Last summer when biotech company Alnylam announced regulatory clearance of its rare disease therapy patisiran, the approval inspired a rare moment of pharma industry harmony.

Physicians hailed its status as the only FDA-sanctioned therapy for a rare, progressive, and often fatal condition — peripheral nerve disease caused by the abnormal protein condition hereditary ATTR amyloidosis. Patient groups said they looked forward to an improved quality of life. And analysts fawned over the pipeline possibilities from the new class of medicines known as RNA interference therapies.

Even payers celebrated. An unusually ebullient Steve Miller, M.D., chief medical officer of the pharmacy benefits manager Express Scripts — and one who is normally sparse with his praise of high-priced drugs — commended Alnylam “for taking a responsible approach to pricing and patient access in the rare disease space.”

What impressed Miller was that Alnylam said it was pursuing value-based contracts (VBCs) with commercial insurance plans designed to help them handle the drug’s hefty annual list price of $450,000, and that at least one insurer, Harvard Pilgrim, had agreed in principle to such terms.

Value-based contracting between manufacturers and payers, which links reimbursement to patient outcomes, is not only helping reassure payers with a promise of balancing access and affordability, it’s also helping manufacturers accelerate coverage decisions.

Alnylam’s president, Barry Greene, told investors in November that, although patisiran’s initial sales fell below analyst expectations, he anticipates having about 70% of commercial patients covered under VBCs, which can shave about $100,000 off the list price if the drug’s performance doesn’t match its clinical trial results.

“We have not seen headwinds on the payer side,” he notes.

Poised to expand

Once solely the province of a limited number of disease states and less expensive medicines, outcomes-based contracting for drugs is poised to expand.

It’s growing beyond chronic care areas and into specialty diseases, and the agreements are now being negotiated earlier so they can be offered as soon as brands arrive on market.

This trend is being accelerated by the skyrocketing cost of newer medicines themselves, many of which promise to treat patients and transform lives in just one dose, shot, or transfusion.

Two recent approvals that fall into that category are Spark Therapeutics’ Luxturna, which became the first true gene therapy in the U.S. and treats an inherited form of blindness, and Novartis’ cell therapy Kymriah, the first of a new class of CAR-T medicines designed to re-engineer patients’ own immune cells to become targeted cancer killers.

Both hit the market with performance-based pricing to help payers cope with their high price tags, Luxturna’s at $850,000 per patient and Kymriah’s weighing in at $475,000 for its pediatric leukemia indication and $373,000 for its diffuse large B cell lymphoma indication.

Gilead’s own CAR-T drug, Yescarta, quickly followed Kymriah, and in a few years, more such drugs are set to tread the same path.

“There is a tsunami of one-time therapies coming,” says John Furey, COO of Spark Therapeutics, at the Prix Galien Forum in New York in November. “There are 90 in Phase III, and they are not going to go away.”

There are less than 2,000 patients in the U.S. who suffer from the form of blindness Luxturna is approved to treat, with just 50% to 75% of them eligible for the drug. Those numbers necessitate recouping the development cost from a very small group of patients upfront rather than over time.

This is one reason marketers of meds such as these charge an order of magnitude more than their chronic care counterparts. In November, Novartis hinted that it might be able to charge $4 million to $5 million for one of its potential treatments, a one-time product known as AVXS-101 for the rare disease spinal muscular atrophy.

The most sophisticated VBCs get close to measuring what value we expect from the agent, and what was actually found. This could be accomplished using a variety of clinical, utilization, and financial metrics.

Jay Rajda, Aetna

Today, VBCs for one-and-done treatments are still the outlier. “For the most part, from 2015 through 2018, we’ve seen the greatest uptake in value-based arrangements centered around chronic care,” says Dominic Galante, M.D., chief medical officer of Precision for Value, which tracks these agreements.

The formula for determining value in such deals can be complex, with the optimal model varying greatly. Value is typically measured based on inputs such as what the therapy is expected to do, what alternative treatments are out there, its cost, and what a payer should hold a manufacturer accountable for.

“The most sophisticated VBCs get close to measuring exactly that: what value we expect from the agent, and what was actually found,” explains Jay Rajda, M.D., chief clinical transformation officer, health and clinical services at Aetna. “This could be accomplished using a variety of clinical (lab values/clinical performance measures), utilization (ER/hospital use), and financial metrics (costs), often in combination with multi-layered metrics.”

Chronic disease VBCs

A good example of the latter is a VBC between the PBM Prime Therapeutics and Boehringer Ingelheim, signed a year ago around BI’s diabetes drug Jardiance. The parties agreed to assess value by focusing on the total cost of care for patients taking Jardiance versus the total cost for patients taking other diabetes medications.

Previous chronic disease VBCs have hinged on whether the drug meets clinical milestones, such as lowering A1C levels among those with diabetes. To determine total cost of care, Prime analyzes medical and pharmacy claims data from members in its own Blue plans via as many as 15 different data points. BI, which co-markets Jardiance with Eli Lilly, has since struck similar arrangements with insurer Highmark and the UPMC health system.

On its approved label, Jardiance has data from an outcomes trial, but the parties decided to focus instead on total cost of care, “because it’s a little bit more basic,” says Kim Gwiazdzinski, Prime’s senior director, trade relations, value and outcomes contracting. “You don’t want to get into something super complex [only to find that] it doesn’t work out the way either party thought.”

BI works with the payer to determine whether the product performs as promised.

“Prime is uniquely positioned to analyze both medical and pharmacy claims data to evaluate and manage total cost of care,” says Christine Marsh, VP of market access at BI.

