May 21, 2025
Welcome to Perspectives, a signature podcast series from The Leerink Center for Pharmacoeconomics. Hosted by Dr. Mel Whittington, a health economist and Head of the Center for Pharmacoeconomics, we will be hearing from individuals across the industry to better understand and appreciate the societal impact of healthcare innovations.
Mel Whittington: Today we are discussing drug price evaluations, which is one of my most favorite things to talk about. We’ll explain what makes drug prices unique and why judging and interpreting them is nuanced and challenging and frankly requires context. I’m so pleased to be joined by the person who taught me everything I know about drug price evaluations. He’s also the first pharmacoeconomist I’ve ever met. His name’s come up on multiple podcast episodes before today. He’s the person I have to thank for my entire career, my favorite co-author, and now he’s the Chief Science Officer of the National Pharmaceutical Council, Dr. Jon Campbell. Jon, thanks for being here today.
Jon Campbell: Mel, thanks so much for having me. This is just fantastic to talk about drug pricing evaluations. One of my favorite topics too. And thanks for the introduction. It’s been what, over a 10-year collaboration so far, a lot of research that we’ve done together, and feeling more to come. So, thanks for having me.
Mel Whittington: I think more than 10 years, which is wild, time flies. Before we get into discussing drug price evaluation, something you and I talk about and bond on, what’s a day in the life of the CSO of the National Pharmaceutical Council?
Jon Campbell: Well, thanks for asking. And again, I’m not so sure that I wrote down pharmacoeconomist in my kindergarten coloring book in thinking about what I might be when I grow up. But it’s a lot of fun conducting health policy research and solving puzzles for the common good. At the National Pharmaceutical Council, we’re a research organization that serves patients and society with policy relevant research on the value of patient access to innovative medicines. So, at NPC, we seek a world where advances in medicines are accessible to patients, valued by society, and sustainably reimbursed by payers to ensure continued innovation. I lead a team here at NPC of researchers who are passionate, curious, and smart. We have a lot of fun together, and we work to generate high quality and trustworthy evidence often published in peer-reviewed journals. And this work really helps decision-makers understand some of the most important issues in health policy today. It’s an uncertain time, and if there’s one thing that we do know for sure, it’s that we’ll continue to talk about costs in healthcare for the foreseeable future.
Mel Whittington: Absolutely. You know I was just writing an email right before this about the importance of informing policy with evidence and economics. And the National Pharmaceutical Council has always been an important contributor in that space, conducting high quality research and generating really timely evidence. And I’m excited to talk about some of the recent research your team has put out, some of which I’ve been fortunate to collaborate with you on. And, you know we have a recent publication in Value and Health, alluding to that publishing and peer review journals. But before we get to that, I wanna talk about a few reasons why prescription drugs are just unique. And I wanna start the conversation here because having foundational knowledge and awareness about why prescription drugs are just so different from other things we buy is important for understanding why it’s challenging to then judge and evaluate a drug’s price. So, to do this, I’m hoping you will humor me, and we can compare thinking about the price of a drug to thinking about a price of a TV. And the reason I want to do this is I hear this comparison a lot. I hear people comparing health care costs or the purchasing experience of health care to costs of consumer goods or the purchasing experience of consumer goods. And I always get a little bit like, you know whoa, these are, are not the same things. And it’s really important to understand these distinctions. So, you know, Jon, you have formed so much of my foundational knowledge. I’m hoping you can start off this podcast by explaining a reason why prescription drugs are just different from other things.
