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AIS's Health Business Daily
Featured Story July 24, 2008 Biotech, Pharma Firms Eye New Payment Models Based on ValueReprinted from DRUG BENEFIT NEWS, biweekly news, data and business strategies for health plans, PBMs and pharmaceutical companies. By Neal Learner, Managing Editor (nlearner@aispub.com) Health plans and other pharmaceutical payers are intensifying their focus on comparative effectiveness and "overall value" of pharmaceuticals when making coverage decisions, according to drug manufacturers eyeing efforts to tame the ever-increasing Rx costs. Drug makers say they are responding by considering new ways to ensure that their products reach patients and are reimbursed. Emerging reimbursement models include manufacturer and Rx payer financial risk-sharing agreements, and single, up-front payments for therapies based on overall value of therapy rather than per-dosage price. Manufacturers face a payer environment in which resources are becoming increasingly constrained and the rate of medical inflation is increasing, said Mahesh Krishnan, M.D., medical director at Amgen Inc. The industry is "rapidly reaching a state" in which payers are making decisions about what types of evidence are needed before they will pay for the therapies, he told a June 19 session of the Biotechnology Industry Organization's (BIO) 2008 international conference in San Diego. As such, the U.S. is starting to resemble Europe, he said. European regulatory agencies ascribe a value to the cost of therapies, and some countries, such as the United Kingdom, refuse to pay for products if their prices exceed some government-established "quality ceiling," Krishnan explained. "If we don't have the right data to actually show payers, if we don't have the right data to show [regulatory authorities], it is going to be very difficult for them to reimburse our products," Krishnan said of the expected situation in the U.S. As evidence, he pointed to the increasingly tough reimbursement hurdles established by CMS. "We used to think that if we feed the right data to the health care agencies, [i.e., the FDA or the European Medicines Agency] and those products are granted approval, then de facto they will get reimbursement and we'll set that reimbursement to where we want it to be. And that's increasingly no longer the case," Krishnan said. To adjust to the new reality, he said Amgen is "increasingly trying to incorporate" value and quality data around products in its pipeline. This will ensure that the right outcomes data are available to people making reimbursement decisions when the products hit the market, he added. Other pharmaceutical manufacturers also are feeling the effects of increased scrutiny on value. Susan Slaton, director of reimbursement policy and coverage strategy at Bayer HealthCare Pharmaceuticals, Inc., said she welcomes efforts to improve quality. "But it does present a challenge to pharma companies. How do we show quality?" she added. This challenge does not just involve the price of a product, Slaton said, but rather demonstrating how a medication may benefit a person well into the future, including by avoiding major medical events such as heart attacks. Employers also are asking similar questions. "They want to know, 'How does the use of this product help my employees? Will they have less sick days? Will they have better performance at work?' Those are some of the things that have to go into the development of an innovative therapy." One likely outcome of this trend in the U.S. will be the introduction of "risk-sharing agreements" that are increasingly common in Europe, Slaton said. This concept involves manufacturers offering financial guarantees around certain drugs, and reimbursing the payers if products fail to perform as indicated. "When we start getting to the point where pricing starts to prohibit coverage, we'll see a growth in these risk-share agreements," Slaton said. "We'll have to look at what is the outcome…and how much is the manufacturer at risk for making sure the patient has the outcome," she said. Some U.S. health plans, including CIGNA Corp., already are eyeing risk-sharing agreements with brand manufacturers in drug categories where there is significant generic competition. This is one way for brands to demonstrate their value above generics, a CIGNA pharmacy executive told DBN. Drug manufacturers may be interested in such a risk-sharing model if the response is tied to compliance, said Tomas Philipson, Ph.D., professor of health economics at the University of Chicago and former economic advisor to CMS under the Bush administration. "If you don't comply with the treatment, we don't offer the guarantee," he told the conference session. The approach is appealing to manufacturers because it may actually boost compliance, Philipson said. "And if you induce more compliance, you might raise sales that way to offset the fact that you're offering assurances of costs. It is something that is worth considering. It is a goodwill gesture, but nevertheless you may raise profits by having people more compliant." Philipson said there are other ways of addressing questions of what is the long-run value of therapies, and how to set reimbursement levels. One way is to determine the "total value of being on the regimen," and getting away from calculating pricing on a per-dose basis. That calculation for employers, for instance, could include such factors as not having to train new employees to replace those who died of cancer, he said as an example. "It doesn't have to include just the health effect; it might include productivity," Philipson said. Pricing based on total value could take the form of an up-front fee to get started on therapy, he explained. "It lowers the cost of compliance," he said. "The up-front fee should be something related to the overall value of being on the therapy. We're moving in that direction: charge for curing disease as opposed to charging for pills." |
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