Learn about value-based care and innovative contracting (IC) in the US, IC models employed in health care, global trends shaping pharmaceutical pricing strategies, and how learnings can be applied to day-to-day negotiations, as presented in a keynote session at AMCP 2024.

“During my travels, I have seen 3 key geopolitical drivers of what is pushing payers and manufacturers to do more of these value-based contracts,” said keynote speaker Omar Ali, BSc(Hons) Pharm DipClinPharm MRPharmS ACPP.

The first driver, cost effectiveness, was demonstrated through significant examples of global economic downturns from Germany, England, Japan, and the US regarding drug pricing and pharmaceuticals. Recent reports from these countries of tightening drug pricing and reimbursement laws doubled payback rates on National Health Service drugs, Inflation Reduction Act pricing reform, and more, may be canaries in the “coal mine” of drug pricing.

“Many markets are showing that we're in a global economic shrink post-pandemic,” said Ali. “With all these new medicines coming, who's [will] be paying for multi-million dollar therapies? I don't think we know what the ceiling is, so I guess manufacturers will just keep putting the price up every time another one comes out until someone says no. And who's going to say no?”

The second geopolitical driver of affordability was evidenced by the inflating prices of the 10 most expensive US drugs currently on the market. These range from Kimmtrak by Immunocore at $1.1 million to Hemgenix by CSL Behring at $3.5 million. Lenmeldy by Orchard Therapeutics recently took the gold for the most expensive US drug at $4.25 million, and Ali only projects that these unbelievably high prices will continue upwards.

“Could this bubble burst?” asked Mr Ali. “And when a bubble like this bursts, will we keep going? Four million, 5 million, could we be paying 10 million for one drug, for one patient?”

The final geopolitical driver is uncertainty, such as within gene therapy valuation. This includes value and the uncertain trajectory of potential durability over years of use, an ultimately unknown factor.

“With gene therapy, we ask, is it going to cure you? But how do we know that? The trial may be 2 years, but the cost model will be based on a 20- or 30-year cure, right?,” he said. “If you walk into a clinic today and give someone gene therapy and suddenly they're no longer a type 1 diabetic, the argument is you don't have to pay for 20 years of insulin.”

The nomenclature around value-based agreements (VBA) and IC differ within the US and globally. To level set, Mr Ali laid out 3 core terms:

1. Outcomes-based agreements (OBA);
2. Financial-based agreements (FBA); and
3. Service-based agreements (SBA).

OBAs relate to conditional treatment continuation, coverage with evidence development, and the guarantee of an outcome. FBAs relate to revenue caps, patient cost care caps, free initiation, indication-based prices, a “Netfix” subscription model, leasing agreements, class agreements, portfolio-based agreements, and combination-based prices. Finally, SBAs encompass digital transformation, adherence partnerships, infrastructure improvement, clinical education, diagnostic and testing programs, patient support, and care management.

Ali noted a fascinating development: the increasing use of IC “cross-fertalizing” in the global market across all therapy areas. Both manufacturers and payers may use different combinations of FBA, OBA, or SBA within different countries or regions.

“We’re seeing a lot more value-based in the western markets where there may be more sophisticated infrastructure. We’re seeing financial-based [growth] across some of the Middle East nations and Asia Pacific. And we see some blending of contracts,” he said.

Ali shared notable VBA and IC cases to demonstrate unique and innovative changes happening in the industry. In the UK, bortezomib (Velcade) for multiple myeloma (MM) had an access challenge because it was a new, innovative biologic that sought to be a first-line medication. The construct used a performance-based approach to outcomes. In terms of mechanics, this meant that Velcade guaranteed remission after 4 treatment cycles. If that guarantee wasn’t met, they offered a money-back guarantee (free stock) and negotiated a lower discount and first-line access coverage.

In the US, crizotinib (Xalkori) for non–small-cell lung cancer (NSCLC) was priced at $20,000 for a 30-day supply. To overcome the best price, they opted for a Pledge Warranty Program where any patients who discontinue before their 4th refill receive a rebate. The drug was also made available to commercial and Part D Medicaid patients. The case is rare because patients can claim their rebate directly through the Pfizer website portal. They also avoided potential complications with best price adjustments by working with a third-party global insurance group to award rebates based on efficacy instead of through a manufacturer.