Jon Campbell: Yeah, sure Mel. Happy to kick this off. I think one of the most important things to remember if you’re going to take away one or two things from the podcast today is that the list price of medicines does not equal the net price, the transaction price of medicines. That’s because as you’ve already mentioned, medicines have unique opportunities to advance and improve the health of patients and society. And again, I think it’s important to think about that general goal, right? That the goal is to improve health and wellbeing for patients in society. Biopharmaceutical discoveries do require risk. And we have regulatory bodies such as the FDA and others who rightly have set a really high bar for establishing that the benefits outweigh the harms for a medicine. This is pretty unique to medicines, right? It’s unlike the example you raised on televisions, televisions, maybe we measured wrong, and we don’t have a good fit in our living room for that TV that we purchased. But again, that might be one of the, or maybe the pixels aren’t quite to our liking, et cetera. But those kinds of things are relatively harmless consequences. And the consequences for medicines are at a higher stake. And I think it’s also important to take home that other major components of healthcare generally require either human expertise, facility infrastructure, or both of those things. And therefore, those components are different than medicines and often have lower evidence requirements around their benefits and harms for the human expertise and facilities. So other forms of healthcare we know less about than medicines and medicines are quite unique, aren’t they?
Mel Whittington: Absolutely.
Jon Campbell: So, I recently purchased a TV from Costco for our basement to improve the cool factor of hosting friends for our teenage kids. And I could look at the features of the TV online, right? I could compare pricing online and click a button to make the purchase for the advertised price. For medicines, more entities are involved in the decision to take a medicine. And with more cooks in the kitchen, there are more mouths to feed. And that leads to differences between a list and a net price, the price that’s actually paid or received in terms of payment. And so, prescription medicines are the only health care good or service where what a patient pays is based on the billed or list amount rather than that of the allowed or net amount. That’s a real problem for patients and the consumers of medicines. And I believe that’s a flaw in our insurance design that could be resolved over time. So that’s another nuance within this list versus net price that’s quite concerning to patients. An additional concern is the gross to net bubble, as we call it, is large and growing over time. Part of the concern there is that over half of what we call drug spend in the US goes to someone other than the manufacturer. So, we have a lot of spending in drugs and a lot of that’s not going back to the innovator of the medicine. And so, these factors complicate our assessment of the value of the medicine. And we need to bear all of that in mind when thinking about hearing a list price in the lay press and what that might mean.
Mel Whittington: Yeah, first I knew you’d bring up Costco. You know, this concept of list versus net has received a lot of attention lately, rightly so. And I think that’s a good thing. I want to bring up another reason why drug prices are just so different from other things. And you know, that’s how we access and pay for prescription drugs. You know, when you went to buy a TV, you went to Costco. You picked out the TV you wanted, you probably grabbed a few samples, went and stood in the long but fast-moving line, took out your debit card and your Costco membership card, and then you paid for the whole thing. You paid for the TV. That’s not how we access or pay for prescription drugs. With a prescription drug, first your provider would need to write you a prescription for that specific drug, and then you typically use your health insurance to pay for it or most of it. And of course I’m making some simplifying generalizations here, but bear with me, this is the basic concept. The whole reason why we have and use healthcare insurance to pay for healthcare, including prescription drugs, is that prescription drugs and other healthcare can be really expensive. And you don’t know when you are at risk to have that expense. Oftentimes it isn’t something you want to buy, like you want to buy a TV, but it’s something you need and so health insurance fills multiple functions including sharing this risk of when you might need something as well as sharing the cost across this large pool of people who pool together money also known as insurance premiums and pay for whatever utilization might come up with this pooled money. And paying for prescription drugs and other healthcare utilization through insurance is really essential and it provides financial protection against these unexpected medical expenses and shares the risk and cost across the insurance pool. And you know we typically don’t have that for consumer goods, but I think this feature of paying for things with health insurance is why the prices of drugs are so heavily scrutinized and more so than other things like consumer goods, because there’s obviously a need to use pooled resources efficiently. Payments through health insurance impact a population, not just a single person. So, there’s this sense of responsibility of using resources efficiently and that’s certainly a noble goal. Jon, can you give another reason? I’m sure we could keep going on for hours, but what’s another reason why drugs are just different?
Jon Campbell: Yeah, another reason drugs are different includes the complexity in the supply chain. We talked a little bit about that before, but for those that haven’t heard the acronym, PBM or Pharmacy Benefit Manager, they’re a major component of the supply chain of medicines. And they’ve been coming under more scrutiny as more stakeholders, including the federal government and employers are investigating their role in improving health and wellbeing for patients in society. So again, that being the goal and asking the question, how is the supply chain really supporting the improvement in health and wellbeing for patients and society? So, there’s complexity in how we bring medicines to patients and that complexity leads to variation in pricing and how we pay for medicines. There’s also components of medicines that include market-based competition and it remains a force in branded medicines. So, it’s important to think about that too and how negotiation processes between manufacturers and Pharmacy Benefit Managers are a component of pricing evaluation as well.
