Pricing Pills by the Results
Drug companies like to say that their most expensive products are fully worth their breathtaking prices. Now one company is putting its money where its mouth is — by offering a money-back guarantee.
Johnson & Johnson has proposed that Britain’s national health service pay for the cancer drug Velcade, but only for people who benefit from the medicine, which can cost $48,000 a patient. The company would refund any money spent on patients whose tumors do not shrink sufficiently after a trial treatment.
The groundbreaking proposal, along with less radical pricing experiments in this country and overseas, may signal the pharmaceutical industry’s willingness to edge toward a new pay-for-performance paradigm — in which a drug’s price would be based on how well it worked, and might be adjusted up or down as new evidence came in.
“I think payers will say, ‘If the product works and it creates value, we will reward you for it,’ ” said Anthony Farino, a pharmaceutical industry consultant at PricewaterhouseCoopers. “ ‘If not, we won’t reward you.’ ”
It is far too soon to tell whether such a pricing paradigm can actually work, in particular because it can be difficult in many cases to measure how well a drug is working. And the approach would probably be most feasible in countries, like Britain, where the government is the primary payer.
But even here in the United States, Medicare and private insurers are already experimenting with new ways to create cost-justified payment systems for medical treatments.
The potential benefits might go beyond simply saving money. Pay-for-performance pricing could make it easier for patients and their doctors to try expensive treatments without busting the bank or forcing insurers to make all-or-nothing decisions about reimbursement.
That was the rationale behind another experiment that is already under way in Britain. Four makers of multiple sclerosis drugs have agreed eventually to lower the prices of their drugs — which can currently cost as much as $18,000 a year — if the medicines do not fully meet expectations.
GlaxoSmithKline also says it has made similar agreements with two European governments, although it declined to identify either the countries or the drugs involved.
Such “risk sharing” deals, as they are being called, would be harder to arrange in this country. “There’s no way we could ask for it and have any leverage,” said Dr. Lee N. Newcomer, senior vice president for oncology at the large American insurance company UnitedHealthcare. He said that state regulations and marketplace pressures make it virtually impossible for an insurer to refuse to pay for a drug that has been approved by the Food and Drug Administration, regardless of its price.
Yet UnitedHealthcare is trying a risk-sharing experiment with Genomic Health, a company that sells a $3,460 genetic test meant to help determine whether a woman with early-stage breast cancer would benefit from chemotherapy.
The insurer has agreed to pay for the test for 18 months while it and Genomic Health monitor the results. If too many women are still receiving chemotherapy even if the test suggests they do not need it, Dr. Newcomer said, UnitedHealthcare will seek to negotiate a lower price on the ground that the test is not having the intended impact on actual medical practice.
“The point is to try to make the manufacturer responsible for how their product is used in the medical marketplace,” he said.
Genomic Health said it could not comment on individual contracts but acknowledged it was working with various payers on performance-based contracts.
The pharmacy benefit management arm of Cigna, another big American insurer, has a more audacious idea. It is trying to persuade the makers of cholesterol-lowering pills to agree to pay the medical expenses of patients who suffer heart attacks even though they have been steadfastly taking their medicine.
“It’s their opportunity to show they stand behind their medication and are confident of the results,” said Thom Stambaugh, the chief clinical officer for Cigna Pharmacy Management. He said that the drug companies seemed interested in at least considering the proposition.
Pfizer, which makes the best-selling cholesterol pill Lipitor, said it did not comment on confidential discussions with individual managed care organizations, though it was always receiving proposals.
Medicare, meanwhile, has agreed to pay for certain expensive products or procedures — like some implantable heart defibrillators and the use of PET scans to detect dementia — only if the patients participate in studies to assess the long-term benefits.
Medicare could eventually use such data to decide whether to pay for the product or procedure. However, it does not have the authority to negotiate prices, said Dr. Sean Tunis, a former chief medical officer of Medicare and a major architect of the evidence-gathering policy.
