Lessons from Pharma Inform Pay-per-Dose Pricing
by Susan Schaeffer, president & CEO, Patient’s Academy for Research Advocacy
March 2021 issue
The allure of a pay-per-dose revenue model for neuromodulation therapies is easy to understand—especially for therapies that will compete directly with drugs for payers’ and patients’ healthcare dollars. Proponents of the approach expect that collecting by the dose instead of billing for a device up front will speed up patient access, smooth the path to reimbursement, and make cost-effectiveness comparisons with drugs more fair.
But in the pharmaceutical market, the long-standing practice of pricing drugs per bottle, pack, or vial has had the opposite effect, limiting patient access and emboldening payers to just say no. Moreover, the rest of the healthcare system is moving in precisely the opposite direction. Insurers and government payers are experimenting with eliminating fee-for-service models in favor of paying for health outcomes and/or healthcare savings. Pharmas, in turn, are piloting value-based pricing models. Rather than simulating an approach that is failing for pharma, neuromodulation companies may be better served to learn from these pilots.
One of the first neuromodulation firms to dabble with per-dose pricing was electroCore Medical. Its external VNS device for treating migraine included a refillable monthly allotment of stimulation doses. But convincing payers to sign on to the pricing model proved to be difficult.
In pharmaceuticals, the pitfalls of per-unit pricing were well illustrated by the hepatitis C drug Solvaldi from Gilead Sciences. Sovaldi was hailed as a breakthrough for HCV treatment by regulators, patients, and even payers. It produced unprecedented cure rates in excess of 90 percent and avoided the side effects of previously available therapies, which were so debilitating that thousands declined to be treated. Had the drug been judged based on the value of the health benefit it provided, Gilead would have been a hero. Instead, news of a cure was entirely eclipsed by the drug’s list price: $28,000 for a bottle of 28 pills. Headlines vilified Gilead and its thousand-dollar pill, and members of Congress swiftly wrote to the biotech’s management demanding to know how the costs to make Sovaldi justified its price. The moment competitors reached the market, insurers beat down prices—by more than half according to some reports—by awarding exclusive contracts to the lowest bidder.
Sovaldi may be the most dramatic example, but it’s not the only one. Indeed, the traditional per-unit pricing model in pharma has helped to make that entire industry the target of both public and political ire. It keeps payers, politicians, patients, and the public focused on the cost of treatments irrespective of the health benefits those treatments provide.
Without a clear link between prices and health benefits, payers have moved freely to limit, delay, or deny access to new drugs for dozens of diseases via prior authorization, step therapy, and closed formularies. Delinking price from benefit also has fueled legislation seeking to link drug pricing to a developer’s R&D expenses. Since 2016, at least nine U.S. states have passed drug price transparency laws requiring drugmakers to report price, profit, and/or cost data.
To be fair, per-unit pricing was not the only cause of public outrage, payer resistance, and political opposition aimed at pharma. But the model does make drug pricing an easy target for cost-containment. It makes sense, then, that pharmas are responding with new pricing models based on the value of health benefits they deliver instead of the number of pills or injections they sell.
The new drug pricing models recognize that for payers, patients, and physicians, each outcome—whether defined as a period of time without symptoms, the avoidance of an adverse event, or the achievement of a target laboratory value—has a value. When a doctor, patient, or insurer prescribes or pays for a drug, what they want is the outcome, not a quantity of pills. And when an expensive new drug fails to produce the outcome they want, they don’t want to pay for it.
Enter pay-for-performance arrangements, in which the drugmaker issues rebates if the drug does not work as expected, or receives no payment unless the drug delivers a particular benefit within an agreed period of time. Novartis used this model for its heart failure drug Entresto. Under a deal with Cigna, the pharma agreed to a base rebate that increases or decreases depending upon whether or not Entresto meets targets for reducing both hospitalizations and costs. Novartis is therefore paid for results instead of tablets.
Subscription and annuity drug pricing models are two other pricing models in testing. Gilead agreed to a subscription-based model with Louisiana’s Department of Health and Department of Corrections. The state pays an undisclosed sum for five years of unlimited access to Gilead’s generic version of the HCV drug Epclusa. The model allows Louisiana to treat and cure an unlimited number of prisoners and Medicare patients at a price it can afford—thereby setting a value on the state’s desired outcome. Gilead receives a predictable revenue stream, plus access to thousands of patients previously denied treatment with Epclusa.
In contrast, annuity models seek to spread out the cost of a one-time or short-term therapy over a longer period of time to avoid a big upfront cost that is hard to fit into a payer’s short-term budget—one of the benefits cited by proponents of pay-per-dose models. In an annuity model, the drugmaker charges a monthly or annual fee until an agreed cost threshold is reached, or until a patient stops benefitting from the drug. It can be combined with pay-for-performance.
Novartis again provides an example, with its gene therapy Zolgensma to treat spinal muscular atrophy. Zolgensma is a one-time treatment that prolongs survival and replaces chronic SMA therapy. The list price at launch was $2.13 million. Novartis offered the option to pay over five years, as well as outcomes-based rebates.
All three of these experimental models are better aligned with a movement among payers to reimburse physicians for bundles or episodes of care, with incentives to improve outcomes and reduce costs. All three also have the potential to alleviate the short-term budgetary sting of paying upfront for a medical device.
Most importantly, all three focus negotiations on what a therapy is worth instead of what it costs to make it.
Susan Schaeffer is the president and CEO of Patient’s Academy for Research Advocacy. She was previously editor of BioCentury, a pharmaceutical industry publication.