Mel Whittington: Absolutely. So, you first noted the distinction between list and net price and then hearing about supply chain intermediaries, I think it’s fair to say there’s also heterogeneity in the net price paid. What is some of this heterogeneity? Where does this come from?
Jon Campbell: Yeah, so again, heterogeneity and prices paid for medicines is an important realization of just the structure we have today and that structure has evolved over time and includes government-based interventions as well as those on the commercial insurance side. And so there can be variation in price based on both of those forms of insurance. Medicaid has special programs within drug pricing and the Medicaid drug rebate program was created in 1990 to require drug manufacturers to provide Medicaid with the lowest price in the US market or the best price. And then soon thereafter, hospitals started scratching their heads and thinking, “huh, we might not get as much of a rebate and keep as much of the proceeds from medicines ourselves with this Medicaid best price rule” and so a program was created in 1992 called 340B to try to resolve some of the unintended consequences by requiring drug manufacturers to offer deeply discounted drugs to certain covered entities for 340B nonprofit hospitals included and that’s led to even more unintended consequences and the growth in the program of late is quite concerning. But all of this does result in variation in prices in the marketplace and as I mentioned before, in the commercial side, the competition that brands face in comparison to other branded medicines, as well as generic medicines, are part of the action there. And a lot of that depends on where medicines are placed on a formulary. And again, that’s something that the PBMs have quite a bit of control over.
Mel Whittington: I’m someone who really enjoys building economic models that uses a drug’s price as an input and it’s always a challenge to kind of figure out what price do you put in for that input? Is it the list price? Is it the net price? Okay, I think we all know that it should be the net price. Well, what net price? Is it Medicaid’s price, a commercial price? Just price is really confusing. There’s a lot of heterogeneity there and a lot of a lot of things being confidential. In addition to that heterogeneity and the net price between payers, et cetera, I want to bring in one other dimension which makes drugs really unique and that’s this dimension of time. Because the price of a drug will change substantially over its time in the market. And the manufacturer of a drug has this period of time when their invention is protected under a patent. And during that patent period, no one else is allowed to make and sell that exact drug. Sure, there can be other branded competition, but that exact drug during the patent period, the manufacturers have exclusivity over. But then after that patent period, generic equivalents or biosimilars can and will enter. But it’s unique in that the manufacturer has a set period of time in which they have an exclusive right to market the drug. After the patent period, competition comes in and the prices are dramatically different from those two periods. Going back to the TV, TVs don’t have these two very distinct phases of exclusivity and after exclusivity. Obviously the price of a TV has declined some over time as we’ve seen technological advancements and competition, but you don’t have these distinct exclusivity and post-exclusivity periods that are created with patents for prescription drugs are essential for drug development because one other thing that’s unique about pharmaceuticals is it costs billions of dollars to research and develop a new drug. Yet often, many of these drugs can be made for quite cheap, but the patent period is what allows the innovators and the investors to be paid back for their risk and paid back for their work and their investment to be able to protect that. So that this patent period and these two distinct time points really set it up, so drug prices are expected to change dramatically over time. All right, Jon, I think we have time for one more unique consideration. Can you give us one more?