Some companies that sell expensive drugs — including Genentech, which makes cancer treatments, and Genzyme, which makes drugs for rare diseases — said they were not involved in or considering any risk-sharing plans. They said they already helped make their drugs available to patients who cannot afford them. Genentech also said it was working on tests to better determine which patients should get a drug in the first place.
But drug companies might need to be more flexible in countries like Britain, where drugs are paid for only if they are deemed cost-effective — as measured by how much the health system must pay to achieve certain gains in the length and quality of patients’ lives.
“If we didn’t enter into the risk-sharing scheme, we wouldn’t really have a market here in the U.K,” said Pete Smith, a manager in Britain for Biogen Idec. The company makes Avonex, a multiple sclerosis drug that costs the equivalent of about $18,000 a year in Britain and is covered under the risk-sharing arrangement.
Under the plan, about 5,000 M.S. patients are being followed for 10 years to see how well the drugs do in slowing the progression of the disease. The prices of the drugs will be adjusted along the way, so that they remain within a certain limit in terms of cost-effectiveness.
But measuring improvements in the quality of life is an imprecise science at best. The scale used to measure the disease’s severity, for example, focuses too much on a patient’s mobility and not enough on other problems associated with multiple sclerosis, like fatigue and mental decline, said Nicola Russell, director of services for the MS Trust, a philanthropy that administers the program. “We’re stuck with it because nobody’s come up with anything better,” she said.
Moreover, the plan has been slow to start rolling. It started in 2002, but the first data analysis is only now about to take place.
Johnson & Johnson’s money-back proposal on Velcade, known generically as bortezomib, was also made under some duress. An advisory body that decides which drugs the health service pays for in Britain, initially ruled against Velcade. The group said that although the drug had been approved to treat relapses of multiple myeloma, a cancer of the bone marrow, it was not cost effective.
Cancer patients protested, led by the Velcade Three — three Yorkshire women with multiple myeloma who confronted the nation’s health secretary and said they were being condemned to die. After patient groups and the company won an appeal forcing the matter to be reconsidered, Johnson & Johnson made its money-back offer as a way get the drug designated as cost-effective.
“At the end of the day all pharmaceutical companies want to ensure that all patients have access to their therapies,” said Kate Purcell, a spokeswoman for Johnson & Johnson.
Under the proposal, which the company’s Janssen-Cilag unit and the government hope to complete in the next few weeks, all patients would be eligible for four cycles of treatment, which costs about $24,000.
If the tumors appear to have shrunk by that point, as determined by a blood test, treatment would continue, usually for another four cycles, and the health service would pay. If tumors have not shrunk, treatment would stop and the company would pay back the money spent on the drug up to that point.
But Janssen-Cilag and the government advisory committee disagree on how much the tumors must shrink for treatment to continue.
The government is proposing at least a 50 percent reduction, known as a partial response, in a telltale protein produced by the tumors. The company is arguing that a 25 percent reduction, known as a minimal or minor response, should be enough. The company and some other experts argue that some patients who have only a minimal response after four cycles later go on to have complete remissions with further treatment.
“It just seems to me wrong to a patient if you’ve received a minor response rather than a partial response that you can’t go on and receive treatment,” said Dr. Paul S. Richardson, a researcher at the Dana-Farber Cancer Institute in Boston. He has led several Velcade clinical trials and has received speaking fees from Johnson & Johnson, which distributes the drug overseas, and from Millennium Pharmaceuticals, which developed the drug and sells it in the United States.
If the kinks are hard to work out in Britain, pay-for-performance pricing may be even harder to introduce in the United States, where patients help pay for their drugs.
Dr. Tunis, the former Medicare chief medical officer, said an American biotechnology company sought his opinion about whether to offer a money-back plan on a new cancer drug.
