The Price Is Right—Or Is It?

Rob Abbott, Chief Executive Officer, ISPOR

One of the most consequential topics in health economics and outcomes research (HEOR), and healthcare more broadly, is drug and medical device pricing. Choices about pricing have a direct impact on access to medicines, and equally, future investment in research and development (R&D). Against this backdrop, value-based drug pricing is attracting considerable attention, but what does it look like in practice?

This issue of Value and Outcomes Spotlight addresses these topics and questions directly. In so doing, it reflects ISPOR’s commitment to threading the metaphorical needle in bringing rigorous, unbiased scientific evidence to these topics as well as a considered view of the more nuanced environment of policy discourse. Both inputs are critical to improving decisions that affect literally billions of people worldwide.

 To suggest that drug pricing reforms such as the Medicare negotiations under the Inflation Reduction Act (IRA) in the United States and reference pricing models globally have altered the biopharma landscape is to perfect the art of understatement. This can be clearly seen in effects on access to medicines and R&D investment, respectively.

Drug pricing illustrates John Muir’s adage that when you pull on a single thread in nature you find it connected to the rest of the world. Reforms, even if well-intentioned, often have unintended consequences.

By imposing a cap on out-of-pocket costs and enabling direct price negotiations for high-expenditure drugs, Medicare price reforms have reduced financial barriers for elderly and low-income populations in the United States. This is a good thing. At the same time, in markets with strict external reference pricing (such as Canada and several European countries), manufacturers have delayed the launch of new drugs and/or prioritized launch strategies in high-price, unregulated regions to protect global revenue. This is understandable from the perspective of the companies concerned, but it is not good for patients who need access to potentially life-saving medicines. It should also be noted that imposing price ceilings without due consideration of supply chain and manufacturing costs could inadvertently lead to product withdrawals or reduced supply, disproportionately impacting vulnerable patient populations.

With respect to effects on R&D investment, price controls that penalize small-molecule drugs (the IRA’s shorter negotiation timelines relative to biologics is a good example) can result in portfolio shifts as companies pivot investment decisions to large-molecule biologics, gene therapies and complex indications. Faced with smaller profit margins, pharmaceutical and biotechnology firms are striving to reduce R&D costs without sacrificing success rates. This has fueled the rapid adoption of artificial intelligence (AI) in drug discovery and a greater focus on acquiring third-party, clinical-stage companies.

One of the lessons to be drawn from the above is that drug pricing illustrates John Muir’s adage that when you pull on a single thread in nature you find it connected to the rest of the world. Reforms, even if well-intentioned, often have unintended consequences. This is especially true with international reference pricing (IRP).

IRP attempts to lower local drug costs and increase access to medicines by benchmarking prices against other nations. However, it often decreases access because of 3 key dynamics: 

• Pharmaceutical companies delay launching new drugs in smaller or lower-income countries—sometimes by 1 to 3 years—to prevent those lower prices from being referenced by wealthier nations with larger pharmaceutical budgets.
• Global health equity relies on differential pricing (charging what a local market can afford) but IRP undermines this because manufacturers are disincentivized from offering discounts to low-income nations, knowing that it will trigger a downward cascade of prices in higher-income reference markets.
• IRP often causes price convergence, a phenomenon in which prices in lower-income countries tend to anchor to the high list prices of larger economies, making treatments structurally unaffordable for many local populations.

As the papers collected here persuasively demonstrate, HEOR has much to offer in the search for drug prices that offer real value for patients and their families. These benefits are fourfold:

 1. Helping to define cost-effectiveness.

• HEOR evaluates how much a drug improves a patient’s life (using quality-adjusted life years or QALYs) and compares it to the cost of alternative treatments. This allows policy makers to establish a price that aligns with the health gains achieved. 

2. Informing reimbursement and coverage decisions

• Public and private payers use HEOR evidence to negotiate fair price discounts. The evidentiary packages we curate provide a standardized yardstick for determining whether a treatment warrants coverage and at what price tier.
• HEOR can establish “fair value thresholds” that prevent plans from shifting costs onto patients who have no alternative, medically appropriate treatments.

 3. Integrating real-world evidence (RWE) into pricing decisions

• Traditional clinical trials occur under highly controlled conditions. HEOR teams use RWE—data drawn from electronic health records, claims, and patient registries—to show that a drug’s price matches its safety and effectiveness in everyday, diverse patient populations.
• Payers use outcomes-based contracts, often rooted in RWE, where the price of a drug is tied directly to its real-world success for individual patients.

 4. Improving transparency and trust

• HEOR methodologies provide a transparent structure for understanding the relationship between R&D, manufacturing costs, and the therapeutic benefit of a drug. This addresses one of the most pernicious issues in economics: information asymmetry. This occurs in healthcare when, for example, clinicians and drug manufacturers have superior knowledge about medical necessity and treatment efficacy compared to patients and health insurers. HEOR bridges this information gap by conducting rigorous cost-effectiveness analyses and evaluating real-world patient outcomes to provide objective, standardized data to patients, clinicians, and other stakeholders.

 At ISPOR 2026 in Philadelphia I said that healthcare “is the economy.” My point is that with healthcare accounting for 18% of gross domestic product in the United States, decisions about healthcare have a catalytic effect on decisions that touch virtually every economic aspect of daily life. Getting the price signals “right,” therefore, matters a great deal. This is especially true of drugs and medical devices.

I celebrate the insights contained in this issue of Value and Outcomes Spotlight, and I know the work is not done. We need to find a way of making novel medicines accessible and affordable to more people while sustaining a vibrant innovation ecosystem for biopharma and others. As ISPOR CEO, I want you to know that I am personally committed to making this happen.