Low benefits spur alternative drug cost proposals

Proposals aim to lower cost

Recent cost ideas that center on value-pricing seek to answer some of those questions. Outcomes-based contracts is one such proposal. Under the approach, a drug manufacturer and a payer reach an agreement that ties reimbursement to observed outcomes in patients. Rather than a payer covering all prescriptions at a single price, the initial price remains in place if a certain volume of patients achieves the agreed-upon outcome. If the threshold is not met, the drugmaker refunds some of the original price to the payer.

Outcomes-based contracting sounds like a promising approach because various parties involved in the sale have a stake in the result, Dr. Nabhan said. “If you are a manufacturer, you want to make sure the outcomes are actually good,” he said. “If you’re a physician, you want to maximize monitoring your patient and managing adverse events. If you are the payer, you want to make sure your patient stays adherent to therapy, and you want to make sure you provide access to the doctor’s office, and to the hospital when needed. There’s more skin in the game when we look at outcomes-based contracting.”

Another idea gaining popularity is long-term financing for some drugs, particularly curative treatments. The idea has various models, but generally entails a financing arrangement, such as a loan mechanism for payers or a contractual annuitization that commits payers to pay costs over time. Such financing proposals are gaining speed in response to the high-cost of new gene therapies, according to a summary in Health Affairs. The payment agreements could be augmented by government funds such as government bonds or subsidies and/or efforts to promote risk-pooling across payers.

Peter B. Bach, MD, however, believes neither long-term financing nor outcomes-based contracting are good ideas. In January 2019 testimony to the U.S. Senate Committee on Finance, Dr. Bach, director of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center, New York, outlined why both value-based proposals are faulty. Outcomes-based contracting does not guarantee that prices are value based, he said, because it leaves untouched how much a drug costs when it does work. In addition, the long-term financing approach only pushes drug costs into future years, he testified.

“Financing does not reduce total spending, it just changes current obligations,” Dr. Bach said during testimony. “It is also relevant to appreciate that, whether for student loans or home mortgages, long-term payment arrangements are inflationary.”

Dr. Bach, a health policy expert whose work focuses on the cost and value of cancer drugs, and his colleagues at Memorial Sloan Kettering Cancer Center have spent the last few years fine-tuning an interactive drug-pricing tool that Dr. Bach says has distinct advantages over alternative drug-pricing proposals when it comes to considering value. The tool, called the DrugAbacus, integrates objective information about cancer drugs while empowering users to define what value means to them. For example, the DrugAbacus allows users to choose a dollar amount for each additional year of life the drug provides and lets them decide how much to discount the price for side effects, according to a summary of the tool by Dr. Bach published in the New England Journal of Medicine Catalyst. The price can be adjusted for factors such as treating a rare disease or having a novel action mechanism. The final result reveals the user’s self-valued DrugAbacus price and compares the cost with the drug’s initial market price.

“[DrugAbacus] provides a template for how we need to start thinking about value in drug pricing – by capturing some of the inherent complexity of value-based decisions without making the fundamentally flawed assumptions that are embedded in other drug-pricing proposals,” Dr. Bach wrote in the summary.

He declined to comment for this story.