Ending the Impasse on Drug Pricing

November 9, 2018

More-and earlier-interaction between R&D and payers will be essential if innovative therapies are to become more accessible for patients, and more profitable for manufacturers, said panelists at the 2018 Galien Foundation Forum.

Rising drug prices, industry profits, and patient access to new cures have become polarizing issues as healthcare moves to a value-based framework for reimbursement. President Donald Trump has suggested that drug companies be required to reveal list prices for any drug advertised directly to consumers. While the goal of transparency is laudable, simply providing the list price, or even a price based on average payment for insured vs. uninsured patients, would be far too simplistic a solution, panelists agreed during “Making Medicines Affordable,” a discussion at the 2018 Galien Foundation Forum in New York City on Oct. 25, 2018.  The program brought together representatives from each key biopharma stakeholder group-venture capital, small innovator, Big Pharma, insurance company, and government-to share their different perspectives.

Panelists emphasized the importance of evidence-based medicine and establishing the value of each new therapy, and also getting to know payer groups and reaching out to them as early as possible.  As Kent Rogers, senior vice-president, industry relations, with United Health Group, Inc., asked the audience, “How well do you know who will be paying for your treatments?” 

He suggested broadening concerns beyond issues of efficacy and safety to include questions of reimbursement. “Consider yourself as a patient, a parent, a customer. How much would you be willing to pay for this treatment?” he asked. One way to gain a better understanding of payer issues, he said, is to bring in a reimbursement team into the process early in drug development, during the Phase II through IIIb period, to help make more realistic 'go/no go' decisions. 

Rogers also recommended that manufacturers take advantage of FDA relief on pre-Prescription Drug User Fee Act (PDUFA) discussions to discuss issues with payers, who want to understand the product launch but who must consider questions of innovation within a framework of predictability.  “Consider the cadence of the payer’s process,” he says, noting that their job is not to stifle innovation but to challenge it. “Educate the C suite and R&D teams to better understand the issues that are involved,” he said.

Reimbursement stuck in the 1980s

In the United States, the real dilemma for branded biopharmaceutical and pharmaceutical companies today is that they are developing specialized, innovative treatments using approaches such as gene therapy. Some of these treatments are administered only once in a patient’s lifetime, but innovators remain stuck in an old 1980s payment model that predates generics and is based on traditional dosage forms and dosing.  

Today, as Scott Howell, vice-president and head of US market access at Novartis, noted, 90% of US prescriptions are filled with generic pharmaceuticals. “This means that, nine out of every ten prescriptions bring no revenues to drug innovators.” He recalled the situation a few decades ago, when branded drugs were divided into large categories of therapies, with tens of millions of patients in each category. 

Opening the program, Michael Rosenblatt, chief medical officer at Flagship Pioneering, sketched the complex reimbursement system in place in the US, in which pharmaceutical companies discount drugs from 5% to 20% off list price, and pharmacy benefit managers retain the difference, while patients pay 20% of list price. Insurance companies may attempt to keep fees stable, but still pass cost increases on to patients through higher deductibles and copayments.  

As panelists mentioned, list prices for pharmaceuticals have increased dramatically over the past decade, with oncology drugs registering double-digit growth through 2015.

“In the end, the patient’s interests are the least protected,” said Rosenblatt. For example, a person earning $50,000 per year ($40,000 after taxes), will typically pay $8000 for health insurance, he noted. If anyone in his or her family gets sick, the individual will pay a deductible of $4000 and copayment of $9200, for a total out-of-pocket cost of $21,200. Even if drug costs were cut in half, and the copayment fell to $4200, the total would still be $16,200, 40% of after-tax income, Rosenblatt said. 

He posed some rhetorical questions to launch the discussion: 

  • Is the US system really an insurance system or is it more of a cost-sharing arrangement involving drug manufacturers, insurance companies, and pharmacy benefit managers? 

  • Do intermediaries extract more money than the value they add?  Are they taking benefits that should be given to pharma companies for their innovation? 

  • Can annual pharmaceutical price hikes be justified?

“If we move money around but don’t provide benefits to patients, we haven’t accomplished our goal,” he said.

Sharing risk: a perspective from the UK

Although the conversation between healthcare system authorities and pharmaceutical manufacturers will differ in each country, it must always be based on questions of value and risk, said Sir Andrew Dillon, CEO of the National Institute for Health and Care Coverage (NICE) in the United Kingdom. The group has come under fire from some patient and public interest groups for its refusal to approve some innovative therapies for reimbursement by the nation’s single-payer public healthcare system. 

Working with different stakeholder groups, NICE has developed new ways to allow access to innovative treatments that might have been rejected in the past due to high cost.  For instance, the Cancer Drugs Fund (CFD) has been revised to allow provisional use of treatments where there some gaps remain in the evidence supporting their use.

Dillon discussed the system in the UK, and NICE’s goal to provide a consistent, reproducible method for reviewing evidence-based medicine and determining value. 

Need for a value-based framework

There must be a clear understanding of how the healthcare system will determine the value of any innovative treatment, said Dillon. “Value, or the incremental therapeutic benefit to patients, is the start of the conversation and, in the end, will determine what is reasonable to pay, wherever in the world the discussion takes place,” he said.

