U.S. are higher than most ex-U.S. countries. How much higher and why they’re higher is very nuanced. I’ve done some work where we account, for example, for purchasing power parity and generic entry. My work suggests that these differences between countries are nuanced and they change over time. The U.S. is unique in that it largely has had this market-based pricing approach for prescription drugs. Prices are often the highest during the exclusivity period, but that’s the period where the prices we pay are incentivizing more innovation. The U.S. market is also good at getting prices to fall off of a cliff after the patent period. This shows why talking about the entire product lifecycle is important. It also shows why it’s hard to compare prices across countries.
It’s just way more nuanced than saying something like the U.S. pays three times more than ex-U.S. countries. You really need a clear understanding of how that price is going to change over time, the purchasing power of the country, the values of the country, and the access of those countries.
Center for U.S. Healthcare Policy Research:
The U.S. is the leader in pharmaceutical innovation and sustains a uniquely entrepreneurial R&D ecosystem in the world. Early data from the IRA suggests that administered prices can directly impact the level and quality of new trial starts. What are some of the ‘first principles’ about the R&D incentives that health economists care about?
Melanie Whittington:
Putting on my nerdy health economist hat, the elasticity of pharmaceutical innovation is not zero and it’s not negative. The exact magnitude may be debated, but if we reduce revenue, we reduce R&D.
We can also approach this from a decision-making lens. Bringing a drug to market requires private capital and risk. If that private capital could be invested in A or B, but A has better possible returns, then what are the incentives for going into B?
You could think about the same exercise with different sectors, for example, investing in tech versus biotech, or investing in a drug that will mostly be used in a Medicare population eligible for government price negotiation versus a drug that is not, or investing in a biologic with 13 years before a government negotiated price may set in versus in a small molecule with 9 years before a government negotiated price may set in.
These decisions are impacted by policy and they impact what innovations may come to the market in the future. It is important to understand how R&D decisions are made, how investing decisions are made and how policies might impact those decisions that are happening many years prior to when a drug might enter the market.
Center for U.S. Healthcare Policy Research:
Between 1990 and 2015, life expectancy in the United States increased 3.3 years. You’ve noted that the bulk of that increase came from reductions in mortality from cardiovascular conditions. Can you explain a little bit as to the role of pharmaceutical investment in this reduction in mortality?
Melanie Whittington:
Pharmaceutical innovation can do amazing things for people and for the healthcare system. The cardiovascular landscape is one great example of how innovation can improve life and result in health system efficiencies over time. When these innovations were first entering the market, there might have been budget concerns due to the huge number of people that could benefit from them. But now, if you look at them, they’re very affordable because generic competition has entered and dropped their price near their cost of production.
We can see biopharmaceutical innovation as a cost that needs to be contained or we can see biopharmaceutical innovation as an investment vehicle to drive long-term returns in health system and societal efficiency. Those initial cardiovascular products are cheap now, yet they’re still generating those same returns in patient health long after their patent period.
Center for U.S. Healthcare Policy Research:
You talked about the trends in the 2010s and in the 2020s. Let’s look ahead another 10 years — what would be some of the things you would hope to see as developments in the health economics community?
Melanie Whittington:
Many blockbuster drugs are losing exclusivity. Biosimilars are entering, generics are entering and we are seeing massive price declines. I think we’re going to be able to see a lot of real-world case studies over the next couple of years where we’ll find out how quickly and by how much prices can change with generic and biosimilar entry.
Where I would like to see health economic modeling come in is to figure out how we could have incorporated that in our modeling efforts prospectively. I’d like to see researchers say, “We held this drug constant at $100,000 for 30 years in our model. In reality, it was only priced at $100,000 for 14 years, and now it’s $2,000 with generic competition. How could we have more accurately estimated this initially?”
I hope the health economics community takes this as an opportunity to study market dynamics and study what happens after the patent period has ended. I hope the manufacturers of the drugs take it as an opportunity to say, “We invented this great drug, we had a period of protection and now the market has worked to drop its price with competition.”
Are drug prices high when they first enter the market? Yep, and guess what? They’re intended to be high to generate returns and incentivize more drugs. They’re not intended to be high over the long term, but we often don’t talk about the long term. We often talk about that period when they’re high. In the U.S., 90% of the prescriptions filled are generic medicines, and generic medicines can become very cheap, very quickly after the exclusivity period. We should use this real-world data and test cases to ask, “How much does this matter?” And I believe that it matters a lot.
This interview has been lightly edited for clarity. Views expressed in the Expert Insights interview series are those of the interviewees and are not necessarily endorsed by Johnson & Johnson.
Neither Dr. Whittington nor MEDACorp has any research funding, financial relationship or other affiliation with Johnson & Johnson. Johnson & Johnson Innovative Medicine is among the corporate sponsors of the Center for the Evaluation of Value and Risk in Health (CEVR), with which Dr. Whittington is academically affiliated.
Learn more about the Center’s research on the value of innovation here.
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