Pharma

Overview

The goal of value-based health care is to improve the ratio of benefits to costs.  For pharmaceutical companies in a value-based, data-driven health care market, being able to demonstrate not only achievable benefits based on clinical trial data but also actual benefits, based on clinical experience outcomes may yield strategic advantage.  

Pay-for-Performance Drug Pricing1

Like other stakeholders in the health care industry, pharmaceutical companies are exploring pay-for-performance and risk-sharing arrangements in an effort to secure a place in the value-based health care market.  Under these arrangements, formulary placement, co-payment tiers, and pricing may depend on clinical outcomes or the impact of drug therapies on clinical costs.  Such arrangements may help mitigate market access restrictions or justify higher price points for those companies willing to share in the risk associated with a drug’s “success” or “failure.”  A pharmaceutical company may, for example, offer enhanced rebates on a medication if actual patient outcomes are not as successful as the outcomes reported in clinical trials.  Other possible models include the pharmaceutical company reimbursing for costs of treatment for complications; charging the payor for a standard duration of therapy, regardless of the duration required to achieve the desired outcome; or sharing in any cost savings attributable to the drug.

Notable commercial pay-for-performance arrangements include Amgen’s agreement with Cigna and Harvard Pilgrim for the cholesterol drug Repatha, Eli Lilly’s agreement with Harvard Pilgrim for the diabetes drug Trulicity, Novartis’ agreement with Cigna, Aetna, and Harvard Pilgrim for the heart failure drug, Entresto, Merck’s agreement with Aetna and Cigna for diabetes drugs Januvia and Janumet, and AstraZeneca’s agreement with Express Scripts for its lung-cancer drug Iressa. Arrangements like these are more common in Europe where cost-efficiency thresholds increase barriers to market entry, but are increasing in the United States amidst pricing pressure, particularly on specialty and other innovative drugs.  Interest among payors is significant for treatments in a number of therapeutic areas, including hepatitis C, cancer, rheumatoid arthritis and multiple sclerosis.  

Legal and Operational Considerations

Some of the legal and operational issues pharmaceutical companies should consider when developing value-based programs include:  

  • Fraud and Abuse.  Arrangements must be structured to comply with federal and state fraud and abuse laws, including the Anti-Kickback Statute, which prohibits giving or receiving anything of value in exchange for referrals of federal health care program business.  Statutory and regulatory safe harbors protect certain arrangements, but these safe harbors do not account for innovative, value-based pricing.  In particular, the government’s evolving position on price discounts may be at odds with new value-based initiatives.  
  • Privacy.  If a pharmaceutical company must use identifiable patient data in order to determine whether particular metrics have been met (e.g. clinical outcomes) or otherwise implement an arrangement, providers, payors, and pharmaceutical companies will need to ensure compliance with state and federal privacy and security laws, including HIPAA.
  • Off-Label Use.  Arrangements and communications about arrangements should not suggest new intended uses for products. 
  • Antitrust.   Companies are prohibited from engaging in pricing discrimination or exclusive contracting in connection with sale of drugs that could result in competitive harm. 
  • Government Pricing.  Discounts, rebates, and other price concessions may impact a manufacturer’s “Best Price,” which is used to determine Medicaid rebates and 340B program ceiling prices, and a manufacturer’s “Average Sales Price,” which is used to determine Medicare Part B rates.  CMS has indicated that the agency will address questions and issue further guidance on outcomes-based pricing adjustments at a later date. 
  • Outcomes Measurement.  Companies will need to determine the feasibility of measuring outcomes, appropriate measures for particular treatments, the organization responsible for measuring outcomes, additional support needed to implement an arrangement (e.g. education on product use or enhanced information systems), and the extent to which auditing is required/permitted. 
The actual issues and risk level will vary depending on the type of arrangement implemented.  


1Pay-for-performance drug pricing is also referred to as outcomes-based pricing, value-based purchasing, etc. 

Alerts

Ropes & Gray regularly examines trends, developments and issues in value-based health care to provide guidance on this rapidly evolving topic.