HEOR stands for Health Economics and Outcomes Research, a discipline within the pharmaceutical industry that evaluates whether a drug or treatment is worth its cost. It combines two fields: health economics, which analyzes the financial impact of treatments, and outcomes research, which measures how those treatments actually affect patients’ health and quality of life. Pharmaceutical companies use HEOR to build the case that their products deliver genuine value, not just to regulators who approve drugs, but to the insurers and health systems that decide whether to pay for them.
Why Pharma Companies Need HEOR
Getting a drug approved is only half the battle. A treatment can clear every regulatory hurdle and still fail commercially if insurers refuse to cover it or hospitals leave it off their formularies. Payers want proof that a new drug justifies its price tag compared to what’s already available. HEOR teams generate that proof by producing economic evaluations, real-world data analyses, and patient outcome studies that demonstrate a product’s value in concrete terms.
This evidence feeds directly into pricing strategies, negotiations with insurance companies, and submissions to health technology assessment (HTA) bodies. Without solid HEOR data, a company has little leverage when a payer asks, “Why should we pay more for your drug?”
How Drug Value Gets Measured
HEOR relies on two main types of economic analysis. The first is cost-effectiveness analysis, which compares the cost of a new treatment to its health benefits relative to an existing option. The result is typically expressed as a cost per quality-adjusted life year, or QALY. A QALY combines how long a patient lives with how well they live into a single number, scored on a scale from 0 (death) to 1 (perfect health). If Drug A costs $40,000 more per patient than Drug B but delivers one additional year of high-quality life, its cost-effectiveness ratio is $40,000 per QALY.
The second type is budget impact analysis, which zooms out from the individual patient to ask whether a health system can actually afford to adopt the treatment at scale. A drug might look like a good deal on a per-patient basis, but if 50,000 patients in a health system need it, the total bill could run into the billions. Budget impact analysis estimates that system-wide financial hit so payers can plan accordingly.
These two analyses answer different questions. Cost-effectiveness asks “Is this worth the money?” Budget impact asks “Can we afford it?” A drug can pass one test and fail the other.
Measuring What Matters to Patients
The “outcomes research” side of HEOR focuses on how treatments affect patients in ways that go beyond survival. Health-related quality of life is measured using standardized tools that assess domains like physical functioning, mental health, pain, and daily activity. Some tools produce a detailed profile across these domains. Others condense everything into a single score, which is what generates the QALY figures used in economic models.
Patient-reported outcomes have become increasingly central to this work. Rather than relying solely on lab values or imaging, these measures capture how patients themselves rate their health. The Patient-Reported Outcomes Measurement Information System (PROMIS), for example, covers more than 44 health domains and can tailor questions to each individual for greater precision. Widely used preference-based measures like the EQ-5D and Health Utilities Index provide the quality-of-life scores that feed directly into cost-effectiveness calculations.
Who Uses HEOR Data
The primary audience for HEOR evidence is the organizations that decide which treatments get funded. In the UK, the National Institute for Health and Care Excellence (NICE) makes mandatory coverage recommendations for the National Health Service. NICE typically considers a treatment cost-effective if it falls below £20,000 to £30,000 per QALY, with higher thresholds (up to £300,000 per QALY) for rare diseases. If a recommended drug’s budget impact exceeds £20 million in any of its first three years, NHS England may negotiate with the manufacturer to spread costs over a longer period.
In the United States, the Institute for Clinical and Economic Review (ICER) plays a similar but non-binding role. ICER uses thresholds of $100,000 and $150,000 per QALY to generate value-based price benchmarks, and it flags treatments whose annual budget impact exceeds roughly $819 million as potentially difficult to fund without displacing other care. U.S. payers aren’t required to follow ICER’s recommendations, but survey data show that many use these reports in their appraisal and negotiating processes, whether to seek price discounts or to structure outcomes-based contracts.
Where HEOR Fits in Drug Development
Pharmaceutical companies increasingly integrate HEOR work from the earliest phases of product development through launch and beyond. Early in development, HEOR teams help identify what evidence payers will eventually require and design clinical trials to capture the right endpoints. During late-stage trials, they build the economic models and value arguments that will accompany the drug to market. After launch, HEOR generates real-world evidence from routine clinical practice, data that supplements controlled trial results and can support expanded coverage or new indications.
Real-world evidence deserves special mention because it has become one of HEOR’s most important tools. While clinical trials measure a drug’s performance under tightly controlled conditions, real-world data comes from electronic health records, insurance claims, patient registries, and other sources that reflect how treatments perform in everyday practice. Analyzing this data produces evidence on safety, effectiveness, and utilization patterns that payers and regulators increasingly expect to see.
How HEOR Teams Are Organized
Within a pharma company, HEOR professionals typically include health economists, epidemiologists, biostatisticians, and outcomes researchers. The department’s placement in the corporate structure varies and has been shifting in recent years. Some companies house HEOR under medical affairs, which strengthens the connection between scientific evidence and medical communication. Others place it under market access within the commercial division, which creates tighter alignment between pricing strategy and value demonstration.
Each model has tradeoffs. Under medical affairs, HEOR tends to produce more scientifically rigorous work but may be less directly connected to commercial strategy. Under market access, the link to pricing and payer negotiations is more direct, but there’s a risk that studies may prioritize commercial messaging over methodological strength. Companies that find leaders who can bridge both scientific depth and commercial strategy tend to gain a competitive edge.
The Shift Toward Value-Based Healthcare
HEOR’s importance has grown alongside a broader global push toward value-based healthcare, the idea that health systems should pay for treatments based on the outcomes they deliver rather than the volume of care provided. This concept ranks among the top trends shaping the field, according to ISPOR, the leading professional society for HEOR. Organizations from the World Economic Forum to the European Commission have established platforms to define what “value” means in healthcare and set global standards for measuring outcomes.
Part of this shift involves expanding what counts as value beyond traditional clinical endpoints. There is growing emphasis on “whole health,” which considers factors like a patient’s ability to work, their mental wellbeing, and the burden a disease places on caregivers. As these broader definitions gain traction, HEOR teams are adapting their methods to capture outcomes that matter most to patients and societies, not just the metrics that fit neatly into existing economic models.