Moving Beyond Price-Per-Dose In The Pharmaceutical Industry

Editor’s note: The blog was first published on Health Affairs on September 30, 2015. 

The United States has experienced extraordinary gains in treating cardiovascular disease over the last few decades. Statins, introduced in the 1980’s, are an important part of the story. Hundreds of thousands of deaths, heart attacks, and strokes have been prevented due to lower cholesterol, and the health benefits—appropriately valued—exceed $1.2 trillion. Evidence suggests there are around 40,000 fewer deaths and 60,000 fewer heart attacks annually because of these drugs. With sales that peaked around $30 billion annually, this makes statins—many of which are now generic—a very good deal.

A new generation of lipid-lowering therapies, PCSK9-inhibitors, will soon reach the market and could further extend these gains. These drugs significantly lower bad cholesterol levels (LDL) in the blood. For those who have exhausted other treatment options, PCSK9-inhibitors may reduce cardiovascular events by as much as 50 percent. However, given their announced prices, some payers are nervous about their use. And, given the benefits of statins, some might ask why PCSK9-inhibitors (PCSK9i) are needed.

Surprisingly, almost one-third of high-risk statin users are not reaching recommended lipid-lowering goals. Thus, while we have come a long way, many patients are still missing out on the benefits of lipid-lowering therapies.

The problem here is our creaky model of pharmaceutical pricing, which now threatens to deprive patients of these and other breakthroughs to come. For decades, the vast majority of drug manufacturers and payers have relied on pricing per dose, be it a pill, a milligram, or the like. While simple and convenient, the “price-per-dose” (PPD) model produces a number of well-known side effects that are now becoming increasingly severe.

PPD Limits Access To Novel Drugs

Setting a single unit price for a drug may be straightforward when it produces reliable and known clinical benefits in patients – in other words, when its mechanism of action has been observed for years in trials and real-world settings. The clinical benefits of novel drugs, however, remain inherently more uncertain.

Payers often respond to this uncertainty by delaying access to novel agents until convincing evidence arrives – sometimes years after product launch. In the case of PCSK9i, payers already seem poised to delay widespread access until clear and definitive evidence of cardiovascular event risk-reduction arrives. Unfortunately, this is likely to take another 2-4 years, which could mean thousands of adverse cardiovascular events in the meantime.

PPD Drives Up Prices For Patients That Derive Moderate Clinical Benefit

When manufacturers must set a single price for each dose, they predictably focus on patients with the very most to gain. This may sound appealing, but in many cases, the clinical benefits of new drugs vary across patient groups. Large numbers of patients stand to gain moderate amounts from a new drug, and added up over an entire population, these gains can be substantial.

With PCSK9-inhibitors, few doubt that patients with familial hypercholesterolemia whose LDL exceeds 500 mg/dL will get the new drugs. However, what about other high-risk patients whose LDL continues to exceed the recommended threshold of 70 mg/dL? The value created for these patients almost surely outweighs the cost of manufacturing the drugs. Failure to provide access thus represents a wasteful and inefficient outcome.

PPD Distorts The Dosing Decisions Of Physicians And Patients

Buying two bunches of bananas naturally costs twice as much as one bunch. Twice as many bananas can feed twice as many people. However, why should a patient who responds best to a 100 mg injection pay twice as much as another who happens to need a 50 mg version?

The 100 mg patient rarely receives twice as much value as her 50 mg peer. Even worse, charging more to patients on higher doses discourages physicians from titrating dosage upward, even when it is clinically warranted. What’s more, PPD forces us into a copayment model where patients are penalized for better adherence.

The Solution Is To Tie Reimbursement To Value

So what is the answer? We need to sever the link between price and doses for everyone, including patients. The best solution may be to reimburse pharmaceutical companies for PCSK9i therapies on the basis of heart disease risk—something cardiologists are already good at classifying—and to eliminate copayments per prescription regardless of patient risk. The highest risk group includes those with genetic disorders that elevate their cholesterol to dangerous levels, and who develop heart disease at a very early age. For these patients, the currently announced price of about $13,000/annually is a great deal.

But the answer is not to restrict the drugs just to this group. For other high-risk patients with less elevated cholesterol—e.g., atherosclerotic cardiovascular disease patients for whom statins lower LDL significantly, but not all the way to goal—a different, lower price should apply. With this differential pricing, payers would no longer have incentives to limit coverage. And, prescribing decisions would focus on the clinically optimal way to lower LDL, instead of on the least expensive dosing strategy.

Plans should pay manufacturers relatively more when the patient’s diagnosis warrants it, and less when the evidence base does not support such a price. This will also mean higher patient cost-sharing in the latter case.

We Need To Remove Barriers To Novel Pricing

Such economic arrangements face many obstacles, in spite of the obvious benefits. The first challenge is regulatory: how will such pricing arrangements be viewed by Medicaid?

Medicaid best-price rules make drug manufacturers reluctant to offer pricing schedules that could, in theory, result in very low unit prices for some groups of patients. The appearance of low unit prices in one or two market segments could theoretically drive down the prices paid by all state Medicaid agencies. As a result of this risk, Medicaid best-price rules have transformed the private insurance market in the US into one of the world’s least innovative testing grounds for new pricing strategies, even compared to public-sector payers overseas.

The second challenge concerns outcomes measurement. Who will assess the LDL reduction, or cardiovascular event-reduction, and how will it be measured? This problem, and its solution, is more common than it appears – for instance, acquisitions and mergers often depend on measuring financial performance. The typical solution is the use of a third-party auditor to verify measurement claims by, in this case, the payer. If we can develop protocols to monitor nuclear facilities in places like Iran, we can probably figure this one out.

Progress in biology and science has outstripped our economic institutions. Innovation in the pricing and reimbursement of pharmaceutical therapy is long overdue. Many challenges remain, but denying patients access to efficacious products is not the “safe” solution. The real risk lies in continuing business as usual, while patients bear the costs of delays and denials. If we price it right, perhaps we can make the next few decades as productive as the last few.