Boston watchdog takes aim at rising drug prices

Group says top priority is value, not what the market will bear

Dr. Steven D. Pearson is president of the Institute for Clinical and Economic Review, or ICER.Jonathan Wiggs/Globe Staff

Dr. Steven D. Pearson, sporting spectacles, a neatly trimmed goatee, and a natty blue blazer, looks every bit the mild-mannered inhabitant of the academic medical world.

But he may become a serious threat to the drug industry and the prices they charge for new medicines.

Pearson, 55, is president of a little-known Boston nonprofit with an unassuming name: the Institute for Clinical and Economic Review, or ICER. It has launched a series of comprehensive reviews that set proposed “value-based” prices for costly new prescription drugs. In the process, it has set off alarms in a biopharma industry accustomed to charging whatever the market will bear.

A draft report by the institute, issued last week, says a new class of cholesterol-lowering injectables approved by US regulators this summer should cost 85 percent less than the $14,100 to $14,600 a year per patient being charged. The price tag would have to come down to $2,177 to hold overall health care spending within acceptable bounds, it suggested.

At a time when health insurers, pharmacy benefit managers, and consumer groups have been working to stir a backlash against high-priced specialty drugs, the institute’s independent reports are likely to turn up the heat on manufacturers, which often charge tens of thousands or even hundreds of thousands of dollars a year for new medicines that can save or extend lives.

The eight-year-old watchdog institute has more than doubled its staff to 22 researchers, health economists, and clinical epidemiologists in recent months after receiving a $5.3 million grant in April from the Houston-based Laura and John Arnold Foundation.

That money will enable ICER to prepare 15 to 20 reports over the next two years analyzing the comparative effectiveness and potential budget impact of drug candidates nearing approval by the Food and Drug Administration. Next up: The institute will publish a review of experimental treatments for congestive heart failure.

For each drug, the institute will calculate what it calls a “value-based price benchmark” that’s based on the benefits the treatment brings to patients, coupled with the cost implications. Such an independent benchmark is particularly important because the FDA evaluates the effectiveness and safety of drug candidates, not the cost, while the nation’s largest health insurer, Medicare, is prohibited by law from negotiating directly with drug manufacturers.

Drug makers have lost no time attacking the institute’s methodology, saying it ignores other factors pushing up health costs, the savings generated by medicines that keep patients out of the hospital, and the need to provide incentives to develop life-saving treatments.

“We disagree with ICER’s methodology, assumptions, and preliminary conclusions, none of which have undergone public comment or formal peer-review,” said Dr. Joshua J. Ofman, senior vice president of Amgen Inc., the California biotech that makes Repatha, one of the powerful new class of cholesterol-fighting injectables known as PCSK9 inhibitors.

Pearson, a lecturer at Harvard Medical School’s department of population medicine who also serves as visiting scientist at the National Institutes of Health, takes the criticism in stride. He said he welcomes feedback from all parties, including drug makers, and notes the institute earlier this year acknowledged that a new class of expensive treatments for the hepatitis C virus could reduce long-term health costs by preventing liver scarring or cancer.

“I wouldn’t say I’m on everyone’s Christmas card list,” he joked in an interview at the institute’s cramped headquarters in an office building across the street from the Old State House. “But I think America is mature enough to have an honest conversation about the tension between innovative new drugs and the prices patients and the health care system can afford.”

To that end, the institute has scheduled a hearing at Harvard Medical School next month at which drug makers, insurers, other interested parties, including members of the public, can discuss its report on the cholesterol drugs. Representatives of Amgen and other biopharma companies — including Regeneron Pharmaceuticals Inc. and Sanofi SA, which jointly market another PCSK9 inhibitor called Praluent — are expected to speak or submit comments.

The stock market value of drug companies is based largely on projections of the patient population that can be treated by their medicines and how much they can charge per patient. Industry leaders are clearly concerned that ICER’s approach poses a threat to their business model.

Pharmaceutical Research and Manufacturers of America, an industry group known as PhRMA, issued a statement saying it supports new ways of evaluating drugs and helping doctors and patients choose therapies that are appropriate for individuals.

“We are very concerned that ICER’s payer-focused value assessment method falls short of these goals because it is based on untested, short-term budget-impact thresholds that do not reflect overall health care value and are biased against new innovative medicines,” the statement said.

At the same time, the institute is drawing support from insurers, which have had to rely on their own research or that of private consultants to evaluate new drugs.

“I think this is sorely needed,” said Michael Sherman, chief medical officer of the Wellesley-based health insurer Harvard Pilgrim Health Care, who sits on an institute advisory board but played no role in its cholesterol drug report.

“These drugs are not only expensive but they present a financial challenge to the health care industry,” he said. “There is a burning need for objective, appropriate third-party data sources, and this can bring a new level of transparency to the [pricing] decisions.”