Jon Campbell: Sure, Mel, happy to. And I really like what you’re talking about there with the patents providing a unique aspect of medicines and how that relates to the timing and changes in price over time. So, I think we’ll want to dig deeper there in a little while. In terms of another example here, the surplus that medicines provide to patients and society over that long run period is a really important concept and economists might talk about consumer or patient surplus. And I think of that as the benefits we receive from medicines over and above the costs. And like you were saying, this concept of surplus varies over time, leading us to care about understanding the value that medicines provide to patients and society over the product’s life cycle or over the long run. It’s important for us to think about that because first I’ll go back to televisions. For markets like televisions, we let the invisible hand solve for the price through producers who supply TVs and through consumers who decide to buy TVs, right? It’s that supply and demand. In this type of market, there’s limited reason to measure the value that TVs provide to consumers or society because we assume that the market is functioning well enough on its own and that consumers wouldn’t buy a TV unless they felt it would add surplus to their lives versus their alternative choices to not buy the TV, for example. For innovative medicines, it’s different, right? Because of the higher stakes and the multiple stakeholders involved, it’s reasonable to ask questions about societies and the collective consumers, what they capture of the surplus of medicines over the long run. And NPC is actually in the midst of a study that characterizes this total surplus of medicines. And although the surplus is challenging to forecast at the time of a medication’s launch, the research at the field level across all medicines suggests the opportunity for really large US consumer surplus when accounting for the benefits over the long run in the life cycle of the medication.
Mel Whittington: Well great to hear NPCs doing some stuff there. That’s not a surprise.
Jon Campbell: No, exactly, Mel. And for example, Hepatitis C medicines have advanced to achieve high cure rates in treated populations. These same medicines were judged by some as having too high of a price around the time of launch. Many recall those conversations. And notice I did say judge there, or judgment. We’re talking about interpretations. And like many aspects of science in health technology assessment, there’s not only the science and the evidence component, but there’s also judgment that’s required. And so, it’s important to think about that as we do think about interpretations of findings in assessments. And I really do sense that’s why they are a tool and not a rule for our decision-making processes. Despite these judgments, research supports that the overall consumer surplus of Hepatitis C medicines and many other classes of medicines over the long run account for a high percentage of the total surplus.
Mel Whittington: That’s a perfect segue to our next topic of discussion. And that is adding some context for people to consider when they are judging a drug’s price. And what are some things that they should consider when they’re making these judgments or making these interpretations? And NPC’s done a lot of relevant research in this space. And so, I’m hoping to talk about some of that as we add a little bit of this context to how we should be judging or what we should be thinking about when we are judging a drug price. So, Jon, you first mentioned a list price versus net price distinction as to something that makes drugs just different. What should we be thinking about as it relates to that when we are making judgments about drug prices?
Jon Campbell: Right. All of the reasons we’ve covered so far support methods such as cost effectiveness analysis being a helpful tool to quantify aspects of a medicine’s value. However, I believe that you and I agree that there is both science and judgment when it comes to methods like cost effectiveness, right? And so, because of those reasons, it’s best that we view a cost effectiveness analysis as a tool and not a rule for pricing and access negotiations. From recent research, we understand that manufacturers capture about 50% of the paid amounts for branded medicines. And the net price to manufacturers, therefore, is often a lot lower than the list price being discussed in the lay press. It’s important to keep this in mind before jumping to any particular conclusions about the list price or even for that matter, the net price.
Mel Whittington: I’d like to build off of that by saying the launch price, which is where we start seeing a lot of these critiques about a drug price is around its time of launch. A launch price is a list price at one single point in time and that only gives us so much information. And you and I discussed along with Dr. Lou Garrison in a recent commentary how it has become common for critics and the press to focus on a drug’s launch price. And I certainly understand that desire, but it’s not as straightforward as it may seem, given it likely does not represent the price that is actually paid, the net price. It doesn’t account for the heterogeneity between payers and does not account for future price changes. And it’s important to remember that the price will change over time with branded competition, which you alluded to, or you know eventual generic or biosimilar competition that I alluded to and this should be must be acknowledged in communications and in cost effectiveness analyses and the latter integration of you know changes in a drug’s price over time and cost effectiveness analyses is an area of emphasis for my work and something you and I have been able to collaborate on.
Jon Campbell: Absolutely Mel, congrats on this recent work that you led in combination with me and others. In some of the research we’ve done, its including how price changes and cost effectiveness analysis can change the findings and so we not only have built arguments and commentaries, but also conducted original research to advance the field. So, in some of those pieces, what would you say some of the take homes from the research has been?
