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What is ICER and how does it promote discriminatory drug pricing?

  • The Institute for Clinical and Economic Review (ICER) produces reports, known as “cost effectiveness analyses” or “value assessments” on how much it thinks new drugs should cost.
  • ICER metrics value treating young individuals in good health as more cost-effective than treating older adults (65 and older) or people with disabilities.
  • Insurance companies use these values to decide whether it’s worth paying for a certain treatment or test.
  • Sick and older patients are more likely to be denied access to medications that could help improve their condition or quality of life.

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What is ICER?

The Institute for Clinical and Economic Review (called ICER for short) issues reports about how well certain diagnostic tests and new medications work, and how much they should cost. Ultimately, health insurance companies use ICER reports to decide whether a medical test or treatment is worth the cost of covering it.

How does ICER decide which medicines are worth their cost?

ICER looks at two metrics when it determines a drug’s worth: the value of treating the type of patient for which the drug is designed, and how much it costs the health system.

The organization’s analysis compares the cost of a new drug against other existing treatments, the likelihood of side effects, and a drug’s short-term benefits. Longer-term benefits, such as fewer hospital visits or improved quality of life, are not taken into consideration. Unfortunately, there is little transparency into exactly what goes into ICER’s formulations or how they arrive at their conclusions. This means other researchers and even insurance companies are unable to analyze and replicate ICER’s results.

The organization also determines a drug’s value based on quality-adjusted life-years (QALYs). This measurement puts a dollar value on one year of the patient’s life to estimate just how cost-effective a medical treatment is. ICER’s description of its “equal value of life years gained” metric, which is simpler than QALYs, states they do not adjust for quality of life differences arising from “age, severity of illness, or level of disability.” For two patients receiving equal care, it means covering treatment for the younger and healthier one is a more cost-effective move for an insurance company than treating the older and sicker one.

What is the problem with QALYs?

Since the QALY measure is arbitrary (ICER values one year of perfect health at $100,000 to $150,000), its outcome is inconsistent. QALYs place a lower value on the life of patients with serious illnesses, who may be expensive to treat in the short term but might otherwise benefit from a long-term cure or greatly improved life expectancy or quality of life. The values have severe consequences, since insurers could use them to deny high-cost drugs to certain populations or patients in certain disease stages.

Perhaps most important, the use of QALYs and similar assessments as the basis for drug coverage and reimbursement decisions is considered discriminatory under U.S. Federal law, including the Americans with Disabilities Act (ADA). The governing branch of the EU has also criticized the United Kingdom for using QALYs to determine drug pricing. QALYs originated in the 1960s and found application when the British government was searching for ways to ration health care for its National Health Service.

What are the consequences with ICER’s current methodology?

ICER’s methodology can mean older adults, people with disabilities and veterans are deemed “too expensive” to receive care. But it has broader consequences as well.

Drugs developed to treat rare or more complex diseases may only be beneficial to a small number of patients or take longer to develop, which means their prices tend to be higher. If ICER reports determine that patients suffering from these diseases are too sick to treat, or the treatment is too costly in the short-term, insurance companies will likely shy away from covering these novel drugs. Not only does the cost-prohibitive nature of paying for drugs that a covered by health insurance limit their availability, but it will also dissuade pharmaceutical companies from researching cures for less prevalent diseases.

ICER’s discriminatory tactics are gaining steam with some big players. CVS Health last year announced its intention to employ ICER’s framework so that payer clients can exclude some medications; and the Department of Veterans Affairs partnered with ICER for drug-price negotiations in 2017.

Coordinated Legislative Effort

There is a coordinated state legislative campaign, pushed by the National Academy for State Health Policy (NASHP) and relying exclusively on ICER, that would recklessly cut access to prescription drugs for seniors based on an arbitrary determination that those drugs had “unsupported price increases” in a given year. Such drugs could vary from year to year and include medications for which no other treatment currently exists. ICER creates cost analysis reports that health insurance companies use to deny patients access to innovative medical treatments.

In January 2021, ICER released the second edition of its report, unimaginatively called Unsupported Price Increase Report, which focuses on a hand-picked, narrow group of medicines. This report includes a highly-criticized analysis. ICER even admits its report is flawed and that it “does not currently have the capacity to perform full economic analyses in conjunction with the evaluation of clinical evidence for the drugs in its UPI Reports.” The press release for their report is candid about coordination with NASHP’s push for state laws. Despite these concerns and the short track record of this report, ICER and NASHP contend that the report is valid as a solitary source for making pricing determinations. Nongovernmental entities should not be given sole power to drive prescription drug access determinations in Medicaid.

According to a Drug Channels analysis of data from SSR Health (an independent organization that collects and reports data on pharmaceutical prices), growth in prescription drug prices slowed significantly over the past five years, with net prices declining by -2.2% in 2020 alone. Additionally, while prices have fallen, utilization has increased, which means that more patients are using more medicines, which increases overall health spending.

For health insurance providers, ICER’s controversial methodology serves as the basis for perverse incentives. Payers are using ICER reports to deny coverage or preferred formulary placement when the reasoning behind those decisions cannot even be replicated. Ultimately, the fact that drugs are inaccessible and unaffordable to many seniors is due to private Part D insurers and PBM’s demanding higher rebates from pharma companies (which drive up list prices) and then implementing aggressive cost-sharing. This practice makes older adults pay more for drugs their physicians prescribe and sets patients up to fail to stick with their physicians’ recommended course of treatment.

Learn More:

Discrimination has no place in American prescription drug coverage The Tennessean

Governors should reject unscientific and discriminatory approaches to drug pricingThe Hill

Cost-effectiveness in health care is racistMorning Consult

This campaign was made possible by support from Merck & Co., Inc., PhRMA, and Pfizer Inc.