Making Life-Saving Medical Treatments More Affordable

Recent years have brought significant innovation in potentially curative therapies for several diseases. To expedite patient access to these therapies, the U.S. Food and Drug Administration (FDA) has undertaken progressive efforts to accelerate drug approval. For example, the FDA’s Breakthrough Therapy Program, enacted in 2012, has approved nearly 140 breakthrough therapies and shortened novel drug approval times by almost a year. By 2025, the FDA anticipates approving 10 to 20 cell and gene therapy products per year, many of which are intended to be one-time curative treatments.

But despite these efforts to accelerate the evaluation of drug safety and efficacy, uptake of many new therapies has been much slower than expected. Why the lag? The delays in uptake are largely due to the high cost of new treatments and the hurdles in coverage and reimbursement faced by commercial and public payers. Even as new payment methodologies, such as value-based payment models, have arisen, and even as insurers have offered greater reimbursement of some curative therapies, there remain many patients who are either denied coverage of therapies or experience significant delays in getting coverage. There are also challenges in manufacturing these newer therapies.

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Addressing these obstacles is critical if we want to ensure patients have access to new life-changing treatments, many of which need to be administered early on to be most effective. Fortunately, there are a number of innovative solutions being tested now that are worth paying attention to.

The challenges of aligning reimbursement policy with regulatory policy

While regulatory policy has attempted to accelerate patient access to breakthrough therapies, reimbursement policy has failed to keep up. There are several reasons why.

First, the U.S. healthcare system largely follows a fee-for-service model for drugs (i.e. price-per-dose model), with payers reimbursing for treatments as patients receive them. The current system is not optimized to pay for the incoming wave of curative therapies with high one-time upfront costs and benefits that accrue over a lifetime, which may limit access to innovative but expensive therapies. For example, chimeric antigen receptor-T cell (CAR-T) therapies, a class of therapies that genetically modify the body’s own immune cells to recognize and attack cancer cells and that have demonstrated efficacy in pediatric patients with leukemia and adult patients with lymphoma, have had slow uptake, despite being estimated to be cost-effective. (Full disclosure, authors Jie and Qiufei are employees of Novartis, a manufacturer of CAR-T therapy Kymriah). That’s not surprising.

The drugs Yescarta (another CAR-T therapy produced by Kite and Gilead) and Kymriah have list prices ranging from $373,000 to $475,000 – prices that gained significant attention when first announced. Only five patients received Yescarta in the four months after regulatory approval, with waiting lists documented due to reimbursement challenges. For certain conditions with high mortality rates, the risks of delay could be material (e.g., the median overall survival on standard of care is 7.5 months for pediatric acute lymphoblastic leukemia and 6.3 months for adults with diffuse large B-cell lymphoma.)

Similarly, new curative therapies for hepatitis C virus (HCV), first approved in 2013, have also faced coverage hurdles. Between 2016 and April 2017, public and commercial insurers denied new HCV treatments for more than a third of patients. In Medicaid, 31 states limited medication access to patients with advanced liver fibrosis or cirrhosis, even though treatment at earlier stages of disease has been shown to result in higher efficacy, lower annual lifetime post-treatment costs, and more life-years gained. Further, patients treated after developing cirrhosis require additional monitoring and treatment, and remain at risk of liver cancer even after being cured. New HCV therapies, which initially cost close to $80,000 for a treatment course, are given over the course of a few months but deliver cures that sustain over a lifetime. This is in contrast to treatments for other chronic diseases which are taken daily for a lifetime, are not curative, and when generic may cost several hundred dollars a year.

Second, long-term clinical data on novel therapies is typically limited when a therapy is first approved. For instance, Spark Therapeutics’ Luxturna, a gene therapy intended to treat RPE65-mediated genetic blindness (list price $425,000 per eye), was approved based on limited follow-up data. Payers may rightly be reluctant to pay for therapies with uncertain long-term results.

Third, patients frequently change insurers, which many have argued reduces the incentive for individual payers to cover the cost of curative therapies, since patients may not stay with the same payer long enough for the payer to enjoy potential savings afforded by these treatments, or to assess their long-term efficacy. This argument is balanced, however, by the fact that for severe chronic conditions, patients may be reluctant to switch health plans.

Fourth, dealing with novel treatments in the major government health programs can be particularly challenging. For therapies that will be used in an inpatient setting, Medicare payment occurs within the framework of the diagnosis-related group (DRG) system, whereby an inpatient stay is categorized into a particular DRG that determines the payment by Medicare to the hospital. In the case of a new technology there may be no existing DRG that adequately captures the costs inherent in using the new therapy. Additionally, the tools available to regulators, such as the ability to allow an add-on payment for a new technology, may take time to put into place and may result in payments that fall below the cost of treatment.

Another issue is that in the case of drugs that are self-administered by patients, private plans that participate in Medicare Part D are required to submit annual bids that are used to determine the enrollee premium for the particular plan in the next plan year. Those bids are due on the first Monday in June for the plan year beginning January 1. That long lag makes it difficult for plans to accurately predict the claims that will be incurred, especially for innovations that may not even be approved at the time that bids must be submitted. In Medicaid, individual states pay substantial shares of the program cost. States must budget for Medicaid in their annual or biennial government budgeting process, trading off Medicaid dollars against other state budget items such as education and infrastructure. The inherent lags in budgeting, in addition to the political backdrop, can result in a situation in which new, expensive medical technologies may not be reimbursed.

