CORNERSTONE Insights: How the Inclusion of Cost-Effectiveness Thresholds in the Management of U.S. Formularies Could Impact Manufacturers

January 22, 2019

By Dan Moldaver

In mid-August, CVS Caremark, one of the largest pharmacy benefit managers (PBMs) in the U.S., published a whitepaper that describes a series of strategies to limit drug costs (1).  Of interest to drug manufacturers is the adoption of a cost-effectiveness threshold to control the entry of new drugs onto their formulary. Specifically, CVS Caremark announced that their program would target new medicines with high launch prices, by providing clients the ability to exclude drugs that launch with a price that yields an incremental cost effectiveness ratio of $100,000 or greater per quality adjusted life year (QALY) as determined by the Institute for Clinical and Economic Review (ICER) (1). Critically, medicines that receive “breakthrough” designation by the Food and Drug Administration (FDA) are to be exempt from this program (1). While the incremental cost-effectiveness ratio has long been a core criterion for public funding of new drugs in other developed markets such as Canada and the UK, to our knowledge, this is the first major U.S. PBM to formally incorporate a cost-effectiveness threshold in formulary decision making.

Drug prices in the U.S. are generally set by a complex network of list prices, chargebacks, rebates and occasionally, risk-sharing agreements (RSAs) (2,3). These agreements are generally negotiated prior to the launch of a drug, and the chargeback/RSA mechanisms are in place to rectify errors in forecasting. The inclusion of cost-effectiveness based on ICER reviews into the process may delay and alter the current balance of negotiations.

Since its inception in 2006, ICER has issued a total of 59 ‘Final Evidence Report and Meeting Summaries’ as guidance. To put this in perspective, since 2008 the FDA has been averaging 31 novel drug approvals per year (4). Therefore, ICER may have to markedly expand or expedite current review processes to be able to review all approved drugs. How CVS Caremark will handle therapies that are not reviewed by ICER remains unknown.

Given this development, it is important to understand how manufacturers are involved in the ICER review process, both during the selection of topics to review and the completion of the review itself. To date, the topics that ICER reviewed were selected through the review of core internal priorities, external stakeholder suggestions and input from the program’s major advisory boards, the California Technology Assessment Forum (CTAF), the Midwest Comparative Effectiveness Public Advisory Council (Midwest CEPAC) and the New England Comparative Effectiveness Public Advisory Council (New England CEPAC). Of note, manufacturers could submit a topic for consideration to ICER, but beyond this, manufacturers were generally limited to providing input on the scope of the planned report and providing supplementary data as requested by ICER. Beyond these key input windows, manufacturers were not formally consulted by ICER. Moreover, ICER published the economic model analysis plan and evidence review protocol after the window for manufacturer input, thereby limiting the role of manufacturers in the review planning process. Further details on ICER’s current engagement of manufacturers can be found here.

As a result of CVS’s landmark decision, manufacturers now face a number of questions and potential challenges, such as:

  • Will other U.S. PBMs, such as Express Scripts (recently acquired by Cigna) adopt a similar policy?
  • Can ICER expand their capacity to produce timely reports for more non-breakthrough drugs approved by the FDA each year?
  • Will ICER permit greater involvement of manufacturers, for example, by accepting manufacturer-sponsored cost-effectiveness analyses, to expedite the process?
  • Will other FDA pathways designed to expedite the review of promising drugs, such as fast rack designation, accelerated approval and priority review also warrant omission from cost-effectiveness thresholds?
  • If the FDA rescinds breakthrough status for a drug (5), how will this be handled?

Ultimately, these issues will be settled as standard operating procedures are established. It remains to be seen whether other U.S. PBMs will eventually follow suit and begin to incorporate cost per QALY considerations in their decision-making. In the meantime, manufacturers may wish to prepare for enhanced scrutiny of cost effectiveness in the U.S. market. Optimized preparation and responsiveness to ICER reviews may minimize delays in formulary listing by allowing manufacturers to positively inform the ICER review process, while also providing manufacturers with the evidence required to respond to ICER reviews.


  1. CVS Health (2018) Current and New Approaches to Making Drugs More Affordable. Available at: Accessed September 10th, 2018.
  2. Berndt, E.R. and Newhouse, J.P., 2010. Pricing and reimbursement in US pharmaceutical markets (No. w16297). National Bureau of Economic Research.
  3. Garrison Jr LP, Carlson JJ, Bajaj PS, et al., (2015) Private Sector Risk-Sharing Agreements in the United States: Trends, Barriers and Prospects. Am J Manag Care 21: 632-640.
  4. Center for Drug Evaluation and Research (2018) Advancing Health Through Innovation 2017 New Drug Therapy Approvals. Available at:
  5. U.S. Department of Health and Human Services Food and Drug Administration (2014) Guidance for Industry Expedited Programs for Serious Conditions – Drugs and Biologics. Available at: Accessed September 10th, 2018.


CORNERSTONE Insights is a blog where staff from Cornerstone Research Group provide commentary on topical issues related to market access, health technology assessment, and value communications.

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