As an employer, you’re facing unsustainable increases in the costs of prescription drugs. It’s a problem that needs solving. You know how it works: Consumers with prescription drug coverage pay a copay or a percentage of a drug’s cost and the remainder is covered by their insurance. But as drug prices rise, everyone, from the insurer to you and your employees, pays higher costs. Are value-based pharmacy services the solution?
Today, prescription drugs account for roughly 23% of health care costs, according to the Small Business Association of Michigan, and prescription spending is growing faster than any other aspect of health care. A Health Affairs study found that prescription medications account for a quarter of the money spent by a commercial health plan.
Some of the greatest pressures are coming from the skyrocketing costs of newer gene-based medicines. It’s part of the genomics revolution often termed “precision medicine”: treatment customized to the specific gene or gene mutation. It’s also sometimes called “personalized medicine.” When they work, precision therapeutics can be invaluable, saving lives and even lowering the lifetime cost of care. But paying upfront is quite the investment. Consider Novartis’ cell therapy Kymriah, designed to reengineer patients’ own immune cells to become targeted cancer killers. Depending on the indication, it can cost nearly $500,000, according to Reuters.
Typically, the insurer, the patient and — indirectly — you as the employer pay for these costly medicines, whether they work or not. Enter value-based pharmacy services.
Paying for Value
One solution that’s gained traction in recent years is value-based pricing of pharmaceuticals. In the pharma context, reimbursement rates are based on the beneficiary’s clinical experience after using the drug. Insurers pay the full price only when the medication meets agreed-upon outcomes. This approach is also called “outcomes-based contracting.”
Drug manufacturers and purchasers negotiate the cost of a drug based on patient health outcomes or financial incentives. This approach offers the hope of constraining the upfront costs of these new drugs. These agreements can take many forms, such as:
- Insurers requiring clinical results for patients in exchange for an agreed-upon price.
- Giving refunds for adverse events caused by the drug.
- Lowering the price of a drug for each subsequent prescription refill.
Value-based contracts are designed to tie prices to how a drug performs in the real world, not in a clinical trial. By working with insurers, pharmaceutical companies can improve access to important medications without leaving insurance companies, patients and employers on the hook for a medication that doesn’t deliver.
With such risk-sharing agreements in place, payers may be more willing to provide their beneficiaries with costly genetic drug therapies. For example, one insurer entered an agreement with Spark Therapeutics for Luxturna, a one-time gene therapy treatment for retinal dystrophy. CNBC reports that the treatment costs roughly $425,000 per eye. If the treatment fails, the payer gets a rebate from Spark, according to the deal. In another move to save money, the payer can buy Luxturna directly from Spark, bypassing the intermediaries, including pharmacy benefit administrators. This saves money for beneficiaries, payers and employers.
Other examples of value-based pharmacy services agreements include:
- A money-back guarantee for Amgen’s Repatha, used to lower LDL cholesterol in patients for whom other medications don’t work.
- An outcomes-based agreement for AstraZeneca’s Symbicort, which treats asthma and chronic obstructive pulmonary disease (COPD).
- An outcomes-based agreement for AstraZeneca’s Brilinta, a drug intended to help heart attack patients prevent or reduce the impact of subsequent attacks.
A Growing Trend
Deals like this aren’t necessarily new, but they may become more common. Modern Healthcare estimates that at least 50 such deals are in place. At least three state Medicaid programs — in Colorado, Michigan and Oklahoma — have been approved to enter outcomes-based agreements with drug manufacturers, and other states are considering this model.
A 2018 survey from Avelere finds that 25% of plans have an outcomes-based contract in place, and one-third are considering the option.
Along with precision medicine, the rising costs of newer drugs that, in many cases, require just one dose for a lifetime are accelerating the value-based pharmacy services trend. And because they target rare diseases, the market is tiny. For example, fewer than 2,000 people have the form of blindness Luxturna treats, and not all of them would benefit from the therapy, according to Medical Marketing and Media — hence the high cost.
The goal is to help control pharmaceutical costs, but each contract is different, of course, and payers and drug manufacturers have to get it right.
“Overall, we believe that a thoughtful approach to selecting or constructing the right value-based model for different drug categories will help to catalyze the movement and ensure that the right drug reaches the right patient at the right time,” Dr. Surya Singh, chief medical officer of CVS Specialty, told HealthPayer Intelligence.