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.
