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October 27, 2017

Payment Systems Must Become as Innovative as the Drugs They Fund

Therapies Are Getting More Targeted, But How Will Patients, Companies, And Insurers Afford Them?

Payment Systems Must Become as Innovative as the Drugs They Fund

Source: liulolo/Getty Images

  • The first medical treatment that could approach $1 million is awaiting approval from the FDA. Less than a year ago, the FDA signed off on what may be a cure for a rare childhood disease that causes muscle atrophy and then death—for $750,000 the first year, and $375,000 every year the child lives after that. And in August 2017, the FDA approved the first of a new class of cancer immune therapies that was quickly priced at $475,000.

    The rationale behind these astronomical price tags is their benefit: when they work, these therapies all extend lives—hopefully by decades—and are far more effective than previous treatments.

    But how will the country, companies, and patients pay for gene therapies and other super-costly treatments?

    “Gene therapies will require payment and patient care systems which are as novel as the medications themselves,” was the way Steve Miller, M.D., medical director of the pharmacy benefit management services company Express Scripts, put it in a blog post last month.

    Miller didn’t offer any specifics, though he suggested that a long-term payment schedule makes sense, considering the long-term benefits of the treatments. Payments would also have to account for treatments that fail, and patients who switch jobs or insurers within a few years of their costly care, he says, so one company or insurer isn’t stuck paying the remainder of the bill after the recovered patient has moved on.

    Novartis, which makes the new cancer immune therapy Kymriah (tisagenlecleucel), says it is already being innovative by offering an outcomes-based approach that Eric Althoff, Novartis’ head of global media relations, calls “unprecedented.” The company has promised not to bill for the treatment unless the patient responds to the therapy and is still responding 30 days after the procedure.

    Novartis can afford such a promise because more than 80% of patients get some benefit from Kymriah, according to company research, and Althoff says 96% of those who will ever respond do so within a month of treatment. Not all of those patients maintain remission, however. The first child treated with Kymriah—Emily Whitehead, now 12—received the therapy just 5 years ago, so it’s hard to know how long the remissions will last, even in the best of circumstances.

    More innovations are needed to better align costs with benefits, says David Weinstock, M.D., associate professor of medicine at Dana-Farber Cancer Institute and Harvard Medical School.

    If a 7-year-old gets a treatment that will allow her to live an extra 70–80 years, maybe the price of the drug should be set to account for the extra years of good health she gets, suggests Weinstock, who coauthored a paper last year in Science Translational Medicine on the subject of innovative payment approaches.

    Or perhaps, he says, the cost of the treatment should be spread out over a decade or more, rather than being due immediately after treatment, when the long-term outcome cannot yet be determined.

    “Essentially what [the] insurance company would be doing would be better aligning the horizon of benefit with the horizon of outlays,” says Andrew Lo, Ph.D., a coauthor on the paper and a finance professor at the MIT Sloan School of Management.

    Lo also suggests that patients with copays should be eligible for low-cost loans to cover their part of the bill. Such loans, he says, could be backed by government guarantees to keep interest rates relatively low, or provided by insurance companies the same way they provide dental insurance today. Drug companies might go into the loan business themselves, Lo says. General Motors, for instance, now makes more money on car loans than on selling its cars – a model that could work for pharmaceutical companies, too, he says.

    David Mitchell sees the problem differently. He thinks companies simply need to find a way to lower their prices. “I don’t think we have a system in place to pay for drugs this expensive,” says Mitchell, who is founder and president of Patients for Affordable Drugs, an advocacy group.

    As a patient with a currently incurable blood cancer, Mitchell doesn’t want to discourage drug companies from being innovative. Innovation is what suffers, industry groups like PhRMA attest, when the industry cannot profit or recoup the costs associated with drug discovery. But, adds Mitchell, “I need them to invent new drugs if I’m going to live as long as I would like,” he says.

    And drug companies are not exactly hurting for profits, he notes. In one recent study in the Journal of American Medical Association, 10 cancer drugs, on average, cost $648 million to develop and earned back more than $1 billion more—with one earning more than $22 billion.

    Early research into treatments like Kymriah received more than $200,000 in taxpayer funding, Mitchell adds, which he says should limit the amount of profit a drug company can get.

    The public seems to agree. In a recent survey by Physicians Foundation, a nonprofit that educates doctors on affordable, reasonable care, 88% of respondents blamed drug companies for rising costs.

    But Novartis’ Althoff says the company priced Kymriah well below the $600,000–$750,000 that cost-analyses suggest it’s worth. A bone marrow transplant, by contrast, runs between $540,000 and $800,000, he says.

    And prices may not always stay as high as they are today. When Gilead Sciences Inc. first won approval for its 12-week hepatitis C cure, Harvoni (ledipasvir/sofosbuvir)‎, in 2014, it priced the two-drug cocktail at nearly $95,000. Then, Merck introduced Zepatier (elbasvir and grazoprevir), a potentially even better treatment, for $54,000. Demand for Harvoni slowed, and now, Mitchell predicts the cost will come down even further.

    Other experiences have shown that market demand will drive down prices, or drive companies out of business when their treatments aren’t good enough. Take, for example, Provenge (sipuleucel-T), a prostate cancer vaccine, initially priced at $93,000. Its manufacturer, Dendreon, filed for bankruptcy in 2014 after sales reached only 10% of expectations.

    And that’s the biggest fear of both drug companies and patients: that high prices will drive life-saving therapies off the market—making them unavailable to patients and completely unprofitable for companies.

    In the meantime, Weinstock says, Americans will continue mortgaging their homes to pay for medical treatments that are far less costly—and effective—than some gene and cell therapies.

    “We know that most [personal] bankruptcies in America occur because of some tragic illness within the family,” he says. “That is the reality we’re starting with.”

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