Payment Models for Pricey Transformative Pharmaceuticals

The US health care system is complex and has been built on a fee-for-service model, which is gradually shifting to a value-based payment model. From a cost standpoint, our system has emphasized disease treatment over disease prevention.

In part, that is due to the fee-for-service payment model, which reimburses more favorably with the more services rendered, subsequently leading to higher fees that providers receive in return. This model incentivizes treating illness or performing procedures rather than preventing disease and improving health and wellness. The model is not only complex, but costly and not based on quality or value.

In the current form, curative 1-and-done therapies with exorbitant price tags were not part of the pay-as-you-go reimbursement model. Typically, patients pay for care as they receive treatment, spreading costs over months and years. This all changes with gene therapy, for example, a single treatment with the potential to provide a lifetime of benefit at a high cost.

Critics also speculate on the long-term clinical success of these therapies since they are so new to the market with limited data from a post-marketing surveillance perspective. This presents a significant issue for our health care system and we must develop new approaches for payment when value accumulates over a lifetime.

Current health insurance funding comes from taxes for government-sponsored health systems and premiums for private health insurers. Most large employers and many small ones bear the direct risk of their employees’ medical costs, also known as known as self-insurance or self-funding. They rely on insurance carriers to design benefits and administer claims but bear the costs directly.

In our current health care ecosystem, funding is structured to cover the expected costs of treating patients. With transformative gene therapies, a 1-time, high-cost curative therapy does not align with the upfront treatment price and the long term realization of clinical benefits to patients.

Insurance companies spread risk over a pool of patients. However, when a single patient in that pool needs to take a drug with a high cost upfront that will potentially provide a lifetime of benefit, the insurer may not want to reimburse for it because that patient may leave the plan at any given time. The return on their investment could be lost.

One reason for this is churning, where patients often change jobs and then insurance companies. When that happens, an insurance company may incur the upfront costs of the therapy while a different insurance company receives the benefits of lower patient costs.

Long-term financing of amortized payments to drug companies have been proposed so that when a patient changes insurance companies, the new insurer also pays some of the drug costs. In the last 5 years, value- and outcomes-based payments and risk-sharing agreements, in which payers are exempt of financial responsibility if a therapy fails to produce the expected clinical value, have become more prevalent.

One of the main concerns that manufacturers have regarding value-based pricing has stemmed from the potential lack of patient adherence to a prescribed regime of traditional pharmaceutical drugs. However, an advantage of administering a 1-time gene therapy is that it obviates many of these adherence issues, making these therapies excellent candidates for value-based pricing.

From an actuarial viewpoint, calculating the risk of gene therapies involves taking a number of factors into consideration that are outside the control of the insurance company, as well as the manufacturer. From an insurance company’s perspective, it is not a question of whether the drug can fit into the actuarial process, but whether the therapy will be viable in the market.

Many gene therapies face a number of uncertainties and risks, including initial performance, efficacy, discounts, and price. All of this can lead to challenges with managed care plans that may not see gene therapy treatment claims every year and know how to price premiums accordingly.

Despite launch prices ranging from hundreds of thousands to millions of dollars for a single treatment, cell and gene therapies have the potential to cure rare, serious, and possibly terminal illnesses. This requires us to evaluate and develop new approaches to value assessment, payment, and financing.

The objective of alternative payment and financial models may help alleviate several concerns. The first is a need to lessen a cash flow strain associated with a single high-cost event.

Another is to improve distribution of the expense for the lasting duration of therapy over the period of clinical benefits. When evaluating reimbursement management strategies, we must assess the value of medicine to patients and society over a lifetime to help figure out how to price and pay for care.

Annuity payment models allow for periodic, smaller payments that would spread the upfront costs of gene replacement therapy, much like an amortized payment. Payments are made over time, thereby reducing large up-front costs and budget impact for the payer.

Longer term, the result would enable cost savings and improved patient outcomes without the “sticker shock” associated with transformative therapies. When considering a periodic payment arrangement for a 1-time administered therapy, consideration should be made for patients with private insurance, understanding the possibility that a patient could switch plans (or become eligible for Medicare).

This scenario could result in a patient not being covered by one insurer and/or the costs of treatment continuing to be paid for by a prior payer, unless a process is developed for the payments to become portable with the patient.