Overcoming traditional payment methods

Solving these challenges will require a number of changes to payment models that must address several issues, including financing high upfront costs of treatment, ensuring that insurers only pay for treatments that deliver sustained responses, and recognizing that insurer incentives may not align well with treatments that have high upfront costs but benefits that accrue largely to future insurers. We’re already seeing new payment models emerge that might help overcome some of the problems.

For exampleoutcomes-based contracts, which reimburse manufacturers for treatments only in instances where the treatment taken by a given patient successfully achieves a predetermined clinical endpoint, can reduce the risk that plans spend too much up front for therapies that turn out to be less effective than initially thought and allow for this risk to be shared between drug manufacturers and payers. Such contracts, wherein reimbursement depends on whether predetermined target outcomes are achieved within a preset time period, have been used more widely in Europe, such as with various oncology treatments in Italy. However, implementation is expected to increase in the United States, particularly with the incoming wave of cell and gene therapy approvals.

Another model designed to address large upfront costs involves payment in installments, spread over a predetermined time period. Installment payments help to overcome the short-term budgetary risk for expensive curative therapies. Although the installment model may be attractive for any potentially curative treatments to help spread the costs over time, it can be especially useful for chronic diseases where there may be a large existing stock of patients who now suddenly have a potential cure.

Outcomes-based contracts may also even be structured to spread payment over time and hence help address the challenge of large upfront costs for many rare disease treatments. Spark Therapeutics’ reimbursement strategy for gene therapy Luxturna is a hybrid of both outcomes-based and installment models, in which Luxturna must demonstrate short-term efficacy (30-90 days) and long-term durability (30 months) to earn reimbursement, measured by an eyesight test. Additionally, payers can reimburse Luxturna in installments spread over several years. Bluebird Bio and GlaxoSmithKline also offer similar outcomes-based, installment payment plans for their gene therapies Zynteglo and Strimvelis, respectively, in Europe.

Implementation of these alternative payment models is not without potential challenges. Outcomes-based models require payer and manufacturer agreement on definitions of product performance, payment amount and schedule. Additionally, patient outcomes may not be readily measurable through insurance claims data, or patients may switch insurers before long-term outcomes can be assessed. They may also be further complicated by statutorily-mandated discounts such as Medicaid Best Price. Thus, the cooperation of regulators may be necessary for alternative payment models to fully achieve their potential utility.

For installment-based models, payers and manufacturers must both agree on the payment amount and number of installments, with an added challenge of providers being less open to payment in installments from smaller health plans, whose long-term financial solvency may be uncertain. Moreover, there is a need to clarify what happens if a patient switches insurers before all installments are paid. Given multiple approaches to reimbursing curative therapies, solutions might include a blend of various models rather than a single one.

Another model that has been proposed is risk-pooling for curative therapies, whereby public and private payers set aside a portion of healthcare budgets into a dedicated fund. This approach helps to combat the problem created by patient turnover across insurers, which leads insurers to be less inclined to make large investments in patients who may switch to another health plan. Curative therapies would be reimbursed using this fund to which all payers contributed, alleviating concerns about insurer-switching after curative treatment has been covered by a single payer. For instance, for patients nearing Medicare eligibility, it would make sense for Medicare to potentially share in costs of treatment with other insurers, as has been proposed in HCV. This approach has been discussed by policymakers, industry experts, and actuaries in the US and forms of this approach exist in Canada and the UK.

An alternative payment model that has been used in HCV is a subscription, or “Netflix” payment model, which the state of Louisiana has adopted. Under this model, the state would pay a fixed annual subscription fee to the manufacturer for unlimited access to HCV drugs. Washington state is also pursuing a similar model for HCV. Some have proposed that the annual subscription fee in this model could be made equivalent to the state’s intended budget for a disease in a given year. Subscription models generate certainty of outlays for payers and could be especially attractive when there is little uncertainty about the efficacy of treatment and for payers who either face tight budgetary constraints or whose small size imposes upon them greater financial uncertainty.

Although evidence on the performance of these novel reimbursement approaches remains limited, given the typically confidential nature of these agreements, the increasing adoption of outcomes-based agreements suggests that such models are showing promising results. The number of new publicly announced outcomes-based contracts in the U.S. is expected to grow from 24 during 2013-2017 to 65 in 2018-2022. Moreover, the growing pipeline of curative therapies suggests that the demand for novel reimbursement policies that can be implemented to keep pace with treatment innovations will continue to grow.

What will also help new models take hold is more data. Because long-term follow-up data for curative therapies is still lacking, coverage and reimbursement decisions could be revised based on subsequent clinical evidence or cost-effectiveness analyses, such as data collected through the Risk Evaluation and Mitigation Strategies (REMS), an FDA-mandated safety program in which treatment-related toxicity is monitored for up to 15 years. Future coverage and reimbursement decisions would depend on the collected evidence. Such a system for data collection would have both near term and long term benefits, facilitating speedier implementation of interim coverage policies for existing curative therapies and informing future coverage and reimbursement decisions.

Whatever the chosen reimbursement approaches, it is important for payers to promptly establish interim reimbursement policies to ensure patients have timely access to new treatments, while allowing longer-term data to be collected and reviewed later. By experimenting with new approaches, we can start to close the a substantive gap between regulatory approval and patients’ receipt of treatment. Faster approval of curative therapies is helpful only if patients can access them in time.

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