This year's IMS Pricing & Market Access European Conference took place in the same week that the UK's National Institute for Health and Clinical Excellence (NICE) announced its novel pay-for-performance scheme for the funding of Velcade (bortezomib) in the National Health Service (NHS). Not surprisingly, the issues of risk-sharing, rebating, contracting and more innovative approaches to pricing were high on the agenda.
"Creative pricing solutions will be important tools to obtain market access, even in the absence of national reimbursement," opened IMS Consulting Senior Principal, Ad Rietveld. "Discount/volume agreements, efficacy guarantees, creative distribution solutions and contracting strategies will all become more important in the future. We need to think about ways of increasing the perception of economic value of a product and to use experiences from contracting in the US market and apply these in Europe".
Contracting in the US
Experience of the US market was provided by Gordon Carey, Vice President, IMS Consulting. As Gordon explained, industry-led proposals for contracting were traditionally based on unit price. "Contracting strategies allow companies to move away from list price and uniform discount models where the same price is evenly offered to all. Traditional contracting has become an expected 'ticket to ride' in the US, especially in highly competitive therapy areas." Under such arrangements, a manufacturer might contract for a 60% market share in exchange for a 10% rebate.
"Over the last few years, however, we have witnessed the advent of 'innovative' pricing and contracting, with some companies focusing on reimbursement agreements, while other manufacturers have focused on 'creative' pricing." Gordon went on to outline the key differences between innovative agreements based purely on financial parameters and agreements that also incorporate product performance considerations:
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Performance-based contracts
With performance-based contracts, the basis of risk is the quality of the product's performance - as measured by agreed end-points. "Performance-based contracts rely on the manufacturer's confidence in achieving the measures under consideration," said Gordon. For example, the manufacturer might guarantee clinically defined biomarker or surrogate end-points, such as lower LDL (low-density lipoprotein) goals. This in turn might contribute to clinically significant outcomes like reduced risk of cardiovascular disease. The benefit for the payer is that failure on therapy typically results in some form of refund. "For the company, taking risk on product performance is a natural outgrowth of the process of drug development, and thus has significantly less risk in comparison to financial risk-sharing," Gordon noted.
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Financial-based contracts
Financial-based contracts offer greater risk and reward potential to both the manufacturer and the contracting partner. With financial-based contracts, the basis of risk is at the level of product or service utilisation and the basis of the agreement is price and/or expenditure. Contracts are structured according to one of two forms of risk-sharing guarantee between the manufacturer and contracting party, or a combination of the two:
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healthcare utilisation guarantees, such as the budget impact of the broader treatment of the disease on, for example, the reduction in hospital expenses
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product utilisation guarantees, which are tied to product-specific budget impact and which include provisions such as price caps, utilisation caps, budget caps and capitation.
New approaches in Europe
Use of these more innovative approaches is evidence of a move away from the traditional price per unit approach to contracting. "The challenge is to develop a better understanding of when and where it is appropriate to use contracting," said Gordon. "In Europe, for example, single payer markets have traditionally been characterized by a 'one-price for all' approach. Going forward, however, decision-making for pricing and market access is shifting from the national to the regional level and we have seen the emergence of hospital contracting. This presents us with a new opportunity to evaluate the appropriateness of contracting in the EU."
It is also a timely opportunity, as historical pricing options such as discounts on the list price inevitably end up in a downward spiral on net price. Other strategies - not launching in certain markets, working outside the public payer system and accepting sub-optimal market access - generally have a similarly negative effect on the bottom line.
Cancer: case study
Alyse Forcellina, Senior Principal, IMS Consulting, focused on a specific therapy area: cancer. The conventional wisdom in oncology is that there is minimal price sensitivity - even in the absence of survival data. "Historically, the sensitivity and level of unmet need in oncology has kept it off payers' radar screen," explained Alyse. "But what we see in practice is certain markets denying access altogether and companies responding with risk-sharing agreements where value is being questioned. In the most extreme cases, access to oncology products is being denied or significantly delayed," continued Alyse. In a comparison between Italy and the UK, she concluded: "NICE is basically denying access altogether."
Table 1: Market Access Restrictions for Oncologicals in Italy and UK
| Product | Italy | UK |
|
Herceptin |
None |
Positive review took 2 years |
|
Avastin |
6 month delay between EMEA approval and launch |
Rejected by NICE and Scottish Medicines Consortium |
|
Erbitux |
Price volume agreement, observational studies, prior authorisation |
Rejected by NICE and SMC |
|
Vectibix |
None |
Rejected by NICE and SMC |
Source: IMS Health
The pharmaceutical industry has responded to payers' restrictions with a greater willingness to negotiate. For example, under NICE proposals in the UK, patients showing a full or partial response to Velcade after a maximum of four cycles of treatment would be kept on therapy, with the treatment funded by the NHS. Patients showing minimal or no response would be taken off therapy with costs refunded by the manufacturer. In a similar arrangement in Italy, a hospital discount of 50% applies to the first two/three months of treatment with Nexavar (sorafenib) and Sutent (sunitinib). For responding patients, the treatment is then reimbursed and the discount dropped.
Even in the US, companies have capped the costs of some treatments to address the media backlash over prices and to allay patient out-of-pocket spending. The price of Avastin (bevacizumab), for example, is capped at $55,000 a year for any FDA-approved indication for patients below a certain income level. Manufacturer Genentech has also doubled its contribution to independent charities that provide co-pay assistance, to a total of $50 million. In the case of Erbitux (cetuximab), lower-income patients who reach a price cap of around $10,000 monthly can receive the product at no cost, or at a large discount, through an independent charitable programme. For Vectibix (panitumumab), patients who spend more than 5% of annual gross income on treatment are enrolled in an assistance programme that provides the drug free of charge.
Future perspectives
All of these examples demonstrate that the historic approach to pricing, with its strong emphasis on list prices, is not serving the pharmaceutical industry well. Gordon Carey: "Circumstances in Europe have changed and there are now multiple payers in place who could undertake traditional or innovative contracting. Traditional contracting based on unit prices has been largely overlooked historically - we should look at this alongside innovative pricing and contracting. Although the current environment presents many challenges to executing contracts - we could change this if we focus on it.
"The question is, do we want to?"
Extracted from IMS Pharma Pricing & Reimbursement, published monthly by IMS Health. For further information, please contact Nicky Richards, or call +44 1223 273200.