CEI Comments on Global Benchmark for Efficient Drug Pricing (GLOBE) Model

Comments of the Competitive Enterprise Institute

Dear Dr. Oz,

The Competitive Enterprise Institute (CEI) submits these comments in opposition to the creation and use of the Global Benchmark for Efficient Drug Pricing (GLOBE) Model. This is not to diminish the importance of ensuring the Medicare program practices care in evaluating the value and price of the drugs that it pays for on behalf of America’s seniors. It is, in fact, because these products are vital for Americans that we at CEI oppose the top-down and blunt application of international formulas, evaluative systems, and assessments domestically.

Applying foreign methods and evaluations to goods purchased by Americans and for their own use requires consideration of myriad factors. In fact, there are so many factors to consider, many of which conflict with each other, that the entire endeavor should be abandoned. I lay some of these factors out below. The underlying thread, however, is that the factors are so multitudinous, varied, and complicated that the entire approach of setting prices by applying the price levels adopted by the country who least values a product should be reconsidered.

How Drug Prices Are Determined Internationally

To understand the problems with the Most Favored Nation approach to drug pricing, it is necessary to understand how these prices are determined in the first place. Several countries on the list of 19 countries to which CMS will compare US prices use a form of Health Technology Assessment (HTA) to determine what price they should pay. And of them, several use an estimate of the value of life, in their country’s currency. As an example, the United Kingdom, when determining how much to pay for drugs, first estimates how much value the drug will bring, expressed as QALYs or Quality-Adjusted Life-Years. It then applies its pre-determined value of a QALY, expressed in British Pounds, to determine a price. It also makes adjustments for various factors such as severity and rarity, but these too, are single, static values set by statute, not flexible or adaptive to different situations. Without the additional corrections, imagine a new drug was determined to add 0.5 QALYs for a patient. Then the UK would pay no more than 0.5 times £35,000. Other countries also use QALY thresholds to determine drug prices.

This process embodies several fundamental problems, and importing it to the United States even more. First the QALY thresholds themselves are less appropriate than they seem. While determined seemingly scientifically, it is impossible to know how much of a role politics played in their determination, which will bias the estimate away from even the theoretical optimum. However, even if politics played no role, their suitability is still dubious, as they are determined for a population entirely different from the US population and entirely different from the Medicare population. Studies show significant differences in the health and life expectancies of seniors across countries.