A Conversation with Health Economist Dr. Austin Frakt on Drug Pricing, The Pandemic, and Data Access

Interview by James Jolin

HHPR Senior Editor James Jolin interviewed Austin Frakt, Ph.D., a Health Economist and Director of the Partnered Evidence-based Policy Resource Center at the Boston VA Healthcare System. He is also a Professor of Health Law, Policy & Management with the Boston University School of Public Health and a Senior Research Scientist with the Department of Health Policy and Management at the Harvard T.H. Chan School of Public Health. Dr. Frakt is Editor-in-Chief of Health Services Research and serves on the editorial board of the American Journal of Managed Care. Dr. Frakt has conducted research studies funded by the Department of Veterans Affairs, The Robert Wood Johnson Foundation, The Commonwealth Fund, the Laura and John Arnold Foundation, the Agency for Healthcare Research and Quality, and the National Institute of Aging. His work has been published in The New England Journal of Medicine, Journal of the American Medical Association, Milbank Quarterly, Health Care Financing Review, Health Affairs, Health Economics, Health Services Research, International Journal of Health Care Finance and Economics, Journal of Health Politics, Policy and Law, among other journals. The interview below has been edited for concision and clarity.

James Jolin (JJ): Health economics is obviously a very salient and relevant discipline of economics, given the pandemic we are continuing to experience. How did you become involved in this field as opposed to others in the discipline of economics?

Austin Frakt (AF): My educational background is actually in physics and engineering, so I didn't have any economics training — I think maybe I took one introductory economics course as an undergraduate. But when I was finishing up at MIT. I felt like I wanted to do something policy focused, and I didn't know what that meant, or what it could mean. 

I did a lot of informational interviewing. In the late 90s, there was a lot of talk of we need more science scientists, engineers, and even math people to go into public policy. So that sort of general attitude made it very easy for me to approach people working in the policy area, different policy areas to ask for their advice. What could a person like me do, with my experience? I don't know how many people I talked to, but it could have been well over 100. I remember networking for a long time — and I wasn't looking for a job; It was just informational networking. 

I ended up talking to someone in health economics at a consulting company. And I thought what he was saying was really fascinating and that he was fascinating. I felt I could learn a lot from him. He was a health economist. So I did end up taking a job with him. And actually, I still work with him. It's been 22 years that we've done work together. 

JJ: Could you give our readers a sense of your main research areas? ​​What are the things that you're interested in looking at within health economics?

AF: The topic area that's been sustained throughout my career, or most of my career, is the Medicare Advantage market. It's a program in Medicare, through which private insurance companies offer the Medicare benefit as an alternative to the fully public Medicare program. And the insurance products, the plans can vary somewhat from the traditional Medicare benefit. They have to cover at least what Medicare covers but they can offer more, and they can have lower cost sharing, and other features. It's become increasingly popular now. 40% of Medicare enrollees choose the private plan over the public program, and this program has existed for a few decades. There's a lot about it we don't understand, and there's some opportunity to study questions, and it's kind of an understudied program. This program is directly relevant to my work at Harvard because I have a NIH grant to study Medicare Advantage.

JJ: I’d like to turn to the issue of drug pricing. There's a debate right now over allowing Medicare to negotiate drug prices as part of the Democrats’ reconciliation package. Can you describe what this entails and what evidence you see of how effective this proposal could be? Why is this being pursued?

AF: Well, it's being pursued for a combination of reasons. It's a political issue because I think drug prices are very salient to patients. If you use prescription drugs, it's something you have to buy with some regularity — typically monthly, although maybe it's every three months, if you get a 90-day supply, but regularly throughout the year you’re going to purchase drugs, so you encounter the prices routinely.

This is in contrast to a hospital visit — that's pretty rare. Most of us don't visit the hospital regularly; some patients do, but that's very rare. So we don't have as much personal experience with hospital pricing. Just as a quick aside, it comes into huge shock to people who do have a hospitalization or emergency department visit how much it costs, how much they're responsible for. It's a relatively small population that experiences that — a much larger population experiences drug prices. 

