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With the introduction of the Inflation Reduction Act (IRA) in August 2022, which for the first time empowers the U.S. government to negotiate directly on drug costs, pharmaceutical companies are facing increased scrutiny over their pricing. Health Economics and Outcomes Research (HEOR) is cementing itself as a powerful resource in this new regulatory environment. HEOR offers a rigorous, data-driven framework for developing drug pricing strategies that align clinical efficacy and economic value, justifying complex decisions to regulators, payers, and patients.
HEOR’s Impact on Pricing Decisions
HEOR’s overarching purpose is to evaluate the economic, clinical, and quality-of-life impacts of healthcare interventions. While this research can inform decision-making at every stage, it has become particularly valuable in drug pricing as the regulatory landscape evolves. HEOR harnesses data from clinical trials, insurance claims, population health metrics, and real-world evidence to perform comprehensive analyses that assess a treatment’s value beyond clinical settings. These analyses support pricing decisions by examining not only whether a treatment's outcomes justify its cost, but also how it compares with alternative treatments, both in terms of cost per unit of health benefit (such as cost per quality-adjusted life year) and its relative impact on patient quality of life. This evidence-based approach helps answer critical drug pricing questions, including whether a premium is warranted for a novel therapy, where adjustments may be needed based on limited clinical or economic impact, and when alternative strategies, like copay assistance, could enhance affordability.
The Global Influence of Value-Based Models and HTAs
The utility of HEOR is amplified by the rise of value-based care models and health technology assessments (HTAs) both in the US and globally. HTAs, which assess the value of medical interventions, are used by private payers, government bodies, and non-profits to inform coverage and reimbursement decisions (1). While not universally mandated, HTAs are increasingly influential in impacting pricing and reimbursement outcomes.
In the EU, the upcoming Health Technology Assessment Regulation (EU 2021/2282) will support countries in coordinating and collaborating on HTAs by introducing EU-level Joint Clinical Assessments (JCAs) (2). However, while the JCA simplifies certain aspects of evidence submission, it will leave individual member states to make final reimbursement and pricing decisions. This growing reliance on HTAs globally creates a powerful incentive for pharmaceutical companies to invest in HEOR, as it helps them present a stronger case for the value of their products and address local market needs.
In the US, HEOR is playing an important part in pricing discussions for notoriously expensive cell and gene therapies. The Centers for Medicare & Medicaid Innovation is pioneering value-based projects like the Cell and Gene Therapy Access Model, launching in January 2025, which will negotiate outcomes-based agreements with Vertex and CRISPR Therapeutics over their novel sickle cell gene therapies for state Medicaid programs (3). Models like these will likely expand to other disease areas and continue to drive Medicare and Medicaid discussions centered around HEOR data. The establishment of Prescription Drug Affordability Boards in eleven states, with a dozen more considering doing so, further demonstrates this increased interest in evidence-based pricing models.
Challenges and Opportunities
A primary challenge in applying HEOR to drug pricing is obtaining a comprehensive dataset that goes beyond standard clinical trial data to include real-world evidence (RWE) and healthcare system costs. This limitation has traditionally posed a challenge in setting optimal prices at launch, as RWE typically becomes available post-market. However, many companies are addressing this by including real-world endpoints within trials, aligning with regulatory trends that value such data in pricing and post-market evaluations. The upfront costs of collecting such data are non-trivial, but they are increasingly offset by the strategic advantage of having more robust evidence for pricing decisions.
Advancements in AI-enhanced HEOR modeling may also ease some of these burdens. AI-driven models could help synthesize existing clinical, RWE, and economic data to create predictive analyses that help anticipate real-world performance before full data is available. Decentralized clinical trials (DCTs) may further support RWE collection by reducing the need for physical trial sites, enhancing both data quality and cost-effectiveness by enabling more comprehensive data capture (for more on how DCTs are changing the clinical trial landscape, read Embracing Decentralization in a Post-Pandemic Era). This alignment of AI and DCT capabilities is expected to make HEOR more streamlined and resource efficient.
The View from the Crow’s Nest
As the industry continues its pivot towards value-based care, the influence of HEOR in drug pricing negotiations will only grow. Regulators and payers are increasingly insisting on data that justifies prices in terms of real-world patient outcomes. Large scale data collection and analysis will benefit from advancements in DCTs and AI, further accelerating the integration of HEOR. These tailwinds will facilitate the implementation of real-time patient outcomes into pricing models, ensuring that pricing strategies remain competitive and defensible.
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Sources:
1. Institute for Clinical and Economic Review (https://icer.org/our-approach/methods-process/)
2. Implementation of the Regulation on health technology assessment (https://health.ec.europa.eu/health-technology-assessment/implementation-regulation-health-technology-assessment_en)
3. Cell and Gene Therapy (CGT) Access Model https://www.cms.gov/priorities/innovation/innovation-models/cgt