Drugmakers work with the payer, ideally prior to FDA approval, to iron out value.

“What you’re trying to say to the payer is, ‘The acquisition price of the drug alone — when it costs more than a formulary alternative — we can quantify and show you the medical cost benefit to that, [and] that will outweigh the increased pharmacy spend,’” explains Scott Willover, senior director and head, payer strategy and market access at Promius Pharma.

That gets back to metrics such as ER visits or hospitalizations. Basically, “If you can model it, you can build a value-based contract around it.”

The Netflix model

VBCs for cell and gene therapies have helped to overcome payers’ skepticism about high-cost drugs by reducing their immediate budgetary impact. For instance, Spark diverged from the standard playbook, agreeing to give payers a partial refund (reportedly 20%) if a patient’s vision hasn’t improved within 30 or 90 days, or if those improvements aren’t maintained after 2½ years.

“We needed to take a different approach to how we were thinking about access compared to a chronic care approach,” says Furey. The biotech forged the guarantees with Harvard Pilgrim and Express Scripts. Furey credited his firm’s innovative contracting model with helping secure 80% commercial coverage for Luxturna within six months of launch.

However, VBCs do not address long-term sustainability of the health system. With about 7,000 orphan diseases, it’s conceivable that a tidal wave of ultra-orphan, ultra-expensive therapies is rolling toward us.

Moreover, what if you combine a therapy costing five or six figures with a much larger treatment population? That’s essentially what happened when a new wave of hepatitis C treatments hit the market in 2013. For instance, tomorrow’s hep C could be hemophilia or Alzheimer’s. The tab could top out in the hundreds of billions — even trillions — of dollars, and experts say it could swamp the system.

To head off such a scenario, a new framework for paying for these therapies is needed. Payers know this, but are “no closer to creating a reimbursement framework where value is realized over time,” according to a report commissioned by the Alliance for Regenerative Medicine Foundation for Cell and Gene Medicine.

Some government payers are trying out new payment and finance techniques. Louisiana’s Department of Health may soon roll out a Netflix-like contracting model with manufacturers for hep C meds to treat the estimated 30,000 HCV-infected people who are on Medicaid or are incarcerated statewide.

The state would agree to pay a drug company installments spread over a certain time period for the meds in exchange for unlimited treatment access. Just as Netflix encourages more video viewing, it’s been shown that subscription fees, when combined with zero or low co-payments, can improve compliance with therapy.

VCBs are much more complicated than the traditional, transactional-type of contracts focused on price and rebates. The industry needs to continue to overcome all the challenges.

Christine Marsh, Boehringer Ingelheim

Drugmakers Gilead and AbbVie, along with trade group PhRMA, all signaled support for the proposal, and LDH is talking with both the CDC and Centers for Medicare and Medicaid Services on implementation.

“We are drafting a state plan amendment and a formal RFP to select a pharmaceutical partner,” Kelly Zimmerman, LDH press secretary, told MM&M. “Additionally, we are planning the best strategy to engage physicians, identify patients in need, and then administer the treatment. Our goal is to have the payment model in place by mid-2019.”

To afford the coming wave of cell and gene therapies, multiple options will be needed, and it’s even possible some models could be combined, others have said. One such example would be VBCs on top of an annuity/installment payment.

Various task forces have included contracting in their goals for achieving value-based care, and the Trump team’s plan to lower drug prices, the so-called Blueprint, also includes an “immediate action” to experiment with them.

There’s another incentive for drugmakers to pursue contracting. John Strapp, co-founder and chairman of the Kinetix Group, an agency which works in the managed markets area, recalls an earlier era of payer-pharma collaboration on ‘90s-era disease management programs. At the time, pharma somewhat overpromised and under-delivered on some of those initiatives, after which payers shut the door.

But once again, “The door is open,” says Strapp. “If the industry can’t deliver, they run the risk — again — of being on the outside and the focus simply being on price.”

Not the norm

For all the talk, VBCs with real upside-downside risk still aren’t the norm. What’s the hold-up? “Signing the agreement is the easy part,” says Gwiazdzinski.

Indeed, “the devil’s in the details,” adds Willover, “and for many companies they are insurmountable.”

For one, payers need dedicated people to monitor the data with respect to the outcomes-based contract, as well as a detailed set of business rules and an algorithm to manage the contract and set out what results matter and who pays what.

“It’s an incredible administrative burden,” he says. “Payers and PBMs are just starting to build competency and to look to industry to manage part of, or a good portion of it.”

Adds Marsh, “Unquestionably, VBCs are much more complicated than the traditional, transactional-type of contracts focused solely on price and rebates.” She called upon industry “to continue to overcome the operational and regulatory challenges.”

Better infrastructure could prompt an upswing. “The execution of value-based contracts is far below what the noise is, but over time, once a structure has been implemented with a payer and has been successful, that’s the type of model that will spur greater adoption,” Strapp predicts.

Also accelerating the appetite for VBCs, Strapp believes, is vertical integration in the healthcare industry. Last month saw CVS and Aetna close their $69 billion merger, combining the pharmacy giant with the insurer. That has already enabled changes, like CVS’s new option to allow rebates from discounts the PBM negotiates with drugmakers to make their way to plan sponsors. 

Perhaps the key to value-related negotiation becoming more common will be proof that it’s worth the risk. Says Gwiazdzinski, “The more we start getting results from these contracts, the more comfortable everyone will be.”

This article has been updated to clarify how BI and Prime assess their VBC.

From the January 01, 2019 Issue of MM+M - Medical Marketing and Media