Research in gene therapy and other areas in recent years has led to many significant advances in efforts to develop new curative therapies for a range of serious diseases and conditions. Products including Kymriah, Yescarta, and Luxturna have been launched, and many others are advancing to late stage development. With this progress, payers, government agencies, manufacturers and other stakeholders are focusing on the development of workable pricing models to support the generation of high-cost curative therapies on the horizon.
The prospective of more curative therapies, potentially launched in rapid succession, presents many new considerations in drug pricing. Factors that affect pricing include small patient populations, narrow treatment windows, high up-front costs, lack of available long-term efficacy and safety data, hospital fees, and other costs associated with administration of gene therapies and other curative therapies. Paying for these therapies could lead to a major and potentially devastating spike in healthcare costs in the years ahead.
Pricing options for curative therapies
To address this challenge, payers, manufacturers and other stakeholders are looking at a range of innovative structures in pricing models. At this stage, the three most widely considered options involve annuity payments, payments based on treatment outcomes, and expanded risk pools. Following is an outline of the benefits and potential risks associated with each.
- Annuity payment models
The annuity payment model is one of the most popular models under consideration. With this approach, managed care organizations would agree to coverage based on a series of payments over a set timeline for each patient treated with a curative therapy. For example, rather than an up-front payment of $500,000, payers would spread payments over a pre-determined timeline of many months or even years. The major benefit with this payment model is that up-front costs would be more manageable and payments could also be contingent on a successful outcome of treatment. But a potential downside is that payers could be positioned to continue covering treatment over many years, even after a patient transfers to another insurance plan. Another concern is that this approach could still strain state budgets. Even coverage for a limited pool of patients, most notably through Medicaid, presents a risk of major and potentially devastating costs that could bankrupt a state’s budget. The extended timeline for payment also presents considerations in government reporting (e.g. Medicaid best price) and company financial reporting including revenue recognition for the pharmaceutical companies and liabilities for managed care.
2. Payments based on outcomes
An outcomes-based model, which was used by both Kymriah and Luxturna at launch, requires that products meet specific and timed clinical targets to be eligible for reimbursement from payers. This model can reduce the risk of coverage for unsuccessful treatments and help address the issue of limited evidence of efficacy and safety at launch. However, with this model payers may still be liable for hospital fees and other treatment-related costs even when the treatment fails to achieve determined outcome measures. All relevant stakeholders will also need to align on what constitutes a successful treatment outcome within a pre-defined time period. There may also be logistical challenges in consolidating outcomes data management and reporting and government reporting issues if the failure rate of a treatment falls below the established Medicaid best price rate.
3. Expanded risk pools
Risk pools including government- or commercially-supported reimbursement models have been used for many years and may be a third pricing option to consider. One active example is a U.S. government program established in the early 1970s that pays for dialysis and kidney transplants for patients with end-stage renal disease. This approach could play an important role in coverage for high-cost curative therapies in the years ahead, allowing payers to mitigate their risk of patients receiving these therapies over time and manage premiums and cost sharing. Many payers note that government support for participation in expanded risk pools to cover curative therapies may be limited, especially given the current political climate. This approach also requires broad alignment among all participants, while costs of this payment model may be difficult to estimate based on the small number of approved products and limited efficacy data across all next-generation curative therapies.
Building a better model
Payers broadly agree that new pricing models for curative therapies will be essential and may include a combination of elements of the models outlined above. But there is no consensus on the optimal approach that can simultaneously benefit both payers and manufacturers. It is unlikely that increases in premiums and patient cost sharing can effectively address anticipated high up-front costs. Solutions could require levels of innovation and collaboration previously unseen in pricing planning and the active participation of government, payers, manufacturers, patient advocates, and other stakeholders. As the debate continues, more curative therapies are rapidly advancing to the finish line and developing a workable pricing model could soon become a critical issue.
Matthew Majewski is a vice president in CRA’s Life Sciences Practice. He has a track record of providing life science clients with analytically based solutions to their strategic issues. He has led a range of strategy engagements from product related topics to corporate challenges.
The views expressed herein are the author’s and not those of Charles River Associates (CRA) or any of the organizations with which the author is affiliated.