Paying for healthcare in the United States has been a challenging and controversial issue for years. In a landscape managed by private insurers, Medicaid, and Medicare plans—and populated by healthy, acutely sick, and chronically ill patients—the waters of American healthcare are murky at best.
And a coverage system that works for one patient may not work for another, while state budgets can clash with the patient’s need to access an important therapy if the patient is in a state-sponsored health program.
However, biotech companies are now working with policymakers to develop innovative payment models that can solve the challenge of keeping drugs accessible for patients while providing sufficient funding for the timely and expensive process of drug development.
Unfortunately, in the current environment, patients—especially incredibly sick patients—are often left paying the price.
The problems with the healthcare landscape today
Myriad examples this year alone reflect just how complex and problematic the healthcare payment landscape is. In fact, Bio.News has reported on a few instances throughout 2022 that reflect this problem:
- The Office of Inspector General of the U.S. Department of Health and Human Services (HHS) found insurer pharmacy benefit managers (PBMs) pocket drug rebates as patients (mostly very sick patients), and taxpayers pay more.
- The 340B Drug Pricing Program has morphed from a program “with the goal of allowing hospitals and clinics that work with underserved communities to provide outpatient prescription drugs to patients at deep discounts” to a program that, similar to the PBM issue, drives up patients’ costs.
- “Eight Prescription Drug Affordability Board (PDAB) bills have been introduced in state legislatures in 2022 alone…. [which] aim to cap, control, and dictate the price of drugs that manufacturers can charge.” This is causing “two major problems: decreased investment in new treatments, and lack of access to treatments for patients with rare diseases. At the same time, PDABs ignore major issues inherent in medical payment systems.”
- A study by Vital Transformation found “if drug price controls [part of the Inflation Reduction Act (IRA)] had been in place over the previous decade, just six of the 110 currently authorized medicines would have reached patients.” However, the IRA passed nonetheless, making “it less attractive to invest in R&D and innovation,” which is expected to result in “fewer treatments as well as a loss of employment and investments.”
These stories reflect an unfortunate trend towards one-size fits all solutions for complex and dynamic healthcare landscapes, often in the form of drug price controls, which inhibit innovation and ultimately do not solve the problem of increased cost. Such legislation overlooks how already established discount programs are undermined, and often promotes penny-smart and pound-foolish policies that only serve to pay less today while driving up costs in the future.
It is paramount that the healthcare payment system is as dynamic, diverse, and responsive as the healthcare treatment landscape— and that it responds to the uniqueness of patient needs, rather than trying to box patients into a system or treatment method that is not appropriate for them.
Innovative payment models today help ensure access tomorrow
Access to important therapies should always be the primary driver of healthcare policy, which is why so many state legislatures and biotech leaders are working together to find solutions.
“There is a disconnect when it comes to priorities. Biotech has to worry about how to ensure patient access and affordability while maintaining R&D and manufacturing, but, equally importantly, states have to address how they are going to pay for treatments and get the best care for their dollar,” said Jack Geisser, Senior Director of Healthcare Policy, Medicaid, and State Initiatives at the Biotechnology Innovation Organization (BIO), in a previous interview with Bio.News.
“We need to meet in the middle,” he continued. “It’s about making sure that small biotech developers can be successful companies so they can develop new, innovative medicines for patients. But it is also making sure that you are setting up a system that does not ultimately increase the cost of medicine in the long run through detrimental regulatory policies.”
Legislation to promote innovative payment models has been introduced in many state legislatures—and, by all accounts, it’s catching on.
“Much of these legislative initiatives were started by some of BIO’s more progressive partner companies, many of whom are in the rare disease and gene therapy space,” explained Patrick Plues, Vice President of State Government Affairs for BIO. “Gene therapies, for example, are typically undertaken in a short-term period. A one-time or a two-time administration of a treatment in turn has a long durability of effect, often many years. These are not treatments that involve patients taking a pill or shot every day, or every two weeks. Therefore, the traditional fee-for-service reimbursement model does not fit the treatment model for many innovative new therapies including gene therapy treatments. That creates a problem when it comes to patient access.”
