When Drugs Became Ultra-Ultra Expensive

MHE PublicationMHE August 2023
Volume 33
Issue 8

Recent years have brought a host of new orphan medications for rare disorders, and more are coming. But the U.S. hasn’t yet settled on a way to handle their often astronomical prices — and neither has any other country.

On May 24, 2019, when the FDA approved Novartis’ Zolgensma (onasemnogene abeparvovec-xioi), priced to cost $2.125 million for a single treatment, it was the most expensive drug ever approved, although it didn’t hold that record for long. Zolgensma is a gene therapy given to infants with spinal muscular atrophy (SMA), a rare inherited disorder in which a segment of the SMN1 gene is missing so that the gene can’t make protein, causing muscles to atrophy because they’re unable to respond to signals from the nerves.

In SMA’s most common form, half of untreated infants don’t see their first birthday and only 8% see their second birthday and are free of continuous breathing support, according to Novartis. Treated with Zolgensma, many children with SMA go on to hit their growth milestones for years, Novartis says, although their lives still face constraints.

Is it worth $2 million or more to give an infant with SMA a chance? Of course it is; there isn’t one of us who wouldn’t chip in for a GoFundMe or patronize a bake sale for such a cause. But the challenges that Zolgensma presents are far more complex, a welter of problems in product distribution, economics and ethics. And Zolgensma’s approval was just one in a wave of approvals given to dramatic, hyperpricey, sometimes curative new therapies for rare diseases, and experts say the wave is just getting started.

Rare, but with lots of company

Rare diseases are defined in the U.S. as those affecting 200,000 people or fewer and sometimes those affecting 100 people or fewer. But when you lump the diseases together, they’re no longer rare. “In 2022, half of FDA novel drug approvals were for rare diseases,” Kathryn Phillips, Ph.D., professor of health economics and director of a precision medicine center at the University of California San Francisco, says. “They actually affect a lot of people.”

The National Organization for Rare Disorders estimates that 25 million to 30 million Americans have a rare disease. According to an April 2022 report from the Boston-based Institute for Clinical and Economic Review (ICER), there are an estimated 7,000 rare diseases, and more than 90% currently lack FDA-approved, disease-specific treatments. Gene therapies are on the march, and scientists are busily working to bring pharmaceutical relief to affected Americans. If new treatments even remotely approach the Zolgensma model, it’s not hard to foresee financial migraines for the country’s health plans and payers — even for the big carriers and CMS. With potential costs for a single patient verging on the stratospheric, who can fairly manage the risk?

Sarah K. Emond, M.P.P., who takes over from founder Steven Pearson, M.D., M.Sc., as CEO of ICER starting January 2024, notes many of ICER’s cost-
effectiveness reviews of gene and cell therapies have shown that jawdropping prices in the millions of dollars are justified, because these are delivering transformative benefit for patients. “But” she says, “we have a healthcare system that literally doesn’t know how to pay for a one-time, $2 million treatment.”

Related: A Wave of New Treatments, a Tsunami of Ultrahigh Prices

Far from being the marginal factor their label implies, rare diseases are the tip of a spear called specialty drugs, which are distinct from the traditional small molecule drugs aimed at more common conditions such as cholesterol and hypertension. Specialty drugs have surpassed the 50% mark as a share of total drug spend (assessments vary on when exactly that Rubicon was crossed), and everyone’s trend line for specialty drugs travels north. The specialty drug spend is challenging the industry to develop a new mindset.

Complicating the management of specialty drug costs is the fact that many are under a health insurance plan’s medical benefit rather than its pharmacy benefit. Some of the practices that payers and their pharmacy benefit managers (PBMs) use to manage prescriptions and costs become more complicated or don’t apply to drugs paid for through medical benefits. Especially for PBMs, this suggests the need for new strategies and maybe even a new name.

“There’s no silver bullet,” Steve Cutts, Pharm.D., says. Cutts is senior vice president and general manager of specialty at Magellan Rx Management, a specialty drug-focused business acquired in the past year by Prime Therapeutics, a PBM owned by 19 Blues plans. “No one has completely figured this out yet.”

