Paying for benefits of drug, not per pill, being explored

GLOBAL pressure on health spending is forcing the $1-trillion-a-year (R13.4-trillion) pharmaceutical industry to look for new ways to price its products – charging based on how much they improve patients’ health, rather than how many pills or vials are sold.

In the US, fresh action on drug prices is to be taken, whoever wins the White House.

In Europe, China and other Asian markets, governments are getting tougher with suppliers.

Pricing drugs based on clinical outcomes is one way to ensure that limited funds bring the most benefits to patients and pay for the most promising medical advances in future.

Some experiments in pricing have already been made.

But shifting the overall industry to a new model requires improvements in data collection and a change in thinking, drugpricing experts say.

“Eventually, we are going to get there,” the managing principal at ZS Associates in Zurich, Kurt Kessler, said.

It advises firms on sales and marketing strategies.

“But it is a long, tough slog because it’s difficult to get the right data and agree on what the right outcomes are to measure.”

In the past, governments and insurers made room in their budgets for new drugs by switching to cheap generics as patents expired on older drugs.

But today, generics already account for nearly nine out of every 10 prescriptions in key markets like the US, and fewer big drugs are going off patent.

Investors got a wake-up call on the issue on Friday, when $10-billion (R134-billion) was lopped off the market value of Novo Nordisk as the world’s biggest diabetes firm warned of falling US prices.

Pharmacy benefit managers administering US health plans are pushing back hard by excluding some drugs deemed too expensive – including Novo’s – leading to a crunch in areas like diabetes, a disease that now accounts for 12% of global healthcare spending.

The chief executives of Novartis, Eli Lilly and GlaxoSmithKline have also all warned recently that pricing will become increasingly challenging.

Accounting for 40% of global drug sales, the fate of the US market is front and centre in the minds of drug company executives, some of whom admit to preparing for a confrontational period with politicians.

Both Hillary Clinton and Donald Trump have suggested new measures to curb prices, including allowing imports from lowercost countries, while individual US states are working on transparency legislation that would require firms to disclose costs to justify drug prices.

Novartis chief executive Joe Jimenez says drug makers must develop value-for-money models, like the performance-based deal the Swiss drug maker has struck with two US insurers for its new heart failure drug.

Under that deal, payments for Novartis’s Entresto pill are to be calculated in future based on the proven reduction in the proportion of the insurers’ patients admitted to hospital for heart failure, not on the number of pills they consume.

The aim is a flexible pricing system that rebates healthcare providers when a drug does not work as planned and charges more when it works well. – Reuters