This weekly column offers opinions on the latest pharmaceutical industry news.
If a drug does a good job of treating lung cancer, but is less effective at combating pancreatic cancer, you might think that the price should be lower for pancreatic cancer patients. But it doesn’t work that way in the convoluted world of pharmaceutical pricing, where a one-size-fits-all approach is generally used.
Now, though, a new drug pricing scheme is gaining traction that would base payments on how well a medicine actually works.
The concept, which is known as indication-specific pricing, would set different prices for the same drug to reflect the extent to which a medicine is effective for multiple purposes. The goal is to calibrate spending with performance and, in turn, lower overall health care costs.
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“Right now, we pay per pill, not per outcome,” said Lou Garrison, a health economist at the University of Washington. “This is a way to encourage innovation, as well as more of an alignment between payers and drug makers.”
In January, Express Scripts, the nation’s largest pharmacy benefits manager, which negotiates drug prices on behalf of insurers and employers, began testing this pricing approach for drugs used to treat three different types of cancer. Earlier this month, the Obama administration indicated it may pursue such pricing for the injectable and infused drugs covered by Medicare Part B. And last week, an influential Boston think tank issued a report proposing payers and drug makers should create pilot programs of the pricing scheme.
The idea is “still very new in the United States,” said Dr. Steven Pearson, who heads the Institute for Clinical and Economic Review, which released the report. “But more tools are needed to obtain value.”
This notion of tying payment to disease-specific outcomes, rather than charging one price for all patients, is worth investigating. And it’s certainly preferable than allowing prices to be set by the whims of drug makers that are motivated by meeting financial goals.
Some experts caution, however, that any cost savings may not automatically trickle down to consumers.
It’s possible that pharmacy benefit managers and insurers will simply pocket the savings. And some drug companies fear that payers may buy their products at the lowest price and then use the medicines for indications that are supposed to command a premium.
“Payers will find ways to undervalue medicines,” said Dr. Robert Goldberg, cofounder and vice president of the Center for Medicine in the Public Interest, a think tank backed, in part, by the drug industry.
Another pressing challenge is navigating Medicaid, which demands the best available price for drugs. If a lower price is set for one specific use of a medicine, under current regulations this would automatically create a low benchmark price for all uses of the drug by state Medicaid programs.
Clearly, “a lot of obstacles” remain for the plan to work, noted Ed Saltzman, who runs Defined Health, a consulting firm — but he thinks they are surmountable. “It’s hard to say when we [will] get there,” he said, “but we likely will.”
Indeed, at a time when the price of medicines is on the rise, any plan that can determine the true worth of a treatment would be welcome. Transparency will be needed to ensure payers don’t game the system, but there is certainly value in pursuing value.