Novel Treatments Challenge Traditional Reimbursement

Paying for high-cost, breakthrough drugs is one of healthcare's abiding challenges—and tied to so many of the "pre-existing" conditions that plague the industry as it tries to innovate.

If a drugmaker developing novel therapies created an online dating profile, it might read something like this: 

Caught-in-the-headlines innovator desperately seeks reimbursement strategy for a wide variety of relationships: one-time, short-term, or ongoing. Must be comfortable with controversy and difficult conversations around money. Problem-solvers desired, skeptics need not apply.

Matches and responses to such a profile might be slow to roll in. Why? Because paying for high-cost, breakthrough drugs is one of healthcare’s abiding challenges—and tied to so many of the "pre-existing" conditions that plague the industry (cost, quality, and access) as it seeks to innovate. These challenges are amplified for novel therapies, especially one-and-done curative treatments. A growing number of solutions are emerging, however.

The state of novel therapies

First things first. "Novel therapies" refer to the growing number of cellular, genetic, and other biological treatments that, per the Food & Drug Administration (FDA) "serve previously unmet medical needs … [and] have chemical structures that have never been approved before." Think stem cell treatments, most of which target cancer and rare, inherited diseases. The Alliance for Regenerative Medicine (ARM) reports that only 60 products, roughly, have been approved for use—only a fraction by the FDA and many not available in the United States.

Novel therapies often address so-called "orphan diseases," defined by the U.S. Orphan Drug Act as affecting less than 200,000 people. MedicineNet frames the issue more bluntly, commenting that an orphan disease is one that has "not been adopted by the pharmaceutical industry because it provides little financial incentive for the private sector to make and market new medications to treat or prevent it." There are manufacturers that do, with the FDA offering distinct approval pathways for orphan and other breakthrough therapies for rare diseases.

Controversy continues

These therapies are not without controversy. The FDA's recent approval of Biogen to treat Alzheimer's disease set off a firestorm, not only for its cost but the questionable clinical benefit that did not stop FDA approval. High drug costs are hardly a new headline in healthcare. But Biogen’s bad press—and historical bad actors such as 2015’s price-hiking "pharm bro" Martin Shkreli—make it more difficult to separate pricing from other issues, including solutions.

Biogen’s $56,000 annual cost, for example, is small compared to limited and even single use ("one-and-done") therapies. Many of these are the aforementioned cell- and gene-based treatments with a cure versus maintenance focus. Zolgensma, a one-time therapy for spinal muscular atrophy, costs $2.1 million. Despite this price tag, The American Journal of Managed Care (AJMC) reports that it has "set the pricing precedent for gene therapies."

The current landscape

A $2 million precedent doesn’t make payers’ jobs any easier. Some aspects of the current stem cell and genetic reimbursement landscape may help. Today, stem cell implants can be reimbursed one of four ways for private insurance: case rates, per diem rates, a percentage of billed charges, or a percentage of Medicare diagnostic-related group (DRG) charges which (along with current procedural terminology (CPT) codes) are the basis of Medicare payment as well.

The real challenge is one-and-done, curative therapies. The Alliance for Regenerative Medicine (ARM) has identified the crux of the problem. "While these therapies can provide significant direct and indirect savings in medical costs over time, their potentially high upfront cost can create a significant burden on existing reimbursement systems … If paid for as drugs are today, the cost of regenerative [curative] medicines … would be incurred up front and could present a financing challenge for some insurers."

As the AJMC notes, what payers are lacking are cost-effectiveness thresholds (CETs): "the maximum cost at which the treatment is deemed to be cost-effective and the cost is justified"—for future gene therapies (2020). The value proposition depends upon efficacy (short- and long-term) and lifetime savings, none of which are guaranteed nor easy to prove.

Getting it done

Noting that "[a]s more gene, cell and tissue-based therapies reach the market, the need for payment solutions is more pressing," ARM has identified multiple payment alternatives for one-and-done therapies that distribute cost and risk over time. These include:

• Installment payments: Made over time with amounts and frequency based on lifetime patient benefit calculation. 
   
• Value-Based: Manufacturer reimbursement based on pre-defined health outcomes, with payment including discounts, rebates, and money-back guarantees.
   
• Hybrid: Value-based model with incentive payments extended over more time.

Novartis is but one manufacturer getting onboard, including a hybrid financing-reimbursement solution for the previously mentioned Zolgensma that includes a five-year payment plan and partial rebates if the drug is not effective.

Each approach faces implementation barriers already common to healthcare innovation, from accounting rules based on point-of-service payment to coverage portability to the FFS chassis that still limits value-based purchasing strides. All of these require legal and/or regulatory intervention. Multiple, multi-stakeholder initiatives have emerged to address, including the Biotechnology Innovation Organization (BIO), the Institute for Clinical and Economic Review (ICER), the American Society of Gene and Cell Therapy (ASGCT), and the MIT-based NEWDIGS (New Drug Development ParadIGmS).

NEWDIGS, for example, is "focused on enhancing the capacity of the global biomedical innovation system to reliably and sustainably deliver new, better, affordable therapeutics to the right patients faster." Initiative members include manufacturers, payers, providers, industry groups, and even venture capital firms. Anthem, the Blue Cross Blue Shield Association, Harvard Pilgrim Health Care, Humana, Kaiser Permanente, and UnitedHealthcare participate on the insurer side. 

Full-scale intervention is necessary. The ARM writes: "No one entity can achieve these changes on its own, nor will every solution be ideally suited to each new therapy or circumstance." Innovative therapies that lack innovative financing and reimbursement will strain industry attempts to make healthcare more accessible and affordable. More initiatives will be needed to help payers partner with drugmakers, government, and other stakeholders for solutions.