Cutts cites two reasons why U.S. healthcare hasn’t fully mastered the challenge of paying Zolgensma-sized prices and sharing Zolgensma-sized risks. One is uncertainty about what these ostensibly miraculous products can accomplish. Some are potentially curative, he says, but “there’s a lot of question and debate about durability of response. We don’t have the benefit of 30 years of research like we (have) with a lot of HIV medications and hepatitis C.” Reason two is the fragmented nature of the insurance industry, with competing players not sharing data. For a longitudinal view of “what the real value is and how to fund” these therapies, he says, “You need more of a universal data capture.”

And yes, there must be some deep pockets. “You need to be able to efficiently and effectively pay for these drugs without patients and entire plans going bankrupt,” Cutts says, arguing that the industry has to come together to “balance” access to these treatments. “There is no playbook right now on how to do that in a universally scalable and affordable way.”

Randy Vogenberg, Ph.D., agrees that the problem awaits a solution. Vogenberg is principal at the Institute for Integrated Healthcare and board chairperson for the nonprofit organization Employer-
Provider Interface Council (EPIC). In a 2012 magazine interview, he cited an already evident trend toward precision medicine and predicted that new orphan drugs for very small groups of patients would soon require “a whole different strategy and different tactics from a plan design and benefit management perspective.” Simply determining premiums and benefit designs by spreading risk broadly across a population, he suggested, was approaching its sell-by date.

Eleven years down the road, the cost explosion he foresaw has come true. (Horrified talk back then about five-figure annual costsnow seem almost quaint.) But in a health insurance industry recently distracted by the COVID-19 pandemic, the new mechanisms for handling risk that he expected have not yet developed. “The actuaries and underwriters have said, ‘Well, I’ll just buy more reinsurance,’” Vogenberg observes. “They’re using stop-loss insurance, alternative risk arrangements and value-based contracting. Things like that have been in play already. But it doesn’t really solve the problem.”

Even drugmakers have to worry, he adds, noting that a growing percentage of health plan sponsors are declining to cover costly new drugs. “It’s a significant issue for manufacturers, because coming out of the gate (with a product), 25% of the plans may not even cover it at all.” In 2021, Bluebird Bio pulled two gene therapies from the European market that had been approved there — Zynteglo (betibeglogene autotemcel) for beta-thalassemia, a hemoglobin disorder, and Skysona (elivaldogene autotemcel) for the genetic neurologic disorder cerebral adrenoleukodystrophy — because a pricing agreement couldn’t be reached with European regulators.

“The biggest concern venture capitalist investors have about these rare disease companies is, ‘Is there a marketplace where these products will be bought?’” Vogenberg, who hasn’t abandoned the prediction business, says. “Within the next two to five years there will be solutions because the market is going to force that to happen.”

Rewriting the rules

Speaking of the market, some background helps to understand its current structure and dynamics. Remember the children with disfigurement in the early 1960s whose mothers had taken thalidomide during pregnancy to prevent morning sickness? That pharmaceutical tragedy helped to spur federal regulation, beefing up requirements for proving a drug’s safety. The rules worked but also made it much more expensive to test new medications. With a higher cost threshold to clear, basic economics favored drugs with potentially huge sales — drugs to treat things such as hypertension and cholesterol that affected millions of people. Rare diseases usually didn’t make the cut; in the 1970s, only 10 drugs had been approved in the U.S. to treat orphan diseases.

Then — thanks in part to grassroots efforts by disease constituency groups, the efforts of former U.S. Rep. Henry Waxman, a California Democrat, and even a consciousness-raising episode of the hit TV series “Quincy, M.E.” —came the Orphan Drug Act (ODA) of 1983. By 2002, the FDA had given orphan designation to 1,110 drugs and approved 232 of them. An agency historian writes that the law “completely changed the face of therapeutics for rare disorders.”

The ODA rewrote the rules. It loosened requirements for the number of patients needed in phase 3 clinical trials, which made sense considering that the number of people with rare diseases is small. To further encourage the development of potentially life-changing therapies for conditions that didn’t have big numbers on their side, it provided tax credits up to 50% for research and development expenses, granted a seven-year period of market exclusivity for drugs approved to treat orphan diseases even if they weren’t under patent, provided research subsidies and created a government research and development enterprise. The FDA’s orphan designation became a key advantage.

