— Models present prices according to two different paradigms: “cost recovery” approach and traditional cost-effectiveness analysis —
— Pricing estimates based on preliminary data and will be updated regularly as further data are released and clinical use evolves to include earlier treatment; models will also be used to provide pricing estimates for future treatments as they emerge —
— Preliminary cost recovery pricing for 10-day course of remdesivir estimated at $10; cost-effectiveness pricing at a commonly used threshold for treatments of large patient populations estimated at a ceiling of $4,500. Policymakers and the public will need to debate most appropriate development and pricing paradigms to be used to achieve rapid development and distribution of affordable treatments for a global pandemic —
BOSTON, May 1, 2020 – The Institute for Clinical and Economic Review (ICER) today released the results of its initial analyses to inform public debate of pricing for remdesivir (Gilead Sciences) and other future treatments of COVID-19. Working with external academic partners, ICER has developed ICER-COVID models comprising two alternative pricing paradigms for COVID-19 treatments: 1) “cost recovery” for the manufacturer, representing an estimate based on peer-reviewed methods of calculating the minimum costs of production for a course of therapy; and 2) traditional cost-effectiveness analyses looking at the incremental health benefits and costs within the health system. Preliminary data available on remdesivir allows for initial non-peer-reviewed pricing analyses at this time, and the models will be used to track and evaluate any potential future treatments for COVID-19.
These pricing models include many important assumptions, and the results on remdesivir are based on preliminary publicly available information from randomized clinical trials and other sources. Like any model based on such preliminary and incomplete data, the data inputs and the models themselves are likely to change as further information becomes available, and as the potential use of remdesivir evolves, most likely to include treatment earlier in the disease course. To help keep pricing estimates as current as possible, ICER will track evolving information and public input and update the model results on a regular basis.
“Based on its immediacy and scale, the current global pandemic presents us with an exceptional challenge to rapidly develop effective and affordable treatments,” said Steven D. Pearson, MD, MSc, ICER’s President. “In times like these, there are several very different paradigms for thinking about appropriate drug development and pricing. One frequently mentioned is a basic cost recovery approach, in which the treatment is developed by industry and priced to cover all the costs borne by the manufacturer in making the treatment. Our cost recovery estimate for remdesivir borrows directly from previous peer-reviewed work seeking to determine the ‘minimum’ costs of production by calculating the cost of active pharmaceutical ingredients, which is combined with costs of excipients, formulation, packaging and a small profit margin.
“Alternatively, traditional cost-effectiveness approaches to suggest reasonable pricing usually seek to identify the top price range at which the health benefits for patients can be rewarded without overspending in a way that leads to unintended greater losses of health through rising insurance costs for all members of an insurance plan. Cost-effectiveness is an important paradigm for considering how to reward the life science industry in proportion to the health benefits their treatments provide, but lower cost-effectiveness thresholds are generally required to achieve affordability in the context of treatments for potential broad, immediate use in a public health emergency, certainly one of the scale of COVID-19.
“The results of a cost recovery approach and a cost-effectiveness approach are going to produce very different pricing estimates. Some may wish to view them as the low and the high end within which to frame a policy approach. We are releasing these estimates now, despite the fact that the evidence is highly uncertain and evolving, because now is the time when the public and policymakers should be actively debating how to link pricing to an overall platform to develop treatments for COVID-19. The consequential discussion about the tradeoffs and priorities involved with different pricing approaches cannot wait. All share the common goal of achieving rapid discovery, development, production, and distribution of effectiveness treatments. All share the understanding that treatments must be affordable in order for this goal to be realized. We hope our modeling results will help the public have a more transparent, explicit debate on treatment pricing for COVID-19, and we look forward to adapting our methods and results to provide an independent source of information to inform that debate.”
ICER-COVID Model 1: Cost Recovery
The conceptual elements of the ICER model for a cost recovery pricing estimate include: 1) minimum cost of producing the final finished product; 2) research and development costs provided by the innovator; 3) research and development costs provided by the federal government; and 4) additional profits beyond cost recovery.
