U.S. private healthcare payers, including insurers and self-insured employers, face relentless medical inflation. The nature of the drug supply chain creates challenges for private payers who need to decide which drugs to cover, for which patients, and under what circumstances. New drug approvals, approved indications, price changes, and the introduction of generic alternatives to brands are among the operational and financing challenges payers must address. The Institute for Clinical and Economic Review (ICER) has emerged as a prominent source of cost-effectiveness assessments (CEAs) and budget impact analyses for drugs and other medical interventions. ICER proposes that its CEAs establish a “value-based price benchmark, reflecting how each drug should be priced to appropriately reflect long-term improved patient outcomes.” Payers can already access a large body of cost-effectiveness research. CEAs can offer value if adapted to payers’ real-world situations and may be useful in negotiations between payers and pharmaceutical companies. But private payers will likely find ICER’s price benchmarks inadequate for their on-going pharmaceutical decision making.

This report was commissioned by The Pharmaceutical Research and Manufacturers of America (PhRMA).