Mel Whittington: Yeah, well first I’m so excited to see our publication in Value and Health. It’s great to get those findings out there. I’ve appreciated the opportunity to work on that with you and your team. I’ve mentioned this a few times on the podcast, but cost effectiveness analysis traditionally doesn’t account for price changes over time. Which seems a little odd because in a cost effectiveness analysis, you’re projecting cost many years into the future, but it typically holds the drug’s cost constant. And this is not reality. And in our recent research, it suggests that the difference in a cost effectiveness estimate with one that holds the drug’s price static, as is conventional practice, versus one that incorporates these future expected price changes, this can result in dramatically different cost effectiveness findings with even larger differences observed for chronically administered treatments, which makes sense and accounting for price dynamics is just more accurate and a better representation of what the expected costs are. And it’s also an area, as we showed in our research, that it’s easy to program. You can program exclusivity periods and price changes over the period of exclusivity and after the period of exclusivity. That programming is absolutely possible. It’s actually quite simple. And then the evidence around the recommended model inputs to use has also been built out recently, including a lot of great work that’s come out of NPC. So here we have this area where we have the methods, and we have the inputs to be able to do this. We showed this in our publication. Obviously, there is uncertainty about what inputs to use, especially when you’re forecasting things far into the future. But you know, uncertainty is something that we handle in cost effectiveness analysis all the time for clinical outcomes and other inputs. We just haven’t been able; we haven’t been doing that for some reason as it relates to cost. And so that’s what we did in our recent paper and showed that when you incorporate model inputs related to a product life cycle or related to expected price changes over time, it does have an impact on the cost effectiveness analysis. And there are certain inputs that have a larger influence than other ones. One other argument against including this kind of product life cycle pricing and dynamic costs and cost effectiveness analysis is that, in the conventional approach to cost effectiveness analysis holds drug pricing static. Yes, it doesn’t account for future genericization. But one argument is that it also doesn’t account for price changes over the exclusivity period either. And so, there’s been some arguments that’s like, you know, we’re not accounting for any price increases over the exclusivity period, then we’re not accounting for any potential price decreases after the exclusivity period. So maybe those two things just kind of cancel each other out. That’s one argument, but I recently saw some more NPC research that would suggest that that argument doesn’t hold. Can you tell us a little bit about that?
Jon Campbell: Of course, Mel. And before I get there, I got to say one, because you say something as simple may not be simple to others who haven’t had as much experience modeling in cost effectiveness. So, we’ll take that with a little bit of a grain of salt. However,
Mel Whittington: They can come talk to me, I’ll help.
Jon Campbell: That’s right. And you’ve given readers a step-by-step process to follow. And I think folks will appreciate that and should be able to follow it quite well. The other piece you alluded to is that uncertainty has been a knee-jerk response to why not include price dynamics and cost effectiveness. I agree with you. I don’t think that argument really holds up anymore. And as you were mentioning, one of those uncertainties has been, oh, do net prices go up before loss of exclusivity and then go down and cancel each other out? And importantly in that period before loss of exclusivity, that’s where NPC has done some recent research. And that work was to select highly prescribed branded medicines for the Medicare population and look at those kinds of medicines. And the research suggests that after adjusting for inflation, the year over year net prices have actually been declining approximately 5% year over year on average. So those declines aren’t really consistent with some people’s heuristics around how the net price of medicines may change over time. And this work was also recently published in Value and Health alongside other researchers at Tufts University. And I think it really helps to lay some of the groundwork for part of how we might include dynamic pricing in evaluations.
Mel Whittington: Yeah, you know, it certainly challenges the argument that price increases over the period of exclusivity would cancel out price decreases after the period of exclusivity if, in fact, there aren’t dramatic price increases over the period of exclusivity. Anything else before we close? Any other unique consideration that we should be thinking about when we’re judging and interpreting drug prices?
