When Robert Seidman was chief pharmacy officer at Wellpoint, he sometimes presented drug manufacturers with a proposition. If they wanted Wellpoint to cover a brand-name medication at a relatively high cost compared to a generic therapy, shouldn’t they be willing to guarantee that it worked?
But manufacturers had their own blunt questions: Could Wellpoint guarantee that all of their patients were taking the drug correctly and that all of their doctors were prescribing it properly?
“Neither side was sophisticated enough at that time nor willing to abandon standard rebate contracting terms to take that leap,” says Seidman today. “The dialogue on guaranteeing the value of billions of dollars in drug expenditures is long overdue and essential to protecting healthcare affordability and value.”
That gap, though, might just be coming to a close.
A few weeks ago, payers in the United States leapt to attention when the United Kingdom’s health watchdog, the National Institute for Health and Clinical Excellence, fielded an offer from Johnson & Johnson it couldn’t refuse. Faced with British regulators’ refusal to cover the costly cancer drug bortezomib (Velcade), J&J agreed to provide it with a money-back offer — if patients have either no response or only a minimal response to the drug, the drug giant would return the money that had been paid for it.
“We know from talking with payers, which we do all the time in our research, that they are very aware of that decision; I’ve already heard that there are some discussions with payers in the United States ready to do something similar,” says Jonothan Tierce, practice leader for health economics and outcomes research for IMS Health in Falls Church, Va.
“We are very interested to see how this plays out,” echoes Steve Miller, MD, chief medical officer for the giant pharmacy benefit manager Express Scripts. “What we and others are doing is deciding whether this is going to have a relevant place for benefit design in 2009. This is a very interesting concept, and we also believe that it completely aligns with the direction we’re developing with individualized health care.”
Some observers of the U.S. drug scene say it would be a lot easier —and be adopted much faster — if the Centers for Medicare and Medicaid Services would step in and strike one of the first of these deals. But the federal government, they add, is unlikely to be the first mover. This is an area where private payers may push through an innovation that regulators will adopt only later.
THE POWER OF ‘NO’
For payers, the logic is almost irresistible.
“I think drugs should come with a warranty,” says Seidman. “If you’re spending X dollars on a drug, there needs to be some commitment from the pharmaceutical manufacturer that you get an outcome that exceeds X in value.” In the vast majority of cases, drug efficacy claims in the United States are based on pre-market data on small numbers of clinical trial subjects. “There are very few data on real-life experience, which creates dangerous situations such as with Vioxx.”
A dialogue on guaranteeing the value of drugs is long overdue, says Robert Seidman.
Seidman continues, “This is compounded with the large amount of unsupervised direct-to-consumer advertising, and in these situations, marketing supersedes science and the result is medication misadventures that can harm patients.”
“On its face, this is a win-win for all stakeholders,” says pharmacy industry consultant Michael Russo, partner at the Bruckner Group. “Payers provide access, instead of denial. Patients have the choice to try new therapies. Drug manufacturers open up an otherwise closed market and are seen as standing behind their product, rather than answering questions about price or efficacy.”
But, Russo says, guarantees —even for the few drugs where they may be applicable — could be more trouble than they’re worth.
One problem, he says, is that guarantees create a new level of bureaucracy in drug management, while skirting all the tough questions about the actual problem: whether many of these extremely expensive products — particularly many new cancer therapies —provide patients with commensurate improvements in outcomes. There also are other, better ways to manage a drug’s cost.
“If a drug isn’t meeting a mark clinically for which a particular price is being demanded,” says Russo, “payers can work that out with rebates, by denying it outright, or by setting up other access hurdles. But it’s incredibly complicated to construct appropriate metrics and then test patients intermittently for efficacy. Because the set point for efficacy will determine the number of patients who, statistically, will “fail,” an efficacy guarantee will essentially result in a de facto discount. This scheme is a ridiculously expensive way of paying a rebate. To me, for the vast majority of therapies, it’s not an attractive solution, perhaps applicable only to those drugs that risk overt denial either because of cost, outcomes, or both.”
And yet, he says, “The symbolic power of the guarantee cannot be denied.”
Others, though, see some benefits — if payers can get the drug companies’ attention. To get drug manufacturers to say “yes” to guarantees in the United States, says Seidman, payers need to learn how to say “no,” and look for alternatives to the current one-dimensional rebate gravy train.
“The United Kingdom said ‘We’re not going to cover it,’” says Seidman. “When CMS says ‘We’re not happy with the trial data and we won’t cover it for Medicare,’ that’s going to challenge the pharma industry to come to the table with a creative solution. But we don’t have anything in the CMS statute where I see CMS saying ‘We’re not going to cover a drug.’ If a major health plan says ‘We won’t cover the cost of the drug,’ then I think you’re going to have a lot of people coming to the table sharpening their pencils.”
On the surface, guarantees may sound logical – but the devil is in the details.
“If CMS made a policy like that, then health plans could follow it and feel safe,” says Tierce. “They want that, but I don’t see CMS moving toward that rapidly.”
HIGH PRICES, HIGH TOUCH
Guarantees aren’t as simple as they may look at first glance. Sellers are still going to demand some of the same detailed assurances outlined by Seidman before they start to agree to foot the bill for pharmaceutical misfires.
“How do you know a drug was tried at the right dose for the right patient?” asks Tierce. “Manufacturers want to know patients followed appropriate guidelines.”
That’s exactly why Miller, at Express Scripts, believes a big PBM is positioned to handle this type of pricing arrangement.
“We follow up with patients throughout the course of the therapy,” says Miller, who’s not the least bit shy about touting the company’s “high-touch” specialty pharma operations and high-tech, data gathering operations.
“We have the capabilities,” he adds. “We’re already doing individualized medicine where it’s applicable. But this is taking it to the next step, working with manufacturers as well as payers.
“This isn’t a strategy for inexpensive drugs,” adds Miller. “This will start at the high end.”
But drug pricing is radically different overseas. A single-payer system in a country like the United Kingdom can easily exclude a drug from the market — considerable leverage in a negotiation — while in the United States, one payer’s refusal still leaves plenty of other opportunities for sales. And if manufacturers start offering money-back guarantees, adds Miller, it won’t take long to factor nonresponse rates into the cost of the therapy.
“If I get reimbursed only 50 percent of the time, that will be underwritten into the price,” says Miller. “They can’t just go totally at risk.” But manufacturers can underwrite the pricing strategy for a relatively low cost, factoring in the cost difference between making, say, 10 vials of a biologic versus 20 vials to account for non-responsive patients.
“For new products in the future that might be restricted to those people for whom it works, it will be priced for that final population,” agrees Tierce. “The [expenditure] washes out to be about the same. Just look at the economics of it. In effect, manufacturers are targeting a much narrower population. They will price for that narrow population.”
Still, there has to be some price advantage in the long term, or there won’t be any demand for it.
Says Miller, “If it gets back to 100 percent [of a drug’s preguarantee revenue], there will be no adoption. They’ll be nothing in it. The greater the discount off that 100 percent, the greater the willingness to experiment in it.”