Drugs are also an area where we have really regular and much-touted innovation. We don't really hear or experience that in other areas. Of course, there is innovation in how hospitals function, in different procedures and so forth, but it's just not as salient. So we have this cycle of innovation; these drugs are coming out every year, with these really eye-popping price tags that people experience, and I think that is what makes it a very salient political issue, because it's a tangible thing that patients can point to and say, “That's costing me a lot I'm experiencing that regularly” — even when it's not actually the sector of health care that cost the most overall, or is rising the most. 

And once debate starts, it just feeds on itself — you get debates about how much profit drug companies are making, how much is going into R&D. From an economic point of view, it's certainly true that drug prices matter. There are patients who are priced out of the drugs that they need for their conditions, or they can't take them in the amount they're supposed to — they're splitting pills or skipping doses and things like that. 

There are patients for whom life-saving drugs exist that can't get them. There are patients who could get the drugs, but because of their costs, the insurance company requires them to try cheaper drugs first and document that they fail on them. 

So there are real consequences to the price of drugs — negative consequences. There are also real positive consequences: the high prices lead to additional profit, which is an incentive to invest. So we do get the pace of innovation that we observe, in part because of the high prices we pay. And so there's a real trade off between innovation, patient access, and costs — not just to patients but to taxpayers — as well as opportunity costs in the sense that, if you spend a lot on drugs, there are fewer resources for other things. 

These are all intersecting issues, and the balance among them is not obvious. Economics can help inform the balance in terms of quantifying the cost, the benefit, and so forth, but it can't ever tell you what the right balance point is. When you talk about a specific proposal, like the one under consideration in Congress now, an economist with economics tools cannot tell you that's the right proposal. That's a value judgment. 

JJ: From a positive perspective and not rendering any normative judgements, what are some other policy proposals on the table? What are some proposals that are possible or feasible looking at other nations besides the U.S.?

AF: In my view, the right way to think about drug prices is to consider not the cost but the cost effectiveness. This is something we can measure, albeit with limitations, but you can measure and quantify the cost effectiveness of different drugs. 

You could say, for instance: Here’s a new drug, and it treats this condition that maybe doesn't have any other treatment right now. And the company's saying it's a million dollars a year for the treatment. And the clinical trials say it will increase lifespan by three months. You can actually do that cost effectiveness calculation. You can do it in a much more nuanced way than just price per life extended, and that's routinely done; there are techniques for that. 

And when you do that, you do see that some drugs are highly cost effective. Among the most cost-effective things you can do is vaccinate people — COVID vaccine, flu vaccine, all the vaccines are super cost effective. And then we do have drugs that are very not cost effective — they're super expensive, relative to their benefit as we can measure it. That does not mean patients don't appreciate it. But when you look across things we could invest in and provide, some are more cost effective. My opinion is that we should be paying much more attention to cost effectiveness. We should invest in doing those cost effectiveness evaluations; other countries do that. They do price their drugs and other health care purchases on cost effectiveness evaluations.

The right way to do this kind of work is to do that very math-y, hard-nosed calculation, and bring in the other contextual factors that we all feel ethically and emotionally are important. Sometimes you may have a drug that's not very cost effective, but it's a breakthrough technology. So maybe you want to support it anyway. Or you have a drug that's super expensive, but it treats a condition for a population that's been for a long time overlooked and marginalized. There's a whole bunch of contextual factors that should be brought into conversation. So I think the right approach is to bring in cost effectiveness, but have that alongside a broader conversation that involves patients, providers — include the perspective of manufacturers in the innovation cycle and all that and hash it out. 

JJ: That makes sense. I want to turn to another issue that you mentioned in your previous response, which is COVID-19 vaccination. From an economists’ perspective, what strategies do you think could be used to close this persistent vaccination gap we see among particularly conservative Americans? Are vaccination requirements helping or hurting?

Austin Frakt (AF): An important caveat to my answer is that I have not studied this, but I have a sense that mandates are effective. I think it may matter how the mandates are done. I think there's a reason they're being done the way they are —  employer mandates instead of individual mandates.

