{"id":13033,"date":"2026-05-02T05:28:58","date_gmt":"2026-05-02T05:28:58","guid":{"rendered":"https:\/\/medical-article.com\/?p=13033"},"modified":"2026-05-02T05:28:58","modified_gmt":"2026-05-02T05:28:58","slug":"are-drug-prices-value-based","status":"publish","type":"post","link":"https:\/\/medical-article.com\/?p=13033","title":{"rendered":"Are drug prices value-based?"},"content":{"rendered":"

One of the central tensions in pharmaceutical policy is the gap between what a drug is\u00a0worth<\/em>\u00a0and what it actually\u00a0costs<\/em>. In theory, a drug\u2019s price should reflect its value \u2014 its ability to improve health outcomes relative to the next best alternative. In practice, list prices are set by manufacturers, net prices are shaped by opaque rebate negotiations, and whether these prices bear any resemblance to value-based benchmarks is an empirical question. What dos the literature say about this?<\/p>\n

US Evidence<\/h2>\n

The most direct empirical test of whether US prices align with these benchmarks comes from Bloudek et al. (2021)<\/a><\/strong>, published in\u00a0Value in Health<\/em>. Their analysis compared ICER\u2019s value-based price benchmarks to the actual net prices for a range of newly launched drugs. The headline finding: across the drugs studied, net prices exceeded ICER\u2019s value-based benchmarks in the majority of cases. Specifically, \u201cnet price of 81% of drugs exceeded the $100 000 per QALY VBP and 71% exceeded the $150 000 per QALY VBP\u201d, with some drugs requiring price reductions exceeding 36% to fall within the acceptable cost-effectiveness range. Importantly, this was true even for net<\/em>\u00a0prices \u2014 i.e., after accounting for rebates \u2014 meaning the price-value misalignment is not simply an artifact of list price inflation.<\/p>\n

ICER\u2019s 2025 Launch Price and Access Report<\/a><\/strong> found that the average net price of newly launched drugs rose approximately 51% from 2021 to 2024, substantially outpacing inflation. More pointedly, ICER estimated that this pricing trajectory cost the US healthcare system roughly $1.5 billion in excess spending above value-based benchmarks \u2014 over a relatively short window. However, ICER\u2019s report has a number of flaws<\/a> including (i) failing to take into account cost offsets, (ii) prices examined where only those at launch\u2013which matters because IRA halts the ability to increase prices vs. inflation, (iii) \u2018value\u2019 includes only QALY-based concepts of value rather than broader societal value, and (iv) pharmaceutial prices as a share of health care spending has not increased in recent years. <\/p>\n

Does Value Assessment Influence Coverage?<\/h2>\n

The next logical question is whether payers actually use value assessments when making coverage decisions.\u00a0Chambers et al. (2023)<\/a><\/strong>, published in the\u00a0Journal of Managed Care & Pharmacy<\/em>, examined how US commercial health plans use ICER reports. <\/p>\n

Plans tended to cover drugs with higher (less favorable) CERs more restrictively than drugs with CERs less than $100,000 per QALY: odds ratio (OR) = 4.48 if $100,000-$175,000 per QALY; OR = 2.00 if $175,000-$500,000 per QALY; and OR = 2.10 if $500,000 or more per QALY (all\u00a0P<\/em>\u00a0< 0.01). <\/p>\n

Their finding: health plans that received an \u201clow value\u201d or \u201chigh price\u201d rating from ICER were more likely to implement restrictive formulary policies \u2014 prior authorization, step therapy, or quantity limits \u2014 compared to drugs that received favorable assessments. ICER ratings don\u2019t determine coverage, but they do appear to shift the leverage in formulary negotiations.<\/p>\n

Comparing Across Therapeutic Areas<\/h2>\n

Within the US, the price-value relationship also varies considerably by disease area.\u00a0Cherla et al. (2020)<\/a><\/strong>\u00a0conducted a comparative cost-effectiveness analysis of cardiovascular, obesity, and diabetes drugs, contrasting ICER assessments with NICE (the UK\u2019s National Institute for Health and Care Excellence) assessments for the same products. A key finding: the two bodies agreed on clinical evidence far more often than they agreed on value assessments \u2014 and when they diverged, the driver was almost always\u00a0price<\/em>, not efficacy. Drugs approved by NICE but receiving a \u201clow value\u201d signal from ICER were frequently drugs where the US net price was materially higher than the UK price.<\/p>\n

This has direct implications for a common policy argument: that the US subsidizes global pharmaceutical R&D by paying more. The Cherla analysis suggests that when the same molecule is evaluated with the same methodology, the US cost-effectiveness ratio is often unfavorable simply because of price differences \u2014 not because the clinical evidence is weaker.<\/p>\n

The IRA and Value-Based Price Signals<\/h2>\n

The Inflation Reduction Act (IRA) introduced Medicare drug price negotiation for the first time \u2014 a structural reform that implicitly raises the question of whether negotiated prices align with value-based benchmarks. Early analyses of the 10 drugs selected for negotiation in 2025-2026 suggest the negotiated prices represent meaningful discounts from list price, but comparisons to explicit QALY-based thresholds remain limited. USC Schaeffer Center researchers<\/a> examining anti-obesity medications found that value-based prices (at the $100,000\u2013$150,000\/QALY threshold) would imply substantially lower prices than current list prices \u2014 a finding with significant implications as GLP-1 drugs enter the negotiation pipeline.<\/p>\n

International Evidence<\/h2>\n

Outside the US, the price-value relationship has been studied more rigorously, primarily because most high-income countries have formal HTA systems with explicit cost-effectiveness criteria.<\/p>\n

