Mixed Signals on Innovative Rx Drug Pay Arrangements

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By Mike Stankiewicz

The approval of a breakthrough cancer drug along with the government’s announcement of a payment arrangement based on actual patient results may be a sign of more to come.

However, a pharmaceutical industry group representative told Bloomberg BNA Aug. 31 that current law and regulation may stand in the way of flexible ways of paying for drugs.

The Food and Drug Administration this week approved Novartis AG’s Kymriah for treating certain pediatric and young adult leukemia patients. The drug has a list price of $475,000. At the same time, the Centers for Medicare & Medicaid Services said the drugmaker will get paid only if patients respond to the treatment, while indicating it’s open to additional alternative payment arrangements for life-saving drugs.

The approval of the drug and the outcomes-based payment arrangement come as government payers such as Medicaid consider ways to cover innovative but costly treatments.

CMS Administrator Seema Verma said in an Aug. 30 press release more innovative payment arrangements could be seen in the near future and more guidance will be issued soon.

A pharmaceutical industry group praised the arrangement as a “win for patients” and a step forward for more value-based purchasing agreements.

“For too long, the benefit of life-saving 21st Century medical breakthroughs and cures have been stunted by payment models that hold us in the past,” Joel White, president of the Council for Affordable Health Coverage (CAHC), said in a statement Aug. 30. The arrangement “recognizes the need to reward outcomes and ensure the cost of treatment is a reflection of its clinical success.” CAHC is coalition of of pharmaceutical manufacturers, health insurers, employers, and health-care providers.

Red Tape Holding Back Payment Deals

However, certain regulations are holding back innovative payment arrangements, Holly Campbell, deputy vice president of public affairs at the Pharmaceutical Research and Manufacturers of America (PhRMA), told Bloomberg BNA.

She said to spur more “value-based arrangements, policy makers need to modify outdated laws and regulations that may limit the ability of private companies to negotiate innovative and flexible ways to pay for medicines that could lower out-of-pocket costs and enable patients to access the right treatments the first time.”

PhRMA said in its policy agenda that “highly technical price-reporting rules” currently in place weren’t established with new payment approaches in mind.

The group also said the Department of Health and Human Services should clarify fraud laws and address any outstanding questions from manufacturers involving price reporting rules.

“We also need to reform outdated, unclear regulations that discourage companies from offering discounts that are tied to outcomes, rather than volume,” Campbell said. “And we need to modify existing Medicaid best price requirements that inhibit companies from taking on more risk in new payment arrangements.”

Private Market Deals

Offering pricing tied to outcomes is a different approach to controlling costs that benefits patients, Donna Lee Yesner, an attorney at Morgan, Lewis & Bockius in Washington, told Bloomberg BNA Aug. 31.

“Instead of saving money by making coverage, and use, more difficult, it encourages use of the breakthrough therapies, which will save costs of other treatments if outcomes are positive,” she said. Yesner represents clients in the pharmaceutical, biological, and medical device industries.

These arrangements might eventually expand to the private insurance market as well, William Garvin, a Washington-based life sciences attorney at Buchanan Ingersoll & Rooney PC, told Bloomberg BNA Sept. 1.

“There’s not an off-the-shelf approach with arrangements,” he said. “Companies make their own deal with the CMS. I think there will be a lot more of a desire for these arrangements going forward, especially ones that have a very high price point but have impacted survival rates.”

Garvin also said while many pharmaceutical manufacturers want these pay arrangements, they might not work with current regulations.

Unanswered Questions

Yesner said the cancer treatment therapy, known as CAR-T, involves more than simple administration of the drug, and it must be provided at centers certified and trained on the procedures by Novartis.

“I don’t know how Novartis will comply with its obligations to sell to 340B providers if they are not certified centers and at a price that is based on the standard Medicaid rebate,” she told Bloomberg BNA Aug. 31. The 340B program allows certain hospitals and health-care providers to purchase drugs that are administered in outpatient hospitals from drug manufacturers at discounted prices. She said there is a similar issue as to how the company will sell to the Department of Veteran Affairs and the Department of Defense.

Yesner said Medicare doesn’t typically pay for pediatric care, and sick children are often covered by Medicaid or the Children’s Health Insurance Program. She expects CAR-T will have significant Medicaid utilization.

There is also uncertainly as to how and how much the CMS will pay for the drug. Yesner said Novartis will likely provide Medicaid with price concessions other than standard Medicaid rebates based on units administered.

“The issues are how to measure outcome success and how to discount the drug or provide credits for coverage on that basis,” she said. “Sometimes the discounts are based on statistical averages. Here, it may be on the individual patient response.” Yesner is a Bloomberg BNA advisory board member.

To contact the reporter on this story: Mike Stankiewicz in Washington at mstankiewicz@bna.com

To contact the editor responsible for this story: Brian Broderick at bbroderick@bna.com

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