A tricky path to pay-forperformance drug pricing
The latest wrinkle in the fight against rising drug prices involves insurers and pharmacy benefit managers asking drugmakers to accept lower prices for the latest medicines emerging from their labs when they don’t achieve the desired results.
Insurers like Aetna, Cigna and Harvard Pilgrim Health Care, as well as pharmacy benefit managers such as Express Scripts, are engaging major manufacturers including Novartis, Merck and Astra Zeneca in these riskbased deals because many of the latest blockbusters drugs are lacking long-term benefits data.
In most of the deals, insurers agree to offer reimbursement for a drug at a set price as long as the drugmaker agrees to pay a penalty if certain metrics aren’t met. Drugs for combating diabetes, hepatitis C and heart disease are prime targets for the new pricing arrangements, where biomarkers like cholesterol, blood glucose or virus eradication can be used as measurable benchmarks.
Payers say the deals give them assurance that they won’t be left holding the bag if a drug doesn’t deliver its promised medical benefit. Drugmakers are willing to go along because it helps get their products to more patients more quickly.
Manufacturers also like the deals because they usually don’t have to compromise on the price of their latest drugs, which often come to market at significantly higher costs than older medications for the same condition. Sometimes the pay-for-performance arrangements are even tied to exclusive or preferred-provider status, which can guarantee a steady stream of patients.
Although the deals seem like a win-win, the devil is in the details. Outcomes-based deals can be complicated. The usually antagonistic relationship between payer and supplier can interfere with reaching an agreement on metrics and how they are measured.
It also involves sharing data on outcomes. Payers and manufacturers say the neces- sary data infrastructure—such as a payer’s ability to gain access to patients’ cholesterol or blood glucose levels— simply isn’t where it needs to be to make most of these deals work.
“The data underneath the metrics are a real issue for both sides,” said Patrick Davish, associate vice president for global market access at Merck & Co. “Even the most sophisticated payers don’t have all the data you’d imagine them to have. … It’s also administratively burdensome.”
Merck struck a deal in 2009 with Cigna and in October with Aetna for diabetes drugs Januvia and Janumet. The company has about a dozen value-based deals covering as many as eight products. It hasn’t disclosed the other deals.
Aetna and Cigna both struck deals with Switzerlandbased Novartis in February for Entresto. The deals give the heart failure medication preferred status in their formularies while allowing the insurers to receive a discount based on whether the medication reduces hospitalizations for patients with congestive heart failure. The deal gives customers access to the drug while allowing the insurers to hopefully lower their hospitalization-related costs, said Dr. Ed Pezalla, Hartford, Conn.-based Aetna’s national medical director for pharmacy policy and strategy.
“The contract allows us to cover it more broadly, and there’s an incentive for us to put specific programs in place for patients taking the drug,” Pezalla said. “We would have covered it otherwise, but probably with more restrictions; and we probably wouldn’t have had incentive to do adherence programs.”
Nonadherence is a huge risk with these deals. Drugmakers and insurers can craft a great deal based on a medication with strong clinical trial results. But if patients don’t take it properly, everyone loses.
That’s why in many of these agreements payers are taking responsibility for ensuring patients take their medications in full and on time. That means using predictive modeling to determine which patients are most likely to be nonadher-
ent and targeting those patients through mobile apps, phone calls, letters and other communication methods to check on their progress and remind them to take their medication. In some cases, patients may be removed from coverage if they don’t stay on the medication.
“If they’re not adherent, they’re removed from the denominator: They’re not in the program and not getting the benefit of being on the medication,” Pezalla said. “If they’re adherent, we reap the benefits with the patients.”
Aetna and Cigna say the deals are complemented by physician incentives in accountable care and collaborative care agreements that give physicians incentives to ensure patients are taking their drugs. Those agreements help drive adherence and lower costs, said Chris Bradbury, senior vice president of integrated clinical and specialty drug solutions for Cigna Pharmacy Management, a pharmacy benefit manager that mainly serves Bloomfield, Conn.-based Cigna’s medical plans.
“These outcomes and value-based agreements are hard, but they’re getting easier,” Bradbury said. “We think it’s one of the key elements to ensure continued access to essential medications at affordable prices.”
Express Scripts, the nation’s largest PBM, uses its Accredo Specialty Pharmacy unit to ensure adherence through care coordination programs, according to Dr. Steve Miller, the St. Louis-based PBM’s chief medical officer. The company guarantees to its plan sponsors that patients will adhere to the regimen for Viekira Pak, AbbVie’s hepatitis C drug.
