Pharmaceutical innovation is racing ahead of the US health system’s ability to adjust payment models, but innovative concepts are finally emerging. We will have to move beyond siloed thinking to establish them for the sake of getting patients sustainable access to a new wave of transformative cures, argues Ulrich Neumann.
A look at recent drug approvals reveals the truly fascinating juncture in human health we find ourselves at. Pharma, for long accused of preferring the de-risked advancement of so-called ‘me-too therapies’ has produced remarkable innovations in genetic and cellular therapies in recent years, providing extraordinary benefits to patients.
The US Food and Drug Administration (FDA) approved four gene therapies in the past three years, while investment in transformative drug research exceeded $13 billion in 2018. Many more treatments are now in the development pipeline with an estimated 40-60 new products that could reach the market by 2030.
It is widely believed that we will find cures for inherited genetic diseases such as in muscular dystrophy, a set of rare disorders whose muscle-weakening and wasting conditions see patients progressively worsening, and often dying due to heart and breathing complications.
A lifetime of value, injected once
As exciting as it is from a medical point of view, the advent of a wave of transformative and gene therapies has amplified affordability concerns among payers, providers and patients.
While much has changed in the evolution of the science, very little has changed in the evolution of thinking about how to pay for and deliver such innovation. Consider Zolgensma, the first gene therapy approved in May 2019 to cure young children with spinal muscular atrophy (SMA), a rare genetic disease.
While recent investigations have exposed data manipulations in Zolgensma’s pre-clinical research, the FDA highlighted that human clinical trial data support its efficacy and justify its place in the market. It is priced by Novartis/ AveXis at over $2 million, an injection administered once, while the therapy value accrues over a patients’ lifetime.
The disconnect between payment and outcomes reveals a fundamental challenge to the current ‘pay-as-you-go’ funding approach in the heterogenous US payer system. As is the case for most curative therapies, the lifetime savings potential is exceptional in terms of reducing the burden of mortality, disability and overall treatment costs.
But collapsing decades worth of potential cost-offsets into the single, one-time administration of a drug produces extra-ordinary up-front budget pressure on payers. The cumulative effect of curative therapies across multiple conditions is likely going to put increasing strain on the current structure.
Another compounding challenge for health systems’ value determination is the lack of long-term durability data at launch, performance outcomes which clinical trial research can’t capture. In view of the evidence, are we right to assess these therapies under the same criteria we established decades ago to manage the much more predictable cost of chronic conditions?
In the case of Zolgensma, the US Institute for Clinical and Economics Review (ICER) estimated a value-based price to be between $1.2 million and $2.1 million as my colleague Oliver Leatham has pointed out here, looking at the question of value. Once we move beyond value assessment to corresponding reimbursement models, are our health systems even equipped to afford the value-based prices of these novel technologies?
US payer risks around transformative therapies
Rising patient copays, increased coinsurances and at times perverse rebate incentives already reveal the inadequacies of a US reimbursement system under pressure to pay for today’s therapies.
There’s little doubt that both funding and delivery systems are wholly inadequate to deal with a wave of future cures. As the recent FDA commissioner, Scott Gottlieb, said in no uncertain terms, “without innovation in financial engineering and financial arrangements to overcome the chasm between current patient need and available cash flow, the U.S. will not be able to reap the full benefits of genomic technologies”.
With respect to gene therapies, different US payer types are variably exposed to three core risks:
- Actuarial uncertainty (how many eligible patients will be in our insurance pool?)
- Therapeutic performance (how do we assess long-term real-world effectiveness of treatments?)
- Payment timing (how do we administer payment given plan switching and beneficiary migration?)
Broadly speaking, smaller beneficiary numbers result in higher financial exposure of gene treatments on a per-patient cost basis, and comparatively greater operational challenges given the need for highly specialized treatment knowledge. Overall, small commercial payers, self-insured employers, MA Advantage and Medicaid can be expected to see a higher impact than larger commercial payers and Medicare Fee-for-Service.
These insurance risks also vary across therapy modalities for the different target populations in question. Multiple payment solutions are thus required to mitigate the impact of a proliferation in novel high-cost therapies.
A few collaborative efforts have lately put the development of so-called ‘precision financing’ schemes for precision cures on the public policy agenda. One of the most prominent multi-stakeholder initiatives in the US was launched at the Massachusetts Institute of Technology (MIT). Their Financing and Reimbursement of Cures (FoCUS) project has recently presented a set of alternative reimbursement models based on “Design Lab” workshops, primary research, financial modeling and case study analyses. The aim is to advance a practical toolkit that helps drive early adoption and enables payers to guarantee patient access to novel therapies. Below is my assessment of the most promising models to come out of these early deliberations.
Precision financing and innovative access, some US options
Milestone based performance contracts involve an upfront payment and reception of refunds over either the short-term (<1 year) or long-term (e.g. five years). These contracts can help to reduce the risk around a variability in response and limit treatment costs.
Developers may rebate based on non-response rates in individual patients, pay a discount based on performance within a population, or pay for additional treatment costs associated with suboptimal response to therapy.
One of the major challenges with such outcomes-based agreements is the need for third-party adjudication services and a data and analytics infrastructure to track patients over time (across payers and providers). These steps, in turn, add again to the already costly administration and legal complexity. Equally importantly, you have to be able to agree to a set of measurable outcomes which can be challenging depending on the disease state.