Like all sweeping legislation, the ODA had unforeseen consequences, particularly when the gene therapy revolution came along. Now the orphan drug world is growing like topsy. A 2020 report by James D. Chambers, Ph.D., an associate professor at Tufts Medical Center in Boston, Massachusetts, and coauthors in the Journal of General Internal Medicine noted in a footnote that “from 2015 through 2018, 48% (82/172) of approved drugs have been orphan drugs,” and those years were apparently typical.

Also, the special advantages accorded to rare disease treatments were becoming less special. Many of the new costly medications that have been approved by the FDA in the past few years are gene therapies, and many were approved on an expedited basis. Luxturna (voretigene neparvovec-rzyl), Spark Therapeutics’ $850,000 gene therapy treatment for an inherited form of retinal dystrophy that can lead to vision loss, was approved in late 2017, having been granted priority review and breakthrough therapy status as well as an orphan drug designation and a rare pediatric disease priority review voucher, which can be redeemed for later priority review for a different product.

“Seventy percent of the new drugs evaluated by the FDA now go through one of the priority channels,” Ruth Lopert, M.D., of George Washington University in Washington, D.C., notes wryly. “So priority seems to be the norm.”

ICER’s 2022 report says that “as the proportion of new FDA approvals gaining orphan drug designation crests above 50% each year, some people no longer see the primary challenge related to orphan drugs as that of creating a viable business model. They see a growing challenge in absorbing the cost of a growing wave of high-priced orphan drugs that may threaten sustainable premium levels and throw up greater barriers to access for individual patients.”

Ethical issues

What are the ethics of a society that makes a $2.125 million treatment that might save an infant’s life but that not everyone can afford? “I just don’t see the fiscal viability of trying to charge enormous sums for a tiny population of patients,” Arthur Caplan, M.D., says. Caplan is a bioethicist who runs the Division of Medical Ethics at New York University Grossman School of Medicine’s Department of Population Health.“Despite the optimism about gene therapy, for the ultra-ultrarare — I’m talking about under-100 disease population — the only way I think it’s doable is if we decide as a nation to subsidize people who are in that category, which I see no political movement to do.”

One example of what Caplan is talking about is Hutchinson-Gilford progeria, a disease of premature aging and one of the conditions targeted by Eiger Biopharmaceuticals’ million-dollar drug Zokinvy (lonafarnib). Estimates vary but the disease affects a very small number of people — somewhere around 100 people worldwide.

Caplan asks what moral claim a few people with rare disease have for the rest of us and cites government-financed flood insurance as a situation where we’ve decided that many people should pay to save a few. But the very expensive challenge for a patient with rare disease would bump up against similar options for less rare medical conditions. “It takes us into a parallel thing,” Caplan comments. “What about people who say, ‘I need money for my heart transplant’ or ‘I need money for my lung

Were the U.S. to adopt a single-payer system, it would be easier to achieve the “universal data capture” that Cutts talks about. Finding the funds to pay the upfront costs of rare disease treatments (which even at their sky-high prices could, it is often argued, pay for themselves over time in savings from the constant care patients would otherwise require) might be easier if our country “drove down the current prices that we’re paying in our system, which are ridiculous,” Caplan says. And it would be easier to capture and track such long-term paybacks in a system where millions of people were not churning among competing employer-backed health insurance plans.

“We couldmake it affordable,” Caplan insists. “Politically, the majority does not want to pay for the rare problems of the minority. Then they look for ways to disguise that decision or that indifference by saying, ‘Oh, the insurance company turned you down. They had an advisory panel that said, “No, not worth it.’ That’s just hiring somebody to do your rationing so you don’t have to feel bad.”

