Cost Reduction

Trending Solutions for Rising Drug Prices

February 16, 2017 2:53 pm

A landmark agreement between Novartis, Cigna, and Aetna offers a money-back guarantee to patients using the heart-failure drug Entresto.

New payment models and methods for determining the value of high-cost prescription drugs are addressing concern about the impact of rising pharmaceutical costs on healthcare spending, and hospital and health system finances. Bill Bithoney, M.D., chief physician executive, of The BDO Center for Healthcare Excellence & Innovation, shares trends and strategies that could lighten the burden in the future for hospital CFOs.

In a past article you shared examples of how providers are evaluating the benefits of certain cancer drugs versus their costs. What do you see as the next category of drugs that will get that type of attention and analysis?

Bithoney: It’s going to be biologics and genomic‑based drugs. It’s quite an exciting time.

Biologic drugs―genetically engineered proteins derived from human genes―are being developed, and their efficacy and cost can be measured over time even after the drug is approved because of our ability to track populations for health outcomes. That information can help healthcare providers analyze the cost and efficacy of drugs by tracking mortality and morbidity rates, hospital readmissions, and other value‑based metrics. This patient information can be tracked for years and even decades to give providers, health plans, and drug manufacturers strong data on the performance and value of high-cost pharmaceuticals.

Another frontier is the use of new cancer drugs that use the patient’s entire genome to determine whether the drug will work. For example, a skin cancer drug may be found to be effective for 40-50 percent of patients with melanoma based on their genetic code. So designer drugs based on patients’ genomes are a significant future trend.

In addition to determining the value of certain drugs based on how many lives they save, healthcare leaders will be determining value based on a more fine-tuned approach called QALY, or quality‑adjusted‑life‑years, which addresses the quality and quantity of lives saved.

Health plans and CMS [Centers for Medicare & Medicaid Services] are interested in evaluating drugs based on if and when they save lives, how many lives they save, and how many years of life they save.

Health economists and health researchers are starting to agree that a drug that saves one year of life at a cost of $100,000 per annum life saved is probably a cost‑effective drug. Whereas a drug that costs $500,000 per year of life saved, may not be an efficacious drug. This is a moral and ethical question that healthcare stakeholders will continue to evaluate.

Are healthcare providers, health plans, and other stakeholders taking any other steps to address the ability of patients to pay for costly prescription drugs?

Bithoney: Healthcare providers have undergone and continue to undergo a reimbursement revolution through various value-based care models, such as bundled payments, accountable care, prospective payments, Medicare Advantage and the value-based protocols of MACRA (Medicare Access and CHIP Reauthorization Act of 2015) and MIPS (Merit-Based Incentive Payment System). Computer systems can be used to track the effectiveness of these models for large patient populations.

There are a number of tools becoming available to insurers and patients to determine and balance the cost of the drug, versus the toxicity and efficacy of the drug.

The American Society of Clinical Oncology has released a framework to help physicians assess the value of expensive cancer therapies based on medication cost and the benefits and side effects of certain drugs.

In addition, Memorial Sloan Kettering Cancer Center set up a website called the Drug Abacus, a research tool that evaluates medications and tries to rationalize the price so that insurers can effectively and efficiently charge.

Health plans are also using some unique approaches. For example, a landmark agreement between Novartis and Cigna and Aetna, offers a money-back guarantee to patients using the heart failure drug Entresto.

There’s a basic price that Novartis charges the health plans. If admissions and readmissions decline and mortality and morbidities are reduced, then the health plans agree to pay a premium. The health plan benefits because it profits from reduced hospitalizations and other healthcare spending, such as ongoing therapy scans and other cardiac interventions.

Over time, Novartis earns what can be compared to an annuity of increased payments for certain patients. However, if patients leave Aetna or Cigna for another health plan, Novartis may lose some of the annuity built up for that patient as a result of the positive outcomes.

Another pricing strategy is to allow patients to try drugs free of charge and only pay if the drug is effective. For example, Ampyra is a costly drug that works for about 40 percent of multiple sclerosis patients. It takes about two months to know if the medication will be effective.

The drug company and the researchers have seen patients who were in wheelchairs begin to walk after that two-month period. So the manufacturer of Ampyra has said, “If you don’t have an improvement, the drug is free. If you do have an improvement, you pay $21,000 a year.”

If multiple sclerosis patients get out of their wheelchairs, that’s worth a lot of money. It’s worth $21,000 a year for sure, and the drug company still makes a respectable profit, even if it gives patients with multiple sclerosis who didn’t improve their money back.

These innovations and new pricing models are based on developing new and better ways to track patient outcomes using population health systems across health plans, Medicare, and Medicaid. The ability to understand a drug’s efficacy across large patient populations will help providers, payers, and pharmaceutical companies to understand the value of certain drugs and offer patients the life-saving value of these drugs based on educated outcomes expectations.

Interviewed for this article:

Bill Bithoney, MD, is chief physician executive and managing director, The BDO Center for Healthcare Excellence & Innovation.


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