For remdesivir, we have used the data on cost of producing the final finished product from an article by Hill et all in the Journal of Virus Eradication (2020). This article calculated a figure of $9.32 US for a 10-day course of treatment. We have rounded that figure up to $10 for a 10-day course. If a 5-day course of treatment becomes the standard of care then the cost of recovery would accordingly shrink to $5.
In our base case cost recovery calculation, we have set the costs of research and development to zero. In general, there are important reasons to assume that sunk research and development costs should not be used to help justify the price of new drugs, and for remdesivir this perspective is strengthened by the fact that it was previously developed as part of a suite of agents for potential use in chronic Hepatitis C. Given that the manufacturer successfully launched other drugs for Hepatitis C, it seems reasonable that any sunk costs for research and development have already been recouped in the successful market experience of the manufacturer’s other treatments in that area. For that reason and others, we are not currently including any research and development costs separate from the development costs already captured in the cost of production. As the manufacturer spends new money going forward on clinical trials for the COVID-19 population, consideration will be given to including these costs as a possible component of a cost recovery price estimate.
ICER-COVID Model 2: Traditional Cost-Effectiveness
Working with external academic partners, Drs. Melanie Whittington and Jon Campbell, ICER has developed a traditional cost-effectiveness model for treatments of COVID-19. The base case model results are based on the estimates of benefits seen in the Adaptive COVID-19 Treatment Trial (ACTT). We have included benefits on time to improvement and mortality, although the mortality benefits did not quite reach statistical significance in the first data release from the NIH and remains a critically important uncertainty at this time. The model captures quality of life improvements, mortality benefits, and the benefits of fewer days in the ICU, on ventilation, and in hospital.
Results are provided suggesting the prices at which remdesivir would be considered cost-effective at different cost-effectiveness thresholds. As noted earlier, in public health emergencies, and with such great clinical evidence uncertainty, cost-effectiveness analysis results should be viewed with caution. When cost-effectiveness is used to evaluate large-scale interventions, policy makers should consider lower thresholds to accommodate both the uncertainty and to maintain affordability for immediate broad use. That is why in this case we are emphasizing the threshold price at $50,000 per incremental quality-adjusted life year (and equal value of a life-year gained). This threshold remains an established threshold in the US context and is more likely to be policy-relevant for consideration of a treatment being evaluated for use in a public health emergency.
In the case of remdesivir, the initial ICER-COVID model suggests a price of approximately $4,500 per treatment course, based on the assumption of mortality benefit from the findings from the ACCT study using a 10-day treatment course.
Broader Societal Benefits of an Economic Recovery
ICER is aware that a very effective treatment for COVID-19 may alter how society contemplates the risk/reward tradeoffs of relaxing social distancing measures, which in turn could spur an economic recovery. The ICER-COVID models do not include these potential effects because ICER assumes that policymakers would view it inappropriate to set a price for a treatment for COVID-19 to capture the potential broader economic benefits associated with future economic recovery.
Additional Information and Public Input
This ongoing initiative is a collaboration between ICER and Drs. Melanie Whittington and Jon Campbell, researchers from ICER’s Health Economics Council. Additional assumptions, citations, and scenario analyses can be found within the detailed summary of the ICER-COVID models. We plan to re-assess each model regularly based on feedback and emerging data, and we will publish frequent updates. All feedback and suggestions can be emailed to ICER at firstname.lastname@example.org.
The Institute for Clinical and Economic Review (ICER) is an independent non-profit research institute that produces reports analyzing the evidence on the effectiveness and value of drugs and other medical services. ICER’s reports include evidence-based calculations of prices for new drugs that accurately reflect the degree of improvement expected in long-term patient outcomes, while also highlighting price levels that might contribute to unaffordable short-term cost growth for the overall health care system.
ICER’s reports incorporate extensive input from all stakeholders and are the subject of public hearings through three core programs: the California Technology Assessment Forum (CTAF), the Midwest Comparative Effectiveness Public Advisory Council (Midwest CEPAC), and the New England Comparative Effectiveness Public Advisory Council (New England CEPAC). These independent panels review ICER’s reports at public meetings to deliberate on the evidence and develop recommendations for how patients, clinicians, insurers, and policymakers can improve the quality and value of health care. For more information about ICER, please visit ICER’s website.