Jon Campbell: Well, just taking this price dynamics one step further, I think we can think about those concepts that we talked about earlier, the consumer and patient surplus. Therefore, that surplus will vary over time, just as we think of other dynamics in the marketplace, price being one. And that leads us to care about understanding the value that medicines provide to patients and society over the product’s life cycle. So, I have two data points for you on this aspect. One is when you ask physicians which medical innovations have impacted outcomes for US patients diagnosed with debilitating health conditions, they attribute more than half of the improvement in outcomes to biopharmaceutical innovation. So over half of improvements in health, again going back to the goal that we’re all striving for is to make improvements in health for patients. Half of that is attributed to biopharmaceutical innovation when asking physicians. And the second data point is no matter how you measure it; Americans spend less than 20% of the healthcare budget on medicines with only 8 to 10% of the healthcare budget attributed to outpatient medication. So, these two data points in combination suggest that as a whole, Americans are getting more out of biopharmaceutical innovation than we spend on it. And that’s in comparison to other aspects of the US healthcare system. So once medicines lose exclusivity, the US arguably is the leading market producing for the most consumer surplus per capita. And we should be careful then with all of those things in context before judging any given price announcement because of not only the price dynamics that we suggested, but also this consumer surplus that medicines provide.
Mel Whittington: Biopharmaceutical innovation is special. We talked about how it’s unique from other consumer goods, but it’s also special. It has the ability to save future costs, to save lives, to improve lives. It’s something we all want when we get sick or a loved one gets sick. And so, I appreciate you bringing back to that and bringing it back to impact and efficiency and, you know, all of the things that biopharmaceutical innovation can do for patients and the health system and society. That’s one thing we try to do here at the Leerink Center for Pharmacoeconomics is evaluate different biopharmaceutical innovations and see how does this societal and manufacturer surplus change over time and you have to take that long-term perspective and account for how dramatic these, the prices of this innovation will change over time and then rightly so how that impacts the surplus considerations. Jon, you’ve been so gracious with your time. I need to let you get back to putting out all of the great relevant research that you all do. When we close each of these podcast episodes, I usually ask the best piece of advice you’ve ever received, but you’ve been my mentor for more than a decade and so I think I’ve already received a lot of your advice, and I know a lot of the advice you would give. So, I want to ask something different for this episode and that is, what’s the single best piece of advice you have for judging and interpreting a drug’s price?
Jon Campbell: Well, thank you, Mel. And congratulations on all the work you’re doing at Leerink. We follow it closely here at NPC and look forward to many more pieces to come in terms of your contributions. So, congratulations. To address this question. I think I will reflect on the position I hold at the National Pharmaceutical Council, and that is as the Chief Science Officer. And so, my advice here is to really ask good questions and to address them with good science rather than to seek any particular answer. A good question here is what is the strength and quality of the evidence to support a drug’s value over its life cycle and how does price contribute to that understanding? So, let’s remember that as a whole, medicines improve health at a cost that is lower than other components of the US healthcare system. The price of medicines is the only main component of US healthcare that goes down over time. And interpretations of price are only as good as the methods, assumptions, and data. So again, reflecting that there’s science and judgment here that need to be put together. And for those reasons, my thought is that cost effectiveness and the understandings around price that come from it are helpful tools and yet not a particular rule. And the complicated way we pay for drugs in the US means that headlines often hide the reality of how much is going to the manufacturer. At NPC, we will continue to ask good questions that support good US healthcare policy. And thanks again, Mel, for this opportunity to join you today.
Mel Whittington: Oh my goodness, no thank you. And I think it was in early 2013 when you gave a guest lecture at my Intro to Health Economics course in grad school. And you pulled up an Excel spreadsheet of cost effectiveness analysis. And I was hooked. I think even during that lecture, you said, “these are tools, not rules.” It’s been exciting to collaborate with you for so many years that still really is the foundational thing that drives our work and that we want to inform decisions with evidence and to be able to use certain models as tools, not rules. And as you suggest, they require science and judgment. And so, we need to make sure we’re judging them appropriately. Jon, thank you so much for being here. I’ll talk to you soon.
Thank you for listening to this episode of Perspectives. If you’re interested in participating in future podcasts or would like to learn more about the Leerink Center for Pharmacoeconomics, please email cpe@medacorp.com.