A white paper published by the NEWDIGS FoCUS outlines three financial challenges for covering expensive therapies that can offer curative or long-term treatment and management of rare diseases: payment timing, the substantial upfront cost for multiple years of therapeutic benefit; therapeutic performance risk, the uncertain real-world efficacy and durability at the time of treatment; and actuarial risk, the uncertain number of eligible patients in a payer’s population.
How should we develop healthcare payment models?
Luckily, there are a number of possible solutions. One is the development of legislation for innovative payment models that allow manufacturers and public payers like Medicaid to find a common middle ground so the issue of cost and access can be solved in the short and the long term.
As the Centers for Medicare and Medicaid Services—which has been working with state Medicaid services to implement these new models—explains, “Innovation models, however, are not new health care programs or insurance plans. For example, we try new ways to reward doctors for putting the quality and value of your care above how many services they provide for the number of patients they see.”
There are several ways these payment plans can be developed, in accordance with the dynamic needs of patients and often based on their responsiveness to groundbreaking treatments. NEWDIGS FoCUS outlines “two alternative financing models that payers, developers, and providers can implement directly:
- One-year, milestone-based contracts which are simpler to implement and mitigate short-term performance uncertainty.
- Multi-year performance-based annuities which address longer-term performance risk, payment timing and, to some extent, actuarial risk.”
These two models have proven to be among the most popular, though, as we will discuss, many other models are coming to the fore in response to need and priority.
“These are high-cost therapies,” said Plues. “But they are effective, and patients deserve access to treatments that work.”
Examples of innovative healthcare payment models underway
Steps are already being taken today to implement and develop legislation allowing states and manufacturers the flexibility to implement innovative payment models. So far, 14 states have received approval from CMS to enter into value-based agreements or other innovative payment models. Novartis, for example, has proven to be a pioneering company in helping states develop innovative payment models, working with states like Oklahoma, Michigan, and Colorado to implement value-based contracts.
As reported by FiercePharma, “When its $475,000 CAR-T treatment for blood cancer, Kymriah, was approved in 2017, it agreed to an outcomes-based model with the Centers for Medicare & Medicaid Services (CMS) that stipulates full payment will only apply if patients respond by the end of the first month after treatment. More recently, Novartis said it would work out “innovative” payment plans for Luxturna in Europe, where it markets the treatment under a deal with Spark, which had already struck alternative payment deals with U.S. insurers.”
Another biotech company, Bluebird Bio, is working with states to implement innovative payment models for its gene-replacement therapy, LentiGlobin, for beta-thalassemia, a rare, inherited blood disorder. The cost of LentiGlobin is expected to be in the seven-figure range, so the company knew it needed to find solutions to ensure patient access.
As reported by Endpoints News, “The company’s pricing plan involves an upfront 20% of the cost of the treatment, while the rest is expected to come in 20% installments per year via the insurer if the drug does indeed work as intended.” However, Bluebird Bio noted, “80% of the cost of gene therapy would be at risk, and while the data for LentiGlobin has been promising in our view, long-term durability is still an unknown and lower than expected durability could erode the assumed price.”
Similarly, Spark Therapeutics announced in a January 2018 press release three new payer programs of their own: “an outcomes-based rebate arrangement with a long-term durability measure, an innovative contracting model, and a proposal to CMS under which payments for LUXTURNA™ (voretigene neparvovec-rzyl) [a one-time gene therapy indicated for the treatment of patients with confirmed biallelic RPE65 mutation-associated retinal dystrophy] would be made over time.”
“‘To help ensure eligible patients have access to LUXTURNA, we are striving to bring the same level of innovation applied in development to the delivery of, and access to, this product,’ said Jeffrey D. Marrazzo , [former] chief executive officer of Spark Therapeutics. ‘We believe that access to therapy is a shared responsibility among Spark Therapeutics, payers, health benefit providers, physicians, and treatment centers. We have been working with stakeholders across the healthcare sector to help ensure that appropriate patients have access to a product that challenges all of the current conventions of how patients are treated, how products are delivered, and how payments are handled.’”
All this goes to show that there is the intellect, care, and energy to solve the problem of healthcare costs. When government and industry partner together to understand the needs of every player, they can balance their budgets, ensure continued healthcare innovation, and ultimately make certain that patients get the access and treatment they need to live their lives well.