A world of trouble

Like Caplan, the Australian-born Lopert, who from 2008 to 2011 was chief medical officer for Australia’s FDA counterpart, is a single-payer advocate. She finds CMS too much of a pushover when it comes to covering FDA-approved drugs, in contrast with other countries’ mechanisms for “health technology assessment that they apply to the selection of

drugs that are going to be covered by public plans.” (She proudly points out that Australia’s was the first such system, later sharing its expertise with U.K.’s now renowned National Institute for Health and Care Excellence.) “There’s no point in applying health technology assessment if you’ve got no capacity to walk away from the table,” Lopert complains. “The whole point of assessing the cost-effectiveness of a drug is that when you find it’s notsufficiently cost-effective, you can say no. But in the United States, no one ever says no.”

Lopert concedes that the U.S. is far from alone in not having figured out how to pay for the new wave of costly rare disease treatments. That question “hasn’t been fully answered anywhere, to be fair,” she says. In Canada, Caplan says, the government turns down a lot of the rare disease requests and the patient groups swing into action: "It’s not so different from here.” Vogenberg states that “no government in the world,” whatever its system, has stepped up to take on the complexities of the expensive drug-rare disease problem. “You need a large consensus on this,” he warns, “and we just don’t have that yet.”

In results from a 2021 survey of payers, providers and employers reported in the Journal of Managed Care & Specialty Pharmacy, reinsurance led the list of strategies used to “maintain affordability for orphan drugs,” trailed by “gene therapy carve-out,” “orphan drug carve-out” and “benefit exclusion.” Listed next was “shift coverage from the medical to the pharmacy benefit,” which the survey report’s conclusion termed “a cost-control lever,” noting that “providers are weighing patient affordability in their decision to acquire orphan drugs via buy-and-bill.”

Eye of the Beholder

So what’s the solution to the problem? Observers seem to visualize the answer in a way that their current affiliation inspires.

It may be “aggregated-risk coverage” involving businesses, health plans or both and “will require multidisciplinary action,” Vogenberg says. The government-minded Lopert envisions a “pooling mechanism” such as Medicare Part E for patients with rare disease “so that it’s not part of the rest of their insurance.” Tomorrow’s more expansive PBMs, Cutts prophesizes, must organize their efforts “less around standard unit cost conversations and more on being able to manage a patient holistically, agnostic of what benefit they’re on.”

Absent the political will to overhaul the system with a single-payer approach, a high-risk pool with a certain cost of entry could be created, according to the ethics-minded Caplan. “Not everybody will get into it,” he says frankly. “You then may set up a charity fund to help a few more and say, ‘I’ve done my best.’ ”

ICER spelled out five possible approaches in its 2022 report. One or two of them may have a familiar ring; as Vogenberg noted, they’re not entirely new:

Outcomes-based contracts. These would “make some or all of the payment for a treatment contingent on the degree of patient benefit.”

Volume-based contracts. With these, “the federal government or a consortium of private payers could directly negotiate to purchase enough orphan product volume to cover all eligible patients with a given rare condition.”

Indication-based pricing. This “would enable payers to negotiate higher prices for rare indications and lower prices for broader indications or those for which the product demonstrates less clinical value.”

Value-based price regulation.This could employ varied mechanisms, including “international reference-based pricing, or pricing based on cost-effectiveness thresholds and value assessment by groups such as ICER.”

A national treatment benefit for rare conditions. To create a risk pool large enough to “absorb the unexpected cost shock,” some national health plans have tried carve-out programs for cell and gene therapies.

One example of such a carve-out is Cigna’s Embarc Benefit Protection, which charges a per-member, per-month premium for employers and health plans that choose to join for a layer of protection. “Although the commercial experience with these carve-out programs is limited,” ICER writes, “policy makers may wish to consider launching one at an even larger scale at the national level. A new national benefit for cell and gene therapies for orphan diseases would create a single national risk pool for all identified rare conditions.”

It remains to be seen what will take shape in Vogenberg’s predicted two- to five-year window when the market will force change. But he’s not the industry’s only prognosticator. Caplan pitches in with a safe bet: “I suspect we’ll still be talking about this in five years.” And a video interview with Emond concludes with a cautionary note. “There is innovation coming,” she says, “that we haven’t even considered yet.”

Timothy Kelley is an independent journalist in New York who writes about healthcare and managed care. contributor to Managed Healthcare Executive.

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