Can The Result Of a Patients Health Issue Impact Pricing

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    When Novartis announced that the price of its new personalized gene therapy for cancer, Kymriah, would be $475,000, Wall Street analysts thought that was a relative bargain, but some health payers didn’t agree. Among the naysayers was Steve Miller, the outspoken chief medical officer of pharmacy benefits manager (PBM) Express Scripts.

    “We need a new payment model,” declared Miller in a blog post last week. He pointed out that $475,000 is much more than the price of the average specialty drug, and with at least 1,500 experimental gene therapies in the pipeline, the potential for the health care system to be overwhelmed by high-priced, one-time cures is great. That’s why, he said, new payment models should include “tracking [patients’] health outcomes over time to ensure payments aren’t being made if the treatment stops being effective.”

    The idea of tracking health outcomes and only paying for what works—known in the industry as “value-based” pricing—isn’t new. In fact, Novartis has done it before, and the company said after Kymriah won FDA approval that it is working with the Centers for Medicare and Medicaid Services (CMS) to allow for payment only when patients respond by the end of the first month after the gene therapy is administered.

    But if a new report from PricewaterhouseCoopers (PwC) is any indication, most of the pharma industry has yet to embrace value-based pricing. After surveying 101 pharma executives, PwC reported that only 25% of companies have used value-based contracts of any kind. And only 38% of those surveyed feel the benefits of such contracts justify the risks. This despite the fact that 71% of pharma executives believe such arrangements could be rewarding for companies that bring innovative products to market.

    So what’s the holdup? There are actually several obstacles dissuading the industry from adopting more value-based contracts, PwC found. The most frequently cited challenge was getting pharma executives and payers to agree on what metrics should be used to evaluate a drug’s performance and patient outcomes. But there are a host of other problems, survey respondents said, including technical hurdles associated with sharing patient data, regulatory concerns and a sheer lack of a single model for value-based contracting that everyone agrees is a good one.

    Pharma industry experts aren’t surprised by the slow pickup for value-based drug drug pricing. “Anytime you have innovative thinking, there will be companies that resist it and give a laundry list of reasons for not doing it,” says Gary Stibel, CEO of the New England Consulting Group, which works with several pharmaceutical companies.

    The challenge of figuring out which metrics to use to evaluate drug performance is real, Stibel adds, but it can be overcome. “Even if you start with the wrong metric, you can improve it over time.”

    Identifying those metrics is easier in some therapeutic areas than it is in others, to be sure. Cancer survival, for example, is straightforward. Chronic conditions like diabetes and heart disease, on the other hand, may not have such clear positive or negative outcomes.

    The challenge of establishing the right performance metrics didn’t stop Novartis from agreeing to value-based contracts for its heart failure drug Entresto, which hit the market last year. It formed two such deals with Cigna and Aetna, agreeing to a modest base rebate for the drug that would rise if Entresto helped reduce hospitalization costs and fall if it did not.

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