CAR-T therapy was also used as a key example of a globally unique approach. The expensive treatment in Germany was paid in full upfront with a rebate based on mortality. Other countries handled it differently, such as Spain paying 52% upfront and offering a 48% remission based on patients' health at 2 years.

Ali identified the 3 top barriers to VBA and IC for pharma and payers, and the top barriers to implementation. For pharma, the barriers are disagreement on outcomes, lack of expertise, and administrative burden. Their barriers to implementation were measurable outcomes, low administrative burden, and return on investment (ROI). However, their main incentives for pursuing a VBA are patient access, organizational commitment VBAs, and gaining real-world evidence (RWE).

For payers, the barriers are also disagreement on outcomes, followed by disagreement on duration, and then disagreement on financial terms. Their barriers to implementation are measurable outcomes, engaged providers, and ROI. Organizational commitment, patient access, and landscape changes were the top reasons why payers should pursue a VBA.

There is a notable mismatch between value and innovation, noted Ali. When a progressing disease is treated, the estimate of a payer and a manufacturer on the long-term outcome of the treatment may be grossly mismatched.

“You have a value mismatch. You’re looking at the same data but have different opinions and conclusions,” said Ali. “Sometimes, though not always, VBA mends the gap.”

The increasing prices of drugs both in the US and globally beg the question: will the bubble burst?

Within VBA and IC, Ali made the argument for several rising factors that could lead to an overinflated drug pricing bubble. For example, the ever-increasing drug costs are continually setting new precedents. Reports from the Health Economics and Outcomes Research (HEOR) and the Institute for Clinical and Economic Review (ICER) also point to trends such as atidarsagene autotemcel (Libmeldy) for metachromatic leukodystrophy (MLD) being potentially priced at $2.8 million despite being a disease most physicians will never encounter.

Patient groups and ethical pressure from the public are also contributing to a “bubble”. There are over 7000 conditions considered to be rare diseases that affect about 350 million people wordwide. Industry professionals must weigh the potential losses associated with rare disease coverage treatments against the social and moral expectation to cover all diseases, no matter how widespread.

“Whenever I speak to payers in the US they all say, ‘Omar, we don't want to not cover rare diseases. We don't want to be in the papers or say no to coverage. We've got to cover it but make it hard to access. We've got to put in health utilization measures like we've never seen before’,” said Ali.

Lastly, as research and development advance diagnoses, treatments, and technology, the world of medications and treatments will only continue to expand. Breakthroughs such as cell and gene therapy in recent years are just the latest in a continually growing pool of research. “We’re finding new drugs, we’re finding new diseases, and we’ve got to treat them,” he said.

On the flip side, there are a few factors that are slowing the journey towards a potential bubble burst.

Affordability may hit the brakes on drug prices through alternative commercial models (ACM). Ali shared a recent example of an ACM where a hospital in Philadelphia responded to the soaring prices of gene therapies by manufacturing products in-house and lowering their price per patient to $30,000.

Competition may be another disruptive factor. In the case of gene therapies for sickle cell disease (SCD), if the FDA approved both Lyfgenia and Casgevy for the same patient population, their pricing then becomes relative to each other. Clinical and financial reasons may prevent sequential dosing of multiple “cures” in a single patient.

Treatments are not static, and many times a drug may be touted as “curative” with excellent projected outcomes only to fall short. Buyer’s remorse and broken promises, Ali highlighted, are strong potential disrupters in rising prices. And soaring prices may hit a final wall: willingness to pay.

“US payers are starting IC now and it is painful, like pulling teeth without anesthesia all across your organizations,” he said. “But many markets have already done this and you’re now doing it.”

When it comes to IC and VBC, Ali reminded the audience that it is just a form of negotiation. Between a buyer’s best possible deal and a pharma’s best possible deal is a zone of possible agreement wherein a new solution may be found. To find that overlap more quickly, he encouraged keeping the 3 keys to IC contract negotiations top-of-mind: access, time, and price.

Ali has been working with a team of researchers to establish a digital database of nearly 1000 innovative contracts as a free resource called Verpora. The database spans over 10 years of contracts and may be an invaluable tool to navigate IC and VBA as the field evolves globally and in the US.

Reference

Ali O. Value based agreements & innovative contracting: US & global trends. Presented at: AMCP 2024; April 17, 2024; New Orleans, LA.