UK (NICE).<\/strong>\u00a0The seminal empirical work here is\u00a0Dakin et al. (2015)<\/a><\/strong>, published in\u00a0Health Economics<\/em>. Using a dataset of over 400 NICE appraisals, they estimated the implied probability of a positive reimbursement recommendation as a function of the incremental cost-effectiveness ratio (ICER). Unsurprisingly, the probability of approval drops sharply once the ICER exceeds \u00a320,000\u201330,000\/QALY \u2014 but the relationship is probabilistic, not deterministic. Disease severity, end-of-life status, unmet need, and budget impact all influence the decision beyond the ICER alone. \u201c\u2026technologies costing \u00a340 000 per quality-adjusted life-year (QALY) have a 50% chance of NICE rejection (75% at \u00a352 000\/QALY; 25% at \u00a327 000\/QALY). Past NICE decisions appear to have been based on a higher threshold than \u00a320 000-\u00a330 000\/QALY.\u201d This work has been extensively replicated and is the empirical foundation for much of the subsequent literature.<\/p>\n

Australia (PBAC).<\/strong>\u00a0The Pharmaceutical Benefits Advisory Committee uses an informal cost-effectiveness threshold, but empirical analyses \u2014 including work by\u00a0Harris et al.<\/a><\/strong> suggest the implicit threshold is roughly AUD 45,000\u201375,000\/QALY, with higher thresholds tolerated for life-threatening conditions with limited alternatives. The price-reimbursement relationship in Australia is tighter than in the US precisely because PBAC has statutory negotiating authority and can reject submissions outright. Specifically they find that \u201cAn increase in $A10,000 from a mean incremental cost per QALY of $A46,400 reduced the probability of listing by 0.06 (95% CI 0.04 to 0.1).\u201d<\/p>\n

Sweden (TLV).<\/strong> Sweden\u2019s Dental and Pharmaceutical Benefits Agency (TLV) operates an explicitly value-based pricing system. Firms propose a price; TLV assesses cost-effectiveness; and the approved price is effectively set through negotiation anchored to the QALY threshold. Empirical analyses of TLV decisions\u2013such as those by Svensson et al. 2025<\/a>\u2013confirm that the cost-per-QALY ratio is the dominant predictor of listing decisions, with severity of disease playing a significant moderating role. For instance, Klockhoff et al. 2026<\/a> found that \u201cICERs increased significantly with severity (P<\/em> < .01)\u2026[but the]\u2026average ICER was 30.6% lower than the relevant threshold\u201d<\/p>\n

Netherlands.<\/strong> The Dutch system incorporates an interesting tiered threshold structure \u2014 higher severity conditions face higher WTP thresholds. Vossen et al. 2019<\/a> show that this is up to \u20ac80,000\/QALY for severe disease versus \u20ac20,000\/QALY for mild conditions. Empirical research from Schurer et al. 2022<\/a> confirmed that this severity weighting is reflected in actual reimbursement decisions, but also note that 65% of submission claim the highest severity rating. <\/p>\n

Multi-country comparison.<\/strong> A comparative analysis by Syverson et al. 2024<\/a> examined drug price negotiation systems across seven countries found wide variation in the degree to which value-based benchmarks are formalized versus implicit. Countries with formal HTA processes and statutory negotiation authority (UK, Australia, Germany) showed tighter price-value alignment than countries relying on reference pricing or voluntary agreements.<\/p>\n

What It Means<\/h2>\n

The empirical literature converges on a few consistent conclusions:<\/p>\n

US net prices frequently exceed value-based benchmarks<\/strong>, particularly for drugs with modest incremental clinical benefit relative to existing alternatives.Value assessments do influence payer behavior<\/strong>\u00a0in the US, even without a formal regulatory role \u2014 primarily through formulary restrictions rather than outright coverage denial.International HTA systems produce tighter price-value alignment<\/strong>\u00a0than the US market, though no system perfectly calibrates price to value. Cost-effectiveness thresholds are probabilistic guides, not hard rules.The price-value gap appears largest in therapeutic areas with strong market exclusivity and limited competition<\/strong>\u00a0\u2014 biologics, gene therapies, rare disease drugs \u2014 where the manufacturer\u2019s pricing power is greatest.Value in HTA bodies is often defined narrowly<\/strong>. Many HTA bodies focus on health benefits and health system cost rather than total societal benefits and cost. This may have material impacts for treatments for some diseases (e.g., Alzheimer\u2019s, schizophrenia) where the impact of the disease goes beyond health and the disease impacts caregivers and loved ones as well.<\/p>\n

In short, the relationship between price and value is real, but in practice is a more probabilistic rather than deterministic relationship.<\/p>","protected":false},"excerpt":{"rendered":"

One of the central tensions in pharmaceutical policy is the gap between what a drug is\u00a0worth\u00a0and what it actually\u00a0costs. In theory, a drug\u2019s price should reflect its value \u2014 its ability to improve health outcomes relative to the next best alternative. In practice, list prices are set by manufacturers, net prices are shaped by opaque…<\/p>\n","protected":false},"author":0,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[],"class_list":["post-13033","post","type-post","status-publish","format-standard","hentry","category-articles"],"_links":{"self":[{"href":"https:\/\/medical-article.com\/index.php?rest_route=\/wp\/v2\/posts\/13033"}],"collection":[{"href":"https:\/\/medical-article.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/medical-article.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/medical-article.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=13033"}],"version-history":[{"count":0,"href":"https:\/\/medical-article.com\/index.php?rest_route=\/wp\/v2\/posts\/13033\/revisions"}],"wp:attachment":[{"href":"https:\/\/medical-article.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=13033"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/medical-article.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=13033"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/medical-article.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=13033"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}