What Will Be the Single Greatest Change in Paying for Biopharmaceuticals Over the Next 5 Years?

By Stanton R. Mehr

President, SM Health Communications

Within the next 5 years, pharmaceutical companies will start to reach that long-predicted tipping point, when specialty pharmaceuticals have become too expensive for the health system to afford and payers will have begun to aggressively push back, curtailing access to products that do not provide value in line with the price being charged.

This year, specialty pharmaceuticals are expected to account for more than one-quarter of all US pharmaceutical sales. By the year 2020, this figure may reach 50%. Manufacturers cite the relatively small patient populations that many of these new biologics will treat, the difficulty in manufacturing, and the risk in bringing them to market as factors behind high retail pricing. At pricing levels that we are seeing today with the new hepatitis C agents, health plans and other payers are more willing to aggressively exclude these from coverage if alternatives exist, even if the manufacturer offers significant discounts. In addition, we are seeing price increases in conventional generic medications because of fewer manufacturers producing the lower-cost agents, as well as a curiosity by drug makers to see how much they can jack up prices before payers begin to push back (consider the price of doxycycline today).

By 2020, what will the market bear, and how will it pay? Change may be largely driven by the high out-of-pocket requirements from members of non-Medicaid plans, as payers shift as much cost as they can, until a tipping point is reached.

The implication of this scenario is that payer pricing and contracting will have to change considerably—and a risk-based or outcomes-based arrangement may finally have its day in the sun. This raises the questions of “how much risk” and “what type of outcomes?”

Risk-based contracting for medications has been tried, on a very small scale. It was attempted last decade in the osteoporosis arena, but had limited success. There are a few reasons for its lack of expansion. It has long been an undercurrent in managed care that health plans did not want to engage in risk-based contracts for 2 main reasons: (1) the administrative work and administrative systems needed to monitor critical performance metrics cited in these contracts and (2) the loss of today’s rebates through such an arrangement. Pharmaceutical manufacturers avoided risk-based contracts because (1) well, they are risky and (2) they have concerns about how performance will be measured. One other word about the risk for drug makers: Patient outcomes are often not solely the result of medications and medication-taking behaviors. It is difficult to control for all factors that would ensure a high level of satisfaction that a negative drug outcome was solely related to the performance of the medication (e.g., lowering cholesterol levels optimally may require rigorous medication use in addition to improved diet and exercise).

The search for incremental value at the upper end of the pricing range will inevitably reach a point where risk-based contracts are seriously considered and implemented. This may be abetted by companion diagnostic testing to lessen the risk of therapeutic failure, but in any case, payers will have the right to ask for far better proof of value.

This proof may be in population-based measures (e.g., average length of stay reduced by 2.5 days for groups of patients versus an active comparator) or in clinical outcomes (e.g., greater differences in complete response achieved).

Progressive biopharmaceutical manufacturers will seek to measure these types of outcomes earlier in the investigational trial program through comparative-effectiveness research to ensure that they can quantify the risk for themselves. Only then will they persuade that the high price they place on new products will truly bring value to the health system.