Financing models include insurance products such as re-insurance where insurers could diversify the financial risk of covering high-cost patients protecting them from catastrophic losses and ensuring a mechanism is in place to stabilize an individual health insurance market.

Re-insurance is compatible with up-front, 1-time payment models for which there are no changes in payment to help offset any near-term budget impact for high-cost curative therapies. Disadvantages of re-insurance may include a higher cost if reinsurance companies experience a higher number of claims and costs due to the new gene therapies.

Another financial model includes risk-pooling, which is a mechanism that spreads the upfront cost of cure and residual cost of care among all stakeholders in the pool (eg, payers) to protect an individual entity from bearing the full financial burden of high-cost curative therapies. Contributions into the pool would be made by a group of payers that wanted to participate on a per member basis.

Embarc (through Express Scripts) is an example of a risk pool insurance program for Luxturna, a gene therapy treatment for people with inherited retinal disease, and Zolgensma, a treatment for children under 2 years of age with spinal muscular atrophy. Health plans that adopt Embarc will pay a per-member, per-month fee to participate in a gene therapy network.

Physicians will be required to submit prior authorization for the drugs, but once they’re approved, a patient will not be charged a co-pay at the pharmacy counter. The advantage of this model is that it offers budget predictability to payers/budget holders, prevents adverse selection, and no payer—including employers—are adversely affected by having clusters of patients in their plan who require high-value cell and gene therapies.

Another example of work being done in this area is with MIT’s New Drug Development Paradigms Financing and Reimbursement of Cures in the US (NEWDIGS-FoCUS) Project. This project brings together stakeholders in health care to discuss solutions to access curative therapies for patients in a way that minimally disrupts payers and allows manufacturers to continue their innovation.

Countries such as Germany have participated in high-risk pools and instituted funding to pay for high cost chronic diseases. These funds are usually via nonprofit institutions supervised by the government.

Pay-for-performance models are risk-sharing agreements whereby biopharmaceutical companies are paid based on agreed-upon performance of clinical outcomes. These are likely to be more easily adopted by Medicare and Medicaid payers whose enrollees stay with the plan over longer periods of time.

These models may be attractive for therapies with evidence of durable effect or outcomes in the short-term and may have a demonstrated track record in clinical trials. Examples of these include Kymriah and Luxturna, which entered into outcomes-based payments at launch.

Spark set the list price for Luxturna, a 1-time treatment at $850,000. Harvard Pilgrim Health Care became the first health plan in the nation to allow its members access to this important therapy; however, they did so via an outcomes-based agreement.

The agreement crafted by Harvard Pilgrim and Spark tied payments for the drug to measured improvement in patients at 30- to 90-day intervals and then again at the 30-month mark. If Luxturna fails to perform, Harvard Pilgrim will receive a rebate from Spark. The short and long-term measures are based on full-field light sensitivity threshold testing scores, with a baseline to be established for each eligible patient before administration of Luxturna.

In conclusion, several viable models exist and continue to emerge for addressing the unique challenges of payment and financing for innovative, durable, curative gene and cell therapies. Although there may be no single model that addresses all the issues associated with paying for gene therapies, there is a need for more definitive financial solutions based on individual gene therapies.

As we evaluate innovative payment and financing models, we need to be mindful of ensuring patient access to new innovative therapies while minimizing the economic burden to patients and caregivers. Incentives also need to be aligned for providers and sites of care to administer these therapies.

Although we are making progress, much work still needs to be done. As we continue to evolve in this area, payment and pricing models need to adequately balance access and affordability but also sufficiently value curative therapies.

About the Author

Brandeis Seymore, RPh, earned her Bachelor of Science Pharmacy degree from the Duquesne University School of Pharmacy and is currently enrolled in the Master of Pharmacy Business Administration (MPBA) program at the University of Pittsburgh, a 12-month, executive-style graduate education program designed for working professionals striving to be tomorrow’s leaders in the business of medicines. She has spent the past several years working as a senior clinical manager assisting employers with their pharmacy benefit management strategy. Prior to these experiences, she has held roles of increasing responsibility, most recently as a Strategic Account Executive to support client’s marketplace needs and demands.