Outcomes-Based Pricing Veils High Drug Prices

April 3, 2018

In a recent editorial, Sham Mailankody, MBBS, and Peter Bach, MD of Memorial Sloan Kettering Cancer Center discussed how outcomes-based pricing distracts from the real problem of high drug prices.

Their editorial, published in Annals of Internal Medicine, added to the recent findings of Dr Kazi and colleagues. They explained that the recent findings—that PCSK9 inhibitors do not achieve cost-effectiveness even with outcomes-based pricing contracts—highlight a smoke and mirrors approach to pricing high-ticket drugs.

“Prices of branded specialty drugs are often far higher than they would be if they were based on their benefits,” Drs Mailankody and Bach wrote. “The pharmaceutical industry thus has a plan called outcomes-based contracting that involves refunds when a patient does not experience the intended therapeutic benefit. Kazi and colleagues' rigorous analysis shows that, at least in the case of Amgen's money-back guarantee for its lipid-lowering drug [Repatha (evolocumab; Amgen)], this approach really does not solve much.”

Drs Mailankody and Bach explained that recent announcements by Sanofi/Regeneron highlight a better way to do drug pricing for high-cost drugs in this cardiovascular space.

“Amgen's approach can be contrasted with that taken by Regeneron Pharmaceuticals and Sanofi, the makers of the competitor drug [Praluent (alirocumab)],” they wrote. “These companies recently announced that they would base their product's price on an independent cost-effectiveness review by ICER, which determined that a value-based price for this agent per year should be between $2300 and $3400 if used to treat all patients with a recent acute coronary event and $4500 and $8000 for the subset of [higher-risk] patients. No refunds, no reconciliations—just straight to charging a value-based price replacing their original launch price of $14 000 per year for payers who provide appropriate formulary access.”

However, they highlighted that despite the lack of efficacy surrounding refund-based pricing contracts, the trend is increasing among drugmakers.

“The approach of ‘if you don't like it, get your money back’ seems more the nonsense of late-night infomercials than a method for serious health policy reform,” they wrote. “However, the idea has been pushed hard by the pharmaceutical industry.”

They also explained that this type of contracting presents administrative problems for payers looking to collect reimbursements for drugs that fail to deliver valuable outcomes.

“Changing coverage over time for patients means that some refunds will be hard to administer and others will be lost,” they explained. “Measuring refund-triggering events and submitting requests for refunds would require additional resources and personnel that may more than offset marginal savings.”

Additionally, Drs Mailankody and Bach also emphasized that there is a conceptual flaw with the idea of outcomes-based pricing for drugs designed to prevent disease.

“Paying for evolocumab only when it works also poses a conceptual problem because is a preventive drug,” they wrote. “One may accept the tenuous premise that, if a patient had a heart attack, evolocumab did not work and thus the patient should not pay for it. However, it does not mean that, if a patient did not have a heart attack, the agent did work and thus the patient should pay for it… Preventive interventions are ever thus: They benefit only a few who receive them, and we nearly never know who those persons are.”

They further explained that deals like this offer very little incentives for payers.

“Why a drug corporation would enter into a refund arrangement that barely budges the drug's net price but improves its formulary position is easy to understand,” Drs Mailankody and Bach said. “Why an insurer would do so is mysterious. Insurers already pay for services knowing that some members will benefit from them and others will not.  In reality, no scenario exists under which insurers should choose a refund-based approach rather than the simpler and administratively cheaper solution of having the drug corporation charge them the anticipated net price in the first place.”

They concluded that outcomes based pricing obscures the real problems with certain drug prices: how much are they actually worth relative to their value?

“[Outcomes-based pricing] distracts from the more essential question of how much the product is worth when it does work,” Drs Mailankody and Bach concluded. “Nevertheless, that is the key question that insurers should be asking, particularly in an arrangement such as that for Amgen's evolocumab in which the insurer will still pay the company's price approximately 97% of the time.”

David Costill

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