If a patient doesn’t take the full 84 pills of the treatment, Express Scripts will refund the drug costs to its client. The PBM controls delivery of the drug by distributing it through Accredo and employs a care coordination team of pharmacists and social workers who specialize in hepatitis C to ensure patients are adherent and accurately informed about their treatment, Miller said.
It’s a major win for AbbVie. Some payers are skeptical about giving broad coverage to the drug because they doubt patients will consistently take the multiple pills each day instead of the one-pill-a-day treatment available from competitors, Miller said. That helped Express Scripts negotiate a large but undisclosed discount. The company has been able to secure 92% adherence among patients, he said.
Assessing blame for noncompliance
The complexity of the deals and disagreements over who is responsible for nonadherence or unsatisfactory outcomes has led to conflicts between payers and drugmakers in these deals, Miller said. For example, a drugmaker might argue that it shouldn’t have to pay outcomes-related discounts if adherence was low, while the payer might argue that a flaw in the drug, such as undesirable side effects, led to nonadherence.
Miller believes many value-based deals are falling apart due to nonadherence. The administrative costs that come with adjudicating these issues cancel out anticipated savings, he said.
So Express Scripts is staying away from outcomes-based deals and instead betting on its own ability to get patients to adhere. In deals like the one for Viekira Pak, it is giving its health plan clients full or partial refunds if a patient doesn’t fully adhere to their regimen, while getting lower prices from manufacturers in exchange for giving them preferred status in its formulary, Miller said.
The deals can give plans access to drugs they would otherwise be skeptical to pay for, Miller said. In the case of Iressa, a lung cancer drug made by Astra Zeneca, if a patient doesn’t stay on the drug for more than a month, for any reason, the drugmaker will refund the health plan 100% of what it paid for the drug. Like the Viekira-Pak deal, Express Scripts is again betting on its ability to ensure adherence through care coordination.
Express Scripts expects to eventually offer several similar agreements for other drugs used to treat kidney cancer, prostate cancer and lung cancer, Miller said. Starting in January, it will offer a deal for anti-inflammatory drugs for rheumatoid arthritis—a major cost strain for payers—in
which the drugmaker will refund two-thirds of the drug costs if a patient doesn’t stay on the drug for three months. Another deal set to launch in March includes third-party retail pharmacies that have agreed to support an adherence program for Express Scripts patients for whom they fill prescriptions for an undisclosed diabetes drug.
In addition to being easier to execute, Express Scripts’ agreements also avoid the much-debated strategy of trying to determine the true value of a drug, Miller said. Instead, it simply offers attractive financial incentives for both parties.
“Unlike people who keep talking about what should the value of a drug be, this isn’t about trying to put a value to the cost of the drug,” Miller said. “
Where does this leave patients?
Although Express Scripts has been able to negotiate discounts, hesitance to substantially lower drug prices is one of the biggest reasons why manufacturers are increasingly interested in engaging in outcome-based deals, said Dr. Mark Fendrick, director of the Center for Value-Based Insurance Design at the University of Michigan. In most of these deals, they don’t take a hit on price if the drug works as it should.
Device-makers similarly say that many payers want more data showing long-term effects. They are avoiding lowering prices by offering consulting that helps providers bring down the costs surrounding procedures. Like drugmakers, they’re not addressing the actual price of their products.
One issue that comes up is what happens to patients when a treatment doesn’t work as expected. Few if any deals offer any direct compensation for patients whose outcomes aren’t as promised; the deals are strictly to protect the fiduciary interests of shareholders at payer organizations. Payer executives say there simply isn’t a good mechanism in place for how patients would receive compensation.
From an ethical perspective, patients should get compensated when they don’t see results, said Dr. Michael Sherman, CMO of Harvard Pilgrim Health Care, which has a number of deals with Amgen, Eli Lilly & Co. and other drugmakers. But in a population-based model, that just isn’t practical.
“Operationally, the manual process and effort to do that is so much that it would probably exceed any benefit in terms of value creation,” Sherman said. “In doing this, we reduce the overall spend on pharmaceuticals and keep premiums affordable. Don’t just think of it as one drug.”
Both Sherman and Miller point out that patients are indirectly compensated because the deals help payers keep overall premium costs down. But Miller acknowledged that most patients have a hard time conceptualizing that benefit. However, patients are benefiting from better coverage and gaining a premium service through the care coordination component of the deals, Miller said.
“We provide patients with more choice than they would have, and a higher quality of care then they would normally get,” Miller said.