Executives Grapple With New Realities in Drug Pricing

Key biopharmaceutical markets outside the United States are focusing on drug prices, and the increased use of biosimilars is a key part of their strategy, according to a report from the PwC Health Research Institute (HRI).

In addition, pricing models for drugs are changing, reflecting the realities of trying to balance access and affordability for innovative and even curative therapies while setting pricing decisions that create stability and future development.

The report says 6 pricing models are being used to account for these changes. Two of them—financial risk-based contracts and health outcomes contracts—are examples of value-based contracts. These types of contracts are being aided by new technology for monitoring patients and gathering health data so that payment can be guided by real-world evidence, as opposed to results from clinical trials.

The other 4 models are mortgage models, subscription or “Netflix” models, indication-specific pricing, and volume-based purchasing.

Mortgage models are suitable for products that aren’t facing direct competition, such as immunotherapy products for oncology, orphan drugs targeting rare diseases, or emerging gene and cell therapies.

In subscription or so-called “Netflix” models, purchasers pay a subscription fee to a drug company for unlimited access to the drug. In the United States, the model is being used by the states of Washington and Louisiana for drugs that treat hepatitis C.

In indication-specific contracts, which are more common in the United States than in Europe, payment is higher for a drug when it is highly effective in treating 1 disease, but less for uses in which it is not as effective. Biologics are one common example, as they often receive approval for multiple indications.

Volume-based pricing models are less relevant for high-cost specialty drugs or biologics, where the use of value-based contracts is on the rise, according to the report.

US drug company executives could look to the experience of global markets when thinking through pricing issues, the report suggested. In France, for example, pharmacy-level substitution is generally permitted, and the country intends to reach a goal of 80% biosimilar penetration by 2022, the report said. The country also uses “clawback” clauses whereby the government receives money back for spending over a negotiated capped revenue amount.

Canada and Japan are using cost-effectiveness strategies more frequently. In Germany, a bill to allow for biosimilar substitution was introduced; if it passes, it would be phased in over 3 years.

In the United States, executives surveyed by HRI are most worried about the adoption of an international price index (IPI) for physician-administered drugs in Medicare Part B.

Importing cheaper drugs directly from other countries, such as Canada, and changing the rebate safe harbor to lower drug list prices were the second and third main concerns. Mandating value or outcome-based payment in Medicare of Medicaid was a close fourth.

Last year, Vermont passed a law allowing for the importation of high-cost drugs from Canada, and in Florida, Republican Governor Ron Desantis made the issue an early priority of his administration; however, HHS must approve state importation programs before they can proceed.

The focus on patients’ out-of-pocket costs for prescription drugs is highlighting the role that transparency is playing in the pricing discussion, the report said; besides the issue of transparency, executives said the traditional drug pricing model is most threatened by changes to Medicare and Medicaid and the emergence of curative therapies.