Drug companies like to say that their most expensive products are fully worth their breathtaking prices. We’ve all heard that it takes a billion dollars to bring a drug to market. Some pharmaceutical companies are putting their money where their mouths are by offering a money-back guarantees. They are called risk sharing agreements.
Risk sharing ties reimbursements (guarantees) for drugs to outcomes achieved. In the agreements, payments are linked to the collection of population evidence of effectiveness in a real world environment, with performance assessed in terms of health outcomes produced.
The idea of paying for outcomes have been around for decades. In the late 1990’s, Merck promised to refund up to 6 months of patients’ and insurers prescription costs if the drug simvastatin did not help lower low density lipoprotein (LDL) cholesterol to target levels. Agreements are said to involve risk sharing if both the payer and product manufacturer have financial stake in the drug’s performance.
The major catalyst behind the concept of paying for drug performance centers around the ever escalating cost of drugs. The pricing landscape has changed dramatically over the last few decades. In the 1990’s, drug pricing was an afterthought. Pricing plans were formed and carried out during the ramp up to product launch. There was less regulatory scrutiny, the concept of health outcomes analysis was still taking shape and any pharmacoeconomic data that companies were able to provide was better than none.
However, today strategic pricing is more important than ever. Pharmaceutical and biotech companies pricing teams contend with unrelenting pressures. They must manage increased scrutiny from different government agencies, the media and public watch groups, while meeting multiple stakeholders’ needs. Companies juggle a complex mix of rising clinical development cost and shrinking pipelines in a constantly changing, global marketplace.
Today, Drug Company pricing has become payer driven and value based. Biotech companies are also recognizing the vital importance of strategic pricing. Rather than coming at the tail end of a drug’s development, pricing planning is being integrated into drug development. The pricing department is now a key driver in lifecycle management.
Socially Responsible Pricing
Drug pricing becomes an ethical and socially responsible issue for the pharmaceutical industry when it inhibits access for patients. While “what the market will bear” is a perfectly legal and economically efficient option for a pharmaceutical manufacturer in the short term, it is not necessarily savvy for long term corporate and industry non market strategy. Charges of “price gouging” are particularly damaging to a corporations’ reputation.
What happens to patients in the event that drug pricing becomes a barrier due to an inability to pay out of pocket, lack of insurance or under insured? Legally, a pharmaceutical company is under no obligation to offer its manufactured drug to a consumer at an affordable price. The socio-political dimension of pricing has resulted in national political controversy over the issue of “fair pricing” and “price gouging” has resonated with the public and elicited U.S. Congressional hearings. Regardless of the soundness of economic based case by pharmaceutical industry for fair pricing, the industry is still ethically and socially responsible for providing reasonable financial access to patients needing their life saving and life sustaining drugs.
The National Organization for Rare Disorders, Inc (NORD), a national nonprofit organization has administered programs to assist uninsured or under insured individuals in obtaining life saving and life sustaining drugs from pharmaceutical manufacturers. NORD has concluded that there is general consensus that the present patient prescription system providing patients access to drugs is generally successful regardless of the pricing by manufacturers.
Under the present system patients will be financially covered either through their private health care insurance, Medicare or state programs. Under these programs, there will be patients who find themselves under insured or ineligible for prescription coverage. Under state assistance programs, there are disparities among Medicaid payment coverage that influences the size of the patient’s share of cost for prescription drugs. Where these “gaps” exist medications, pharmaceutical and biopharmaceutical companies support “patient assistance programs”.
NORD as a independent nonprofit charity administer a safety net program allowing patients to apply for premium or copayment assistance and receive financial assistance. Through this safety net, Americans can receive a constant supply of life saving or life sustaining prescriptions.
From the perspective of enhancing industry social responsibility, the Biotechnology industry Organization (BIO) and The Pharmaceutical Research and Manufacturers Association (PhRMA), are recommended to develop and maintain an electronic database of member patient assistance programs that are then electronically uploaded to the NORD website for one stop shopping available for patients.
Drug Performance can be Hard to Practice
The principal of risk sharing for pharmaceutical companies is appealing in theory but hard in practice. The models carries its own substantial risks, particularly for manufacturers that must confront ambiguity about whether drugs will work and whether success can be measured in actual practice. Payers have concerns, among them the fact that any coverage, even if temporary tends to become permanent. Three areas are particularly important: transactions costs, measurement issues and information technology.
High Transaction Cost: Many of the steps involved in risk sharing such as developing data collection protocols, negotiating arrangements, assessing drug performance, policing contractual arrangements and designing procedures to adjudicate disputes can be costly and time consuming. Payers and manufacturers must be willing to confront the legal and financial complexities involved. Drug companies must have sufficient confidence in their claims of product effectiveness or efficiency to be willing to accept rewards or penalties based on observed performance.
One key question is who pays for data collection. The burden and cost of proof have typically been the manufacturers’ responsibility. Another consideration is the degree to which drug companies can exercise control in the data collection phase.
Measurement Issues: Risk sharing agreements force payers and drug companies into explicit discussions about when a therapy works. A major challenge has involved the specification and determination of treatment effects. Only certain types of outcomes may prove suitable. Ideally, they should be objective, clearly defined, reproducible and difficult to manipulate. They should be valid measures of the desired treatment effect and should not be confounded by patients’ characteristics or other therapies.
Lack of Information Technology and Data Infrastructure: Risk sharing agreements require high quality information systems, databases and operational and analytic expertise. Health systems often do no capture the level of clinical detail required to link payment to specific indications or patient subgroups.
Future of Risk Sharing
Risk sharing agreements could gain traction as payers and drug companies acquire experience with the concept and as information systems and measurement tools improve. For now, they seem more likely to remain the exception, as pricing unconnected to data collection or performance measures continues.
The search for alternative payment models will persist, such models will involve strategies with lower administrative burden and less unpredictability. These include prelaunch discussion between payers and drug companies about appropriate endpoints; confidential contracts that provide discounts while maintaining a company’s list price; price volume agreements with payment tied to product use, not performance; and patient access strategies, such as payers’ agreements to provide access for expensive drugs. Payers and manufactures will engage in more post launch real world data collection efforts to determine whether drugs are working and are being directed to appropriate patients.
In the US risk sharing will experience limited use, such as when for a drug a company to incur the costs when there is a promising but underdeveloped evidence base and the prospects of resolving the uncertainty with new evidence are favorable. Other prerequisites are likely in the presence of simple and clearly observable outcome metrics.
Successful agreements will depend on favorable conditions for physicians and patients. Key factors are objective outcome measures, the availability of training to standardize protocols and well defined patient populations. Physicians will have more interest in participating if the process is economically advantageous to them, not simply another administrative burden.
These ground breaking agreements, along with less radical pricing experiments in the US as well as overseas, may signal the pharmaceutical industry’s willingness to edge toward a new pay for performance paradigm. A paradigm where drug price would be based on how well it worked and might be adjusted up or down as new evidence become available.
It is too soon to tell whether this pricing paradigm can actually work, particularly because it can be difficult to measure if a drug is working. The approach would probably be more feasible in countries, like Britain, where the government is the primary payer. Pay for performance pricing could make it easier for patients and their doctors to try expensive treatments without breaking the bank or forcing insurers to make all or none decisions about reimbursement.