Pharma and Payers Should Collaborate on Novel Payment Models for Costly Therapies

Today’s miraculous new therapies come with dramatic new price tags. Radar on Specialty Pharmacy asks what that means for payers and patients. Jeremy Schafer, Precision for Value Senior Vice President of Specialty Solutions, shares industry thinking and his own insights.

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Agreeing on ‘Success’ May Be Difficult

This, however, can be a challenge, he states. For example, “if a patient with hemophilia receives gene therapy and is able to only need factor product a couple times a year versus chronically, is that success or failure? For the patient it may be success given the tremendous drop in factor use. For the payer, expecting a cure, it could be failure. Manufacturers and payers will need to align on the clinical evidence and outcomes first. In order to do that, the chosen outcomes should be taken from the clinical trial data. Going outside what the clinical trial showed will create inevitable controversy.”

Other potential problems for manufacturers “come when value-based reimbursement is merely a discount program that is disengaged from using outcomes to help set the payment. Payers need to come to terms with sharing any benefits/savings with pharma. Both groups need a common source of truth from which to base these kinds of negotiations to make sure they are clinically driven and the right kinds of outcomes are being measured.”

Precision for Value conducted a survey of 20 health plans and five integrated delivery networks about pricing models for gene therapies, in particular their interest in them and their operational capability to implement them. Schafer says respondents selected outcomes-based deals as “the most popular, with 44% being very or extremely interested, and 92% saying they could operationalize such an agreement.” Less popular were payments made over time, “with 16% being very or extremely interested and only 72% being confident in the ability to operationalize the agreement.”

According to Schafer, “We also asked how respondents felt payment models needed to evolve in order to accommodate gene therapy and got responses almost as diverse as the drugs themselves.” In addition to signing outcomes-based deals and making payments over time, respondents cited forming high-risk pools, locking members to the plan that paid for the therapy and “having the payments move with the member. These data show an industry that is thinking but still far from aligned.”

State Is Seeking Netflix Model for DAAs

When the new wave of highly effective hepatitis C therapies launched in the U.S. in late 2013, many payers were outraged at the drugs’ high costs. Although competition in the class has resulted in much lower costs to payers, Medicaid programs in particular have struggled to pay for these drugs.

The Louisiana Department of Health in January issued a solicitation for offers to help provide treatment with direct-acting antivirals (DAAs) to its Medicaid and incarcerated patients that could be a model for other states. The department notes that more than 39,000 within those two populations in its state are infected with the hepatitis C virus, but the high costs of DAAs mean that less than 3% of Medicaid patients were treated in 2018.

The state is seeking a pharmaceutical partner with which to enter into a five-year subscription-based deal that would provide unlimited access to DAAs for a set price. The so-called Netflix subscription model is expected to start July 1.

“The Louisiana Department of Health initiative is interesting and worth watching closely. It’s too early to say, however, if such a subscription model for high-cost medications will gain traction in the general health care marketplace,” says Academy of Managed Care Pharmacy CEO Susan A. Cantrell. “We certainly support experimenting with innovative, outside-of-the-box solutions to address challenges faced by payers and patients alike.”

The model, says Gilmore, “is essentially a way of rationing access to medicine but leaving a winner-take-all approach for the drugmaker that gets the contract. They’re borrowing a play from the PBM playbook. Hepatitis C has a fairly high prevalence, and these medicines are essentially cures. While the prices have dropped since the initial launch of these, the costs are still very high.”

“This is a very interesting approach,” observes Rubinstein. “Paying the manufacturer a fixed price for an all-you-can-eat quantity of DAA drugs on an exclusive basis will work, because the cost of manufacturing, according to published documents, is about $1 per tablet, a very small fraction of the drug price, and because the exclusive nature of the arrangement guarantees the manufacturer a revenue stream.” It also benefits both parties because “there is a dependable budget without the concern of having to go in and renegotiate or inform patients when the formulary changes,” says Schafer.

“It is a practical approach. But five years is a long time, and something new may come along that is even better/cheaper.”

“It is a practical approach,” asserts Sullivan. “But five years is a long time, and something new may come along that is even better/cheaper. There is always a benefit to a long-term deal for a purchaser and manufacturer with a volume commitment.” In addition, if competitors of the contracted company experience safety or manufacturing issues, “that would allow the contracted company to cut back on discounts in an open market scenario but not here,” says Schafer.

Ultimately, although there has been a great deal of focus on drug prices, it’s unclear how the current pricing situation may be modified.

“Unless legislation changes to give the government stronger bargaining power, little is likely to change,” says Sullivan. “Payers have only recently started to deny adding new therapies to formularies, so the wave may start building, more like the European model.”

Contact Gilmore through Bill Borden at wborden@kpmg.com, Rubinstein at elan.b.rubinstein@gmail.com, Schafer through Tess Rollano at trollano@coynepr.com and Sullivan at wsullivan@specialtyrxsolutions.com.

by Angela Maas

aishealth.com

Precision Medicine Group is an integrated team of experts in fields from advanced lab sciences to translational informatics and regulatory affairs, payer insights to marketing communications. Together, we help our pharmaceutical and life-sciences clients conquer product development and commercialization challenges in a rapidly evolving environment.