As Dillon explained, the UK uses a value-based framework to gather medical evidence of a drug’s impact and then brings all interest groups together, from payers and patients to manufacturers, healthcare professionals, and government healthcare representatives in a discussion that is mediated by NICE. 

There is a need for manufacturers and healthcare system representatives to understand each other’s pain points, Dillon said. “Pharmaceutical companies have invested huge amounts and need to see a return on those investments, and healthcare systems need to appreciate the risk that innovators take, but companies also need to recognize the risks that healthcare systems take when they say ‘yes’ to an expensive new therapy,” he says.  “A transparent, consistent, repeatable process is needed that is fair to both sides, so that everyone that has an investment in the decision can play a part in determining value.”  

Risk-sharing agreements on the rise

Risk-sharing agreements between companies and healthcare systems will be crucial in making more special therapies accessible to more patients. One new model taking shape is “coverage with evidence development.” As an example, he cited crizotinib, a specialized treatment for non-small-cell lung cancer that costs $66,000 (£51,000) per patient, but greatly simplifies dosage and makes it more convenient. The drug was recommended by NICE in 2016. A special fund was set up to pay for treatment during an interim period while more evidence of the drug’s value was gathered.  

Value-based evidence

Novartis, which was one of the first pharma companies to openly embrace value-based reimbursement approaches, is emphasizing value-based data for each new therapy in development, says Howell.  “We’re spending more time and doing a better job of this,” he said, and choosing list prices thoughtfully, including input from all stakeholders including payers.” Use of rebating is much higher than it was four to five years ago, he said, and structural changes began to be seen in the industry after the challenges that followed the introduction of the hepatitis C treatment, Sovaldi.  

One new approach being explored is ‘trades’ that would exchange value-based pricing restraint on the part of manufacturers for greater and easier access, to bring new treatments to more patients, said Howell, who coauthored a paper on this topic with James Robinson from the University of Berkeley and Steven Pearson from the Institute for Clinical and Economic Review in Boston, which was published in the Journal of the American Medical Association in May 2018.

Walking the talk: Spark Therapeutics’ journey

A highlight of the panel was a case study of sorts, a work-in-progress that illustrates how one innovator in gene therapy is tweaking the boundaries of a 20th-century reimbursement framework to improve access to a 21st-century treatment.  John Furey, chief operating officer of Spark Therapeutics, discussed the company’s strategy with Luxterna, a once-administered gene therapy designed to treat retinal dystrophy, which uses adeno-associated viral vector (AAV) delivery and was approved by the FDA in 2017.  

Retinal dystrophy is a very rare disease, Furey explained, affecting fewer than 2000 patients in the US (contrasted with 20,000 for hemophilia), of whom 50% to 75% are eligible for treatment with the therapy. “Before launch, we were very concerned about our responsibility to ensure that our approach to market access provided a strong precedent for access to similar therapies in the future,” he said.  

The company reached out to payers, patient groups, and healthcare providers, before the PDUFA to discuss the therapy’s clinical benefits and other issues. The cost per unit of the one-time treatment was already in the hundreds of thousands, and given the standard markup of 20%-30% charged by healthcare facilities administering the treatment, the total cost would be significant. 

Payers asked whether that was an appropriate markup for a one-time therapy, said Furey, noting that they also asked how the company might guarantee clinical results in both immediate outcomes and long terms.

Acknowledging that the company could take some risks since this was its first commercial therapy, Furey said, Spark developed the “Spark Path” concept. The program was based on an innovative contract model, in which Spark provided a facility and contracted with the insurer, which took receipt of the product and supplied it to the healthcare center that would administer the treatment. 

The insurer could then negotiate for an appropriate fee for delivery of service on an outpatient basis, Furey said, reducing financial stress on the healthcare facility and providing payers some reassurance that the markup charged “wouldn’t be egregious.”

In addition, Furey said, the company offered rebates, one covering the first 30­ to 90 days, and the second covering 30 months, in which Spark would agree to pay 20% of costs if the terms were not met. “In fact, we were prepared to pay more,” he said.

Preparing for a tsunami of one-time treatments

Spark has also proposed a demonstration project with the US Centers for Medicare and Medicaid Services (CMS) that would involve steeper discounts and annual payments. Right now, based on the existing framework, payment is expected to be upfront, but the company is currently working out ways in which payments could be made annually.

CMS has been interested and engaged, Furey says. “A tsunami of one-time therapies is coming, with 90 treatments currently in Phase III, and we’re hoping to be part of the solution by deploying this demonstration project,” he said.

Spark has also developed a strong patient services group that is working closely with patients and caregivers to manage treatment.  So far, the company has achieved more than 80% of medical coverage with payers within six months of the product’s launch, said Furey. In addition, more than 60% of have been treated under the Spark Path program.

Innovation will be needed to improve access and reduce costs to new innovative treatments, and to prevent them from becoming what one audience member at the Forum commented could be “boutique” approaches limited to the very wealthy. Clearly, value-based and risk-sharing approaches, and closer contact with stakeholders early in development, will be important in ensuring a better bottom line for manufacturers and greater access to innovation for more patients.