New Push Ties Cost of Drugs to How Well They Work

Print 29 May 2015
Peter Loftus / The Wall Street Journal

Express Scripts Holding Co., a large manager of prescription-drug benefits for U.S. employers and insurers, is seeking deals with pharmaceutical companies that would set pricing for some cancer drugs based on how well they work.

The effort is part of a growing push for so-called pay-for-performance deals amid complaints about the rising price of medications, some of which cost more than $100,000 per patient a year.

Some insurers and prescription-benefit managers are pushing back by arguing that they should pay less when drugs don’t work well in certain patients. Drug companies are countering with pricing models of their own, such as offering free doses during a trial period.

Express Scripts this month told clients it is seeking deals with drug makers for differentiated pricing for certain cancer drugs based on how well they work against different types of tumors, Express Scripts Chief Medical Officer Steve Miller said in an interview. Currently, Express Scripts and most insurers pay the same per-unit rate for a cancer drug regardless of the type of cancer it is being used to treat.

Dr. Miller pointed to Tarceva, a drug co-marketed by Roche Holding AG and Astellas Pharma Inc., which has shown a smaller benefit in pancreatic cancer than in lung cancer. In one clinical trial, Tarceva extended the median survival of pancreatic cancer patients by less than two weeks versus placebo. In a separate trial, it prolonged survival among lung cancer patients by about 3 ½ months versus chemotherapy.

In an “indication-specific pricing” model, the per-pill cost of Tarceva would be lower for pancreatic-cancer patients than for lung-cancer patients, given the reduced efficacy, Dr. Miller said. Tarceva currently costs about $6,850 a month per patient, according to GoodRx, a website that tracks drug prices.

“One of the big frustrations has always been people paying top dollar for drugs that aren’t always giving them the best response,” Dr. Miller said. “If pharma is truly sincere about wanting value-based reimbursement, we now have the sophistication to do that.”

Although Dr. Miller used Tarceva as an example, he wouldn’t identify the drugs for which Express Scripts is seeking indication-specific pricing. The company has begun approaching drug makers about arranging such deals, which could go into effect for 2016, he said.

A spokeswoman for Roche’s Genentech unit said that when Tarceva was approved to treat pancreatic cancer in 2005, it was the first medicine approved for the disease in more than a decade. She said the drug is now rarely used to treat pancreatic cancer because other drugs have since been approved for the disease. She said Genentech would welcome a system of pricing a medicine based on how it performs in different indications—and has one in place in Italy—but there are challenges to doing so in the U.S., including fragmented patient-record systems.

Express Scripts has in recent years been a vocal critic of high drug prices, which the company has used to promote its services to potential customers as it competes against CVS Health Corp. and others to administer drug benefits for health insurers and large employers. Pharmacy-benefit managers also sometimes keep a portion of the rebates and discounts they negotiate from pharmaceutical companies.

Express Scripts’ approach would be similar to that proposed by Peter Bach, director of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center.

In an article published last year in the Journal of the American Medical Association, he suggested that in an indication-specific arrangement, the monthly price for Eli Lilly& Co.’s cancer drug Erbitux would plummet from $10,320 a patient to about $470 a patient for its least effective use, treating recurrent or metastatic head and neck cancer. The drug also is used to treat locally advanced head and neck cancer, as well as colorectal cancer.

A Lilly spokeswoman said Lilly supports efforts to make cancer drug reimbursement “better reflect treatment value for different patient populations,” and it is “exploring alternative options to accurately represent the value our medicines offer across multiple indications.”

Drug pricing has been “very hard for the payers to do anything about,” said Steven Pearson, president of the Institute for Clinical and Economic Review, a Boston nonprofit that evaluates cost-effectiveness in medicine. “Now they’re starting to think very hard about it, to look for practical ways to have more of an influence on pricing.”

It can be difficult for drug companies and payers to agree on terms of alternative payment deals—and to actually administer the deals.

Pay-for-performance contracts often involve tracking certain health measures and outcomes in specific patients, such as changes in blood-sugar levels for diabetes patients. The cost and complexity of such tracking can offset the benefits, and the number of such deals in the U.S. to date has been relatively small.

“They’re very data intensive to administer and track these,” says Larry Blandford, executive vice president and managing partner at Precision for Medicine, a consulting firm advising drug makers on dealing with payers.

An Express Scripts spokesman said patients and doctors can appeal decisions on which drugs it will pay for.

U.S. insurers and pharmacy-benefit managers also push for simple price cuts, and sometimes win them in the form of rebates paid by manufacturers. But drug makers have been able to avoid big, across-the-board price cuts in the U.S. because the market is so fragmented, with multiple public and private payers, and because rebate contracts are typically confidential. That allows drug companies to minimize or avoid discounting certain drugs for some payers.

Some drug companies have explored their own variations of alternative pricing, such as annuity-style payments for very expensive drugs. This involves an upfront payment and then ongoing payments stretched out over several years based on how well the drug works in individual patients.

One example is Bluebird Bio Inc., which is developing an experimental gene therapy for rare diseases. At a health-care conference in February, Chief Executive Nick Leschly said that if the therapy makes it to market, he would consider asking insurers to make an upfront payment to cover costs and risk of development, plus additional ongoing payments if it works for a patient.

Other drug makers are trying different models. Since 2011, Acorda Therapeutics Inc. has provided its drug Ampyra, which can help multiple-sclerosis patients improve their walking, free for the first two months.

The reason: Studies have shown it only works in about 40% of patients, but there is no way to predict before starting therapy who will benefit. The two-months free program gives patients time to figure out if the drug is working—they usually know within several weeks, says Acorda Chief Executive Ron Cohen. If the drug works, the company begins charging the regular price, or about $21,000 a year per patient.

Acorda implemented the two-months free policy partly because some insurers were restricting its use. The two-months free program isn’t part of any contracts with insurers, but Dr. Cohen believes it sows goodwill among doctors and insurers.

“We saw that as a risk-sharing arrangement,” said Dr. Cohen.

He says “a significantly wider swath” of the drug industry is exploring alternative-pricing models than in the past. “A lot of the pressure emerges simply from the ongoing issues around the increasing cost of medicine,” he says.

Alnylam Pharmaceuticals Inc. would consider performance-based pricing if its experimental rare-disease drugs reach the market, CEO John Maraganore said in an interview. The company’s lead drug in development is a treatment for a rare disease called TTR-mediated amyloidosis. Regulators haven’t yet approved the drug for sale and Alnylam hasn’t set a price.

Mr. Maraganore said blood tests can measure the effectiveness of its experimental drug. “I think there are many opportunities for our medicines to be evaluated and potentially reimbursed on a performance basis,” he said. “We certainly would be open to that type of approach.”

The drug industry has made various stabs at alternative-pricing before. Several European state-run health systems have implemented pay-for-performance and indication-specific pricing arrangements with drug makers over the past decade. In the U.S., health insurer Cigna Corp. has signed deals that tie reimbursement for EMD Serono’s MS drug Rebif and Merck & Co.’s diabetes drug Januvia to certain patient outcomes.

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