sowen6 Is the U S. Realy for Value Based Pricing of Drugs?
KNOWLEDGE @WHARTON
PUBLIC POLICY
Is the U.S. Ready for Value-based Pricing
of Drugs?
May 18, 2016 % North America @ Business Radio, Health Economics, Law and Public Policy
AUS. government proposal to introduce value-based pricing of drugs has the potential to.
change the business fundamentals for health insurance companies, drug makers and
physicians, and what patients pay for their treatments. In a model where patients pay for
drugs based on health outcomes, insurers must renegotiate what they pay drug companies,
and pass on discounts or rebates to patients, which could include lower-priced health
plans, say experts at Wharton and Georgetown University.
On March 8, the Centers for Medicare & Medicaid Services (CMS) announced a proposed
rule to test new models to improve how Medicare Part B pays for prescription drugs and
supports physicians and other clinicians in delivering higher quality care. The initiative “is
designed to test different physician and patient incentives to do two things: drive the
prescribing of the most effective drugs, and test new payment approaches to reward
positive patient outcomes,” according to CMS.
For consumers, the move towards value-based pricing of drugs “is certainly a good step in
the right direction,” said Patricia Danzon, Wharton professor of health care management.
However, she cautioned that “any attempts to rein in drug prices must ensure that they
hitp:knouledgesshartonupernedulriclalvalue-based-ug- pricing 1sowen6 Is the U S. Realy for Value Based Pricing of Drugs?
retain the incentive for R&D and provide some relationship between prices and outcomes.”
“The new drugs for cancer, hepatitis C and multiple sclerosis are coming in with high price
tags and are starting to put new tensions on both public and private payers, and that is
leading to new ideas for how to adjust prices,” said Jack Hoadley, health policy analyst and
research professor at Georgetown University’s Health Policy Institute. The shift to low-
priced generic drugs has also slowed in recent years as most drugs launched in the 1990s
or early 2000s are already available as generics, he added.
Danzon and Hoadley examined how those changes will impact insurers and patients on the
Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111. (Listen to
the podcast at the top of this page.)
Hoadley explained how high drug prices are driving the shift towards value-based pricing.
oHo“When you see new cholesterol drugs on the market that cost $15,000 a year, whereas
the previous generation of drugs to treat cholesterol were more like $2,000 or $3,000 a
year — and when available as generic drugs, even less — that gives [a reason] for
consumers to [want to] only use drugs that work well.”
“Any attempts to rein in drug prices must
ensure that they retain the incentive for R&D
and provide some relationship between prices
*
and outcomes. Patricia Danzon
Danzon said cholesterol drugs are in focus particularly because newer drugs to treat the
condition are more expensive than older drugs, which are now available in generic forms
at lower prices, and work for the majority of patients. The other reason is that particular
classes of drugs have “good surrogate markers that are measures of outcomes,” she added.
Cancer is another therapeutic area where outcomes-based pricing arrangements are
common in other countries, “where say, tumor shrinkage or recurrence can be measured
with reasonable accuracy,” Danzon said. “These arrangements work well when there is a
g004, predictive short-term surrogate marker,” she added. “Cholesterol levels happen to
be one of those, and in several cancers there are good markers.”
Danzon noted that the idea of having some link between prices and the outcomes that
drugs promise was used 10-15 years ago, but didn’t take off and spread widely. “Now,
there is a widespread interest because the data systems to track the outcomes are much
better than they were when they originally started,” she said. “There may be hope now of
using [such data analutics] in a mare consistent wav ”
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Issues to Address
A shift to outcomes-based pricing would encounter several humps, however. One problem
is the “plurality of insurance companies in the U.S.,” which allows patients to move their
health plans across insurance carriers. That makes it difficult to track the long-term.
effects of the medicines they take, said Danzon. She noted that such arrangements have
worked well in Canada and some European countries that have a single-payer system.
With many drugs, the clinical response may take several years, noted Hoadley.
Another concern relates to whether rebates that insurers may collect from drug makers
reach the patients who have paid the premiums, said Danzon, Making health plans cheaper
may be one way of compensating patients for outcomes that fall below expectations, said
Hoadley.
Issues will also arise around how best to track the value that patients receive for the drugs
they take. One option is to use surrogate markers, said Hoadley. These are substitutes of
the disease being treated, such as cholesterol levels for cardiac problems. “The question is
whether we structure the rebates based on surrogate markers, or on actual improvements
in cardiac health, like heart attacks avoided or other cardiac events avoided or made less
serious,” he said.
“The new drugs for cancer, hepatitis C and
multiple sclerosis are coming in with high price
tags and are starting to put new tensions on
”
payers. ~Jack Hoadley
According to Hoadley, value-based pricing arrangements enable patients to receive
medications that are expensive and where the potential results are uncertain. Insurers may
typically not offer such expensive drugs with uncertain benefits in their health plans, but
may relent if drug makers agree to value-based pricing, he noted.
However, in such cases, it could take time to identify the drugs where such arrangements
work well and where the clinical indicators suit it, he said. Such agreements would also be
difficult in the public sector plans such as Medicare or Medicaid because of regulatory
obstacles “that make such plans impossible or difficult to do,” he added.
Countries that use value-based pricing models for drugs use two broad approaches, said
Danzon. One is to include measures of incremental outcomes in setting the price of the
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