The current types of outcomes agreements have seen limited scale, payers in the US are not very optimistic about expanding the deals beyond pilots, with the exception of Integrated Delivery Networks (IDNs) which is usually the most bullish US payer archetype to be somewhat likely to double down on launching them with pharma partners. Early adopters are generally not opposed to renewing existing agreements that provide value for money, but are cautious about crossing the chasm to wider adoption, frequently cite lack of resources and lack of manufacturer’ commitment to more meaningful areas of implementation.
Annuities payments (with or without performance guarantees) spread the cost of a therapy over a fixed time frame, thus smoothing the scheduling of financing. The model would help tackle the immediate budget pressures in the first year faced by smaller insurance pools, and partially mitigate the actuarial risk around patient backlogs and individual high-cost cases. Given the multi-year contract horizon, open questions around patient tracking, pricing regulation and accounting issues persist.
Reinsurance (e.g. purchased by payers) and stop-loss insurance (e.g. purchased by self-funded employer organizations) is currently employed to manage the actuarial risk of single plan-year contracts. For example, payers pay the third-party insurer per member per month (PMPM) to assume the risk for unexpected events above a certain cost threshold. Applied to gene therapies the approach could [work well in incident populations, but faces challenges in multi-year agreements since high-cost claimants will have to be disclosed to re-insurers and are often “lasered out” of policies since these focus specifically on unknown and unexpected financial risk. When imagining the future state of gene therapy commercialization, the colleagues at MIT also suggest that novel provider-administrator entities might emerge to support and administer novel financing models.
These intermediaries, so-called Gene Therapy Administrators or Orphan Reinsurer and Benefits Managers (ORBM), could combine the risk-bearing of reinsurers with the therapy contracting capabilities of PBMs, the provider network building, and medical management capabilities of insurers. While no such dedicated vendor exists today, third parties are already providing these services.
Except for the specialization on orphan diseases, it’s actually not such a novel idea, “it builds on existing concepts in the marketplace – think about behavioral or organ transplant carve-outs”, tells me Mike Cierametaro, Research Director at the National Pharmaceutical Council. Additional capabilities such as specialty pharmacy distribution could, hypothetically, be added as well. However, the specific confines of the business model behind the ORBM are yet to be fully fleshed out. An MIT initiative called FoCUS is currently endeavoring to conceptualize the promise of an inter-mediating entity.
Outlook for developers
Despite heightened excitement around innovative financing models, payers in the US see comparatively little use overall. Realistically, there are only few immediate opportunities for the adoption among private insurers in the US today. This is partially due beneficiary switching at the end of the plan year that does not allow for the continuity in the treatment population that the approaches require, while unit-level reporting requirements are legal and administrative barriers.
Propositions relevant for Medicaid payers, such as licensing models (“Netflix”), have unquestionable public health value as long as no further treatment innovation is to be expected in the category. By nature, this limits the model to indications and categories where continued R&D can be sacrificed for budget surety, such as curative therapies. While some tactical benefits may sound appealing to manufacturers at first sight – e.g. annual recurring revenue and cashflow certainty, reduced COGS etc – the shift may be indicated for a limited set of competitive scenarios, e.g. for a hold on a patient pool that is diminishing when competitive differentiation is unable to open the funnel.
While commercial stakeholders in the biopharma industry are trying to embark on advancing possible adoption of novel financing models, regulatory clarity would serve as a key enabler. The Center for Medicare and Medicaid Services (CMS) should provide reasonable accommodation for best-price and other government price reporting, the Office of the Health and Human Service Department’s Inspector General (OIG) advance anti-kickback statues to define explicit safe harbours, and FDA could further specify communication guidelines to enable appropriate communication between payers and developers. There have been encouraging proposals by the OIG and CMS for new AKS and Stark protections for value-based agreements on the provider site, currently pending at OMB, but such arrangements explicitly exclude manufacturers of drugs, medical equipment, prosthetics, orthotics or supplies.
Policymakers have hitherto made little commitment to developing an infrastructure for annuity financing or to enabling long-term, value-based pharmaceutical reimbursement. However, the public discussion around the sustainability of paying for therapies such as Zolgensma may have shifted the mindset on Capitol Hill lately.
Notably, the current bi-partisan legislation from the Senate Finance Committee would enable Medicaid plans to amortize the cost of delivering curative gene therapy over time. The drug bill may be a mixed bag for pharma, but it is the only one supported by the Trump White House.
In the meantime, for any non-traditional pricing agreement, successful developers are well-advised to rely on strategic external support to identify and simulate real world effectiveness in populations of interest, pressure-test program designs with their customers, and then adequately provision for monitoring and adjudication systems. Internally, those at the frontlines of pioneering payment innovation empower multi-disciplinary pricing steering committees and make sure the effort is championed by executive commitment. A critical question for all stakeholders around the future of innovative contracting is whether any of the negotiated financial benefits between manufacturer and payer will ultimately ever reach the patients. We will need a lot more innovative, out-of-the-box approaches to operationalize such concepts, thinking in horizons of collaborative change beyond the status quo. Given how entrenched the parameters of any solution are, and will ever be, within legal and operational constraints, this type of innovation will have to be shared and open, to be sustainable.
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