“I and others suggested a money-back guarantee on a cancer drug looked silly,” said Dr. Tunis, who is now director of the nonprofit Center for Medical Technology Policy. “ ‘Oh, I’m sorry your grandma died. Here’s your money back.’ ”
NYTimes 14.07.07
Johnson & Johnson has proposed that Britain’s national health service pay for the cancer drug Velcade, but only for people who benefit from the medicine, which can cost $48,000 a patient. The company would refund any money spent on patients whose tumors do not shrink sufficiently after a trial treatment.
The groundbreaking proposal, along with less radical pricing experiments in this country and overseas, may signal the pharmaceutical industry’s willingness to edge toward a new pay-for-performance paradigm — in which a drug’s price would be based on how well it worked, and might be adjusted up or down as new evidence came in.
“I think payers will say, ‘If the product works and it creates value, we will reward you for it,’ ” said Anthony Farino, a pharmaceutical industry consultant at PricewaterhouseCoopers. “ ‘If not, we won’t reward you.’ ”
It is far too soon to tell whether such a pricing paradigm can actually work, in particular because it can be difficult in many cases to measure how well a drug is working. And the approach would probably be most feasible in countries, like Britain, where the government is the primary payer.
But even here in the United States, Medicare and private insurers are already experimenting with new ways to create cost-justified payment systems for medical treatments.
The potential benefits might go beyond simply saving money. Pay-for-performance pricing could make it easier for patients and their doctors to try expensive treatments without busting the bank or forcing insurers to make all-or-nothing decisions about reimbursement.
That was the rationale behind another experiment that is already under way in Britain. Four makers of multiple sclerosis drugs have agreed eventually to lower the prices of their drugs — which can currently cost as much as $18,000 a year — if the medicines do not fully meet expectations.
GlaxoSmithKline also says it has made similar agreements with two European governments, although it declined to identify either the countries or the drugs involved.
Such “risk sharing” deals, as they are being called, would be harder to arrange in this country. “There’s no way we could ask for it and have any leverage,” said Dr. Lee N. Newcomer, senior vice president for oncology at the large American insurance company UnitedHealthcare. He said that state regulations and marketplace pressures make it virtually impossible for an insurer to refuse to pay for a drug that has been approved by the Food and Drug Administration, regardless of its price.
Yet UnitedHealthcare is trying a risk-sharing experiment with Genomic Health, a company that sells a $3,460 genetic test meant to help determine whether a woman with early-stage breast cancer would benefit from chemotherapy.
The insurer has agreed to pay for the test for 18 months while it and Genomic Health monitor the results. If too many women are still receiving chemotherapy even if the test suggests they do not need it, Dr. Newcomer said, UnitedHealthcare will seek to negotiate a lower price on the ground that the test is not having the intended impact on actual medical practice.
“The point is to try to make the manufacturer responsible for how their product is used in the medical marketplace,” he said.
Genomic Health said it could not comment on individual contracts but acknowledged it was working with various payers on performance-based contracts.
The pharmacy benefit management arm of Cigna, another big American insurer, has a more audacious idea. It is trying to persuade the makers of cholesterol-lowering pills to agree to pay the medical expenses of patients who suffer heart attacks even though they have been steadfastly taking their medicine.
“It’s their opportunity to show they stand behind their medication and are confident of the results,” said Thom Stambaugh, the chief clinical officer for Cigna Pharmacy Management. He said that the drug companies seemed interested in at least considering the proposition.
Pfizer, which makes the best-selling cholesterol pill Lipitor, said it did not comment on confidential discussions with individual managed care organizations, though it was always receiving proposals.
Medicare, meanwhile, has agreed to pay for certain expensive products or procedures — like some implantable heart defibrillators and the use of PET scans to detect dementia — only if the patients participate in studies to assess the long-term benefits.
Medicare could eventually use such data to decide whether to pay for the product or procedure. However, it does not have the authority to negotiate prices, said Dr. Sean Tunis, a former chief medical officer of Medicare and a major architect of the evidence-gathering policy.
