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ICER: Nonprofit targeting high US drug prices led by Steven Pearson

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High drug prices are a peculiarly American problem.

The US pays more than other countries for pharmaceutical drugs, but at the same time, the American government does little to regulate prices. A common arthritis drug, for example, has a US price that is three times the average price in other countries.

That’s where the Institute for Clinical and Economic Review (ICER) comes in. Call it the drug price whisperer: The nonprofit has become an independent and authoritative voice on what drugs should cost patients and the US health system.

Steven Pearson, a 58-year-old health researcher and physician, said America’s escalating health costs inspired him to found ICER in 2006.

ICER’s pronouncements on price and comprehensive, free reports about medications have filled a void in the US health system and become key tools for everyone from patients and advocates to companies (drugmakers, health insurers, middlemen that negotiate drug prices, Wall Street analysts and more) and the public sector.

America’s high healthcare costs are a practical problem, but ICER also has an ethical mission, Pearson says. That’s because, with limited resources, the US has to provide both affordable care to patients and sustain innovation from private companies, he told Business Insider.

Business Insider has named Pearson to our list of 100 People Transforming Business this year to recognize the role ICER has played in changing the way we talk about drug prices.

ICER’s role and influence will only grow, with even thornier drug price issues coming down the road. A wave of new million-dollar medical treatments that could cure devastating diseases are expected to become available in the next few years, but they will likely involve trade-offs, including cuts for things like state education budgets.

“Not a single one of those pathways is going to be easy. Because it’s not like we can suddenly print a whole lot of new money, just because we have an exciting new cure,” Pearson said.

Read more: Drugs that cost as much as a house are on the way to treat rare and devastating diseases. The US is scrambling to figure out how to pay for them.

Focusing on value, not cost

The debate about US drug prices sometimes gets simplified down to this: Prices are just too high. But Pearson says it’s more nuanced than that.

“Sometimes with drug prices, we’re getting a tremendous value. And sometimes patients and the public are getting ripped off,” he said. “And the problem is we’ve failed to come up with an approach to distinguish between those two.”

ICER, based in Boston, aims to help make that distinction. It takes an in-depth look at new drugs for conditions like depression, heart disease and peanut allergies, using factors like how well they work, their value to patients and what other treatments are already available.

Then, ICER uses economic analyses to come up with a price at which these medicines would be cost-effective for the US health system.

For example, it found that a class of new drugs aimed at preventing migraines are cost-effective at up to $5,300 a year, for patients who haven’t had good results on other preventive options. Drugmakers priced their migraine drugs somewhat higher, at nearly $7,000 a year, but lower than had been expected.

Read more: The 10 people transforming healthcare

Now independent, the group began as an academic project of Harvard Medical School, and those roots show in its reports. The process is also highly collaborative, involving the perspectives of everyone from patients and patient advocates to medical experts, drugmakers, health insurers and others.

Pearson and others say that ICER’s independence is an important part of the picture. Funds for its reports come largely from nonprofits, especially the Laura and John Arnold Foundation.

But the group does take funds from drug companies and health insurers through a separate policy program that it runs for industry, which brings in roughly 20% of the group’s revenue, Pearson said. ICER brought in $1.4 million in 2016 and $6.4 million the year before, up from around $440,000 in 2013, according to the nonprofit’s financial statements.

ICER often finds that a drug’s price is too high, and the group’s findings have influenced prices in at least two public cases, for an expensive new cholesterol drug and an eczema medication. A third example could be in the works, with New York State’s Medicaid program currently using ICER’s analysis to negotiate the price of the expensive cystic fibrosis drug Orkambi.

A unit of pharmacy chain CVS has also said let clients not cover drugs, based on what ICER’s economic analyses find.

ICER and drug companies

When talking about prices, drug companies often refer to the value of their products. But, “for too long, whether a price was a good value was a very vague concept,” Pearson told Business Insider.

Drug companies don’t necessarily agree. ICER’s reports have occasionally led to public sparring. Industry group PhRMA even had a report commissioned about the group last fall that criticized ICER’s methods and found that the nonprofit’s reports had little value for private health insurers.

But everyone benefits from the role ICER is playing, including drug companies, argues Rena Conti, a health economist and associate professor at Boston University’s business school, who has been involved with the group for several years and helps vote on the group’s evaluations.

ICER provides “a forum for discussing value using the same terms,” she said, and getting all kinds of stakeholders involved. “It’s a conversation that we didn’t have in a thoughtful, unified, systematic way before.”

Read more: 7 pharma execs just told Congress: Don’t expect the Trump administration’s newest drug pricing plan to lower all US drug prices yet

The group also occasionally gives pharmaceutical companies something to boast about. ICER found that Swiss drug giant Novartis’s cutting-edge cancer treatment Kymriah was cost-effective at up to $1.7 million when used in children. That was far above the $475,000 price tag set by Novartis — something Novartis CEO Vas Narasimhan has touted.

Ethical questions in healthcare

Pearson first began thinking about ethical questons in the US health system early in his career, while training to be a doctor at the University of California, San Francisco School of Medicine.

He believed there was a broader idea at work behind decisions the school’s hospitals were making: How was the health system using its resources to provide the best possible healthcare to patients?

The question was one he would explore later, in the 1990s, by starting a center based at Harvard Medical School to look at how decisions were being made under a type of cost-conscious health system called managed care.

When the center studied how hospitals, doctor groups and health insurers made decisions regarding new procedures and drugs, Pearson observed that the process wasn’t always particularly thorough or transparent.

At times there were “some clear examples of best practice, where I felt that the evidence was being looked at very rigorously, and they were reaching out to try to understand the patient perspective, and clinical experts,” he said. “But it was not always that well done.”

So he looked to other countries, to see how places like the United Kingdom, Australia and Canada were navigating these challenges. Unlike other countries, the US doesn’t have a government institute that both looks at the evidence on healthcare practices and connects that evidence to coverage and pricing, he noted.

“So when I started ICER, I realized we have a unique American healthcare system, and we can’t do things like other countries. It wouldn’t fit,” he said.

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