How Can Healthcare Move to Value if Pharma Disagrees on What Value Means?


Navigating the new checks-and-balances world of value-based pricing.

J. David Campbell and Aaron Shapiro

8 min read

Examining the spat between pharma players and the Institute for Clinical and Economic Review (ICER), which produces reports on the cost effectiveness of drugs, offers a lesson in the murkiness of today’s value-based pricing waters.

ICER was highly critical of recent pricing strategies, and then came under attack for utilizing what many industry players view as an opaque and flawed methodology. (You can read about the debate here.) The pricing watchdog recently offered an olive branch, of sorts, to industry. ICER announced it is willing to reconsider its review methods and it has invited industry input.

The problem is industry is not exactly sure what it wants. Among the pharma players raising concern over ICER’s methodology, there is a divergence around what makes for the right evaluation model. Some companies are calling for review to consider longer-time horizons, while others want to make it shorter. Still others take issue with a drug’s list price being one of the main aspects of the evaluation in overall value.

The debate over methodology might sound like insider baseball, but the truth is it has impact far beyond pharmaceuticals producers, and extends to providers and hospital systems, insurers, pharmacy benefits managers (PBMs), and consumers.

The controversy and dispute begs a few questions:

  • How are the different factions defining value?
  • What checks and balances should companies expect to assure value is provided for other types of companies and consumers?
  • And for treatment developers, what strategies are beneficial – at the time of drug launch or price changes – given increasing vigilance from other companies fueled by higher availability of patient data?

Here, we take a closer look at several value innovations from the past year to try to understand how treatment developers may align (and create value) with other companies in this highly monitored and measured space.

Lesson 1:  Price should reflect something about the consumer

Ariad’s Iclusig and Merck’s Januvia/Janumet partnership

Ariad and Merck have recently shown that treatment prices have to be based on an end-user characteristic; this must be something other than development, marketing, or customer-acquisition costs. For example, Ariad raised the price for Iclusig, a leukemia treatment, by roughly 8 percent after the FDA identified safety issues with its use in a subset of the drug’s target population, resulting in fewer target consumers. Ariad’s rationale for the pricing change was that the treatment now served a niche group and so could be more expensive. The pricing decision, however, did not reflect anything of how the end-user experienced Iclusig and was met with criticism. In general, treatment developers should avoid this tactic if possible.

Meanwhile, Merck’s value-based commercialization of a diabetes treatment provides a contrasting result. Januvia and Janumet diabetes drugs are covered by insurer Aetna, but in return, patients are required to meet treatment objectives set by physicians. If they don’t, Merck must pay rebates to Aetna corresponding to the portion of the population of drug takers who doesn’t meet treatment objectives.

Though this is a relatively new commercialization, we see indicators of success. For starters, the model by which the treatment is commercialized is tied directly to factors in the end-user’s daily lives (doctor’s visits for their type 2 diabetes). Furthermore, there is discussion that the partnership will include Merck developing educational resources and tools to aid in patient engagement. In this case, value means that the partnership addresses several aspects of broad care (from awareness of issues to the treatment). The central goal is that overall cost of treatment will go down and the drug maker, the drug taker and the benefits provider will all get value.

In a world where insurers, hospital systems, and benefits managers have increased intelligence and analytics at their disposal, treatment producers must carefully calibrate pricing to if-and-how those players perceive the value.

Lesson 2:  Understand the other players in the market

Pricing in pharma—either for launches or regarding price changes—has to be executed in a way that considers how other players in the sector will react. In a world where insurers, hospital systems, and benefits managers have increased intelligence and analytics at their disposal, treatment producers must carefully calibrate pricing to if-and-how those players perceive the value.

Over the summer, CVS Health began a meticulous culling of drugs from its formulary (see full article on It instituted mechanisms that detected abrupt spikes in prices by producers. The Company has announced a plan to cut more than 35 products in 2017, including well-known cancer treatments. Often, the price spikes did not come with explanations or rationale (such as other care costs were reduced, etc.), and so the pharmacy benefits manager could see little value in the increases for itself or for the patient population it served. To avoid paying for highly increased drug prices, CVS has added staff and ramped up its review of formulary pricing from once a year to weekly.

If treatment providers can learn anything from the shift in a large pharmacy benefits manager’s business structure, it’s that other players have a say in pricing. They will provide checks and balances—sometimes even when end-consumers don’t—so it behooves treatment producers to understand the others in the market, what their businesses look like, and how value can be created holistically for all players.


As ICER and treatment developers continue their debate over value, we take a step back to consider some of the lessons learned over the past few years for how to coexist in the new healthcare space with heightened vigilance from non-developer companies and increased tracking and availability of consumer data.

  • Treatment producers need to understand the end-consumer at a deep level, including what is peripherally in their world and concern beyond just the initial ailment or cause of the treatment.
  • A deeper understanding of this will help players fine-tune the mechanisms and models with which they launch products, treatments or new technology.
  • Other players in the pharmaceutical market will increasingly place checks and balances on one another, either via media and politics or by adapting their fundamental business structures.
  • In response, pricing must be careful, precise, and attuned to how multiple pharma-space players perceive value to avoid backlash.


  • J. David Campbell and
  • Aaron Shapiro