Some companies that sell expensive drugs — including Genentech, which makes cancer treatments, and Genzyme, which makes drugs for rare diseases — said they were not involved in or considering any risk-sharing plans. They said they already helped make their drugs available to patients who cannot afford them. Genentech also said it was working on tests to better determine which patients should get a drug in the first place.
But drug companies might need to be more flexible in countries like Britain, where drugs are paid for only if they are deemed cost-effective — as measured by how much the health system must pay to achieve certain gains in the length and quality of patients’ lives.
“If we didn’t enter into the risk-sharing scheme, we wouldn’t really have a market here in the U.K,” said Pete Smith, a manager in Britain for Biogen Idec. The company makes Avonex, a multiple sclerosis drug that costs the equivalent of about $18,000 a year in Britain and is covered under the risk-sharing arrangement.
Under the plan, about 5,000 M.S. patients are being followed for 10 years to see how well the drugs do in slowing the progression of the disease. The prices of the drugs will be adjusted along the way, so that they remain within a certain limit in terms of cost-effectiveness.
But measuring improvements in the quality of life is an imprecise science at best. The scale used to measure the disease’s severity, for example, focuses too much on a patient’s mobility and not enough on other problems associated with multiple sclerosis, like fatigue and mental decline, said Nicola Russell, director of services for the MS Trust, a philanthropy that administers the program. “We’re stuck with it because nobody’s come up with anything better,” she said.
Moreover, the plan has been slow to start rolling. It started in 2002, but the first data analysis is only now about to take place.
Johnson & Johnson’s money-back proposal on Velcade, known generically as bortezomib, was also made under some duress. An advisory body that decides which drugs the health service pays for in Britain, initially ruled against Velcade. The group said that although the drug had been approved to treat relapses of multiple myeloma, a cancer of the bone marrow, it was not cost effective.
Cancer patients protested, led by the Velcade Three — three Yorkshire women with multiple myeloma who confronted the nation’s health secretary and said they were being condemned to die. After patient groups and the company won an appeal forcing the matter to be reconsidered, Johnson & Johnson made its money-back offer as a way get the drug designated as cost-effective.
“At the end of the day all pharmaceutical companies want to ensure that all patients have access to their therapies,” said Kate Purcell, a spokeswoman for Johnson & Johnson.
Under the proposal, which the company’s Janssen-Cilag unit and the government hope to complete in the next few weeks, all patients would be eligible for four cycles of treatment, which costs about $24,000.
If the tumors appear to have shrunk by that point, as determined by a blood test, treatment would continue, usually for another four cycles, and the health service would pay. If tumors have not shrunk, treatment would stop and the company would pay back the money spent on the drug up to that point.
But Janssen-Cilag and the government advisory committee disagree on how much the tumors must shrink for treatment to continue.
The government is proposing at least a 50 percent reduction, known as a partial response, in a telltale protein produced by the tumors. The company is arguing that a 25 percent reduction, known as a minimal or minor response, should be enough. The company and some other experts argue that some patients who have only a minimal response after four cycles later go on to have complete remissions with further treatment.
“It just seems to me wrong to a patient if you’ve received a minor response rather than a partial response that you can’t go on and receive treatment,” said Dr. Paul S. Richardson, a researcher at the Dana-Farber Cancer Institute in Boston. He has led several Velcade clinical trials and has received speaking fees from Johnson & Johnson, which distributes the drug overseas, and from Millennium Pharmaceuticals, which developed the drug and sells it in the United States.
If the kinks are hard to work out in Britain, pay-for-performance pricing may be even harder to introduce in the United States, where patients help pay for their drugs.
Dr. Tunis, the former Medicare chief medical officer, said an American biotechnology company sought his opinion about whether to offer a money-back plan on a new cancer drug.
“I and others suggested a money-back guarantee on a cancer drug looked silly,” said Dr. Tunis, who is now director of the nonprofit Center for Medical Technology Policy. “ ‘Oh, I’m sorry your grandma died. Here’s your money back.’ ”
NYTimes 14.07.07
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