That may vary by employer or by geography, but I do think there are people who are reluctant to get vaccinated for a whole host of reasons who will get vaccinated, if it's a condition of employment, or it's a condition of some other things they want to do — attending a sporting event or regaining a certain aspect of their lives that were lost.  

I think a government mandate on individuals would just fuel the kind of backlash that we're seeing. Current mandates are actually through employers, so when you filter it that way, it seems more palatable.

JJ: Obviously, the pandemic has transformed so many facets of our lives. In what other ways, besides the hundreds of thousands of deaths and millions of cases we’ve seen has this pandemic impacted individual health, particularly in unseen ways?

AF: Well, I'm doing some work, actually, at Harvard with some colleagues, looking at the decrease in utilization of health care during the pandemic. Many hospitals canceled procedures. Doctor's offices weren't seeing people. So that had a big impact, but also people self-selected to not go to hospitals. The consequences of that I don't think are fully known because this is actually a fairly recent phenomenon. So we just have the last year and a half of experience. Things have come back. So there's a rebound of utilization. And I think it just takes time to sort out what the consequences of the lower utilization really were. In many but not all cases, these things were deferrable, and it wasn't a big deal. 

One area that is related to health, but indirectly, is the pandemic’s huge effect on education. Even though there was education, more or less, throughout the pandemic, it just got shifted to a way that just didn't work for a lot of kids. Many kids were just stalled. Even though they technically completed that year of school, they only got a fraction of the education they would have otherwise gotten. So they're way behind where they otherwise would be in terms of reading, math, and other topics. That's going to have long term implications.

What's even more important than that is the distribution of that effect. So kids with more resources, or who just were in a better place educationally, in terms of what they're capable of doing, didn't fall behind as much as kids who weren't as privileged. And that's going to have long term repercussions — decades long. There's lots of work that shows that your educational attainment and the quality of your education has an effect on your future employment and your wages, and actually, your health. So I think we're going to be dealing with that in ways we don't really fully understand for a long time.

JJ: That makes sense. My last question looks towards the future of health economics. What is at the frontier of research in your field at the moment? What are some of the things that you're excited to learn more about using the principles and the methods of health economics?

AF: I'm not sure I have a perfect answer to this question, but let me use this to talk about the importance of data. There are a few things that are like the lifeblood of research — data is certainly one of them. I am excited about the growing availability of kinds of data we haven't had before. 

So in my own area of research on Medicare Advantage, which we talked about. For many years, the kind of data you could get about the care that was provided under traditional Medicare, the fully public program, you could not get for private plans under Medicare Advantage. This is despite the fact that both arms of the program are highly taxpayer subsidized. So we are all paying for this healthcare that's been delivered, yet for a substantial portion of it, we have very little understanding of what's going on.

And to me, from an ethical point of view that’s just wrong. Taxpayers are paying for something; there should be a reasonable ability to assess what it is we're buying, what the value of it is, how it is or isn't improving patients’ lives, and so forth. I've long been concerned that we don't know about Medicare Advantage at that level of detail.

That has recently changed. Medicare is now releasing Medicare Advantage encounter data. We only have a few years right now, and the quality of the earlier data is questionable, so there's a lot of work being done in validating the data and making sure it's of good quality. But it's beginning to look possible to use those data to answer the kinds of questions about Medicare Advantage that we have answered about traditional Medicare for years. And I'm very excited about that. And that's just one example of other ways data availability is improving. 

And it's still not enough. It's never enough. The data are still idiosyncratic, spotty, not comprehensive, and typically very expensive. So that limits access to researchers who can't get the grant funding, and there's a whole equity issue there — some researchers are better financed and others. I'm not satisfied, but I'm encouraged and excited about opening up these kinds of data.

JJ: That’s exciting. Obviously, data is the lifeblood of research, and it’s good to know advances are being made. Thank you for that, and for your other comments, Dr. Frakt. Our readers will surely benefit from your insights.