Indication-Specific Pricing and Biosimilars

Stan R. Mehr

Value-based health care has forced several systemic changes.

The winds of change are blowing, and they are blowing throughout the health care industry. Value-based health care has forced several systemic changes, including movement from fee-for-service based reimbursement to alternative models, including shared savings and risk sharing.

One of the most powerful blasts has been the discussion over outcomes-based and risk-based contracts for pharmaceuticals. These are being discussed more commonly at trade and professional meetings. Outcomes-based contracting sounds, at this point, like the way things are heading, but the devil is in the details in this form. Many payers are taking a wait-and-see attitude, specifically waiting for the results of large, leading-edge organizations’ efforts to see if they are successful. They may be waiting a long time, though. In order to do a truly transparent return-on-investment analysis, one has to know how the contract was structured and the extent of the pharmaceutical company’s risk. Yet health plans and insurers, and drug manufacturers, have been highly protective of this proprietary information, unwilling to give the competition any hints about contract specifics.

However, one type of alternative reimbursement model that has been the subject of a bit less press is the indication-specific pricing (ISP) contract. Under ISP, the payer and pharmaceutical partner sets different levels of pricing for each indication or for patient subpopulations eligible for treatment. It is a logical step in alternative reimbursement models, because a medicine that is approved for multiple indications may not be as effective for each indication. Think of it this way: why should the health system pay the same price, on a per-dose basis, for a drug that is only 40% effective in treating psoriasis versus 75% effective in relieving the symptoms of psoriatic arthritis? Or a cancer drug that is far more effective in treating early stage colorectal cancer than in advanced stage non—small cell lung cancer?

The result is a misalignment between value of the intervention and its cost to patients, plans, and society. Indication-specific pricing is not without precedent. One classic example is the use of sildenafil as a erectile dysfunction medication (Viagra®) vs. the higher-priced Revatio


for pulmonary arterial hypertension. Players like Express Scripts are looking at ISP for gaining value in cancer agents with multiple indications.

How can ISP be used in biosimilar introductions? Any of the key anti-inflammatory originator agents have multiple indications, and biosimilars have been tested generally in one of them in clinical trials. The US Food and Drug Administration (FDA) may decide further to extrapolate to other indications based on the totality of evidence in terms of a biosimilar’s structural, pharmacologic, pharmacodynamics, and mechanism of action. What if, to help clinicians gain comfort with the biosimilar and increase rapid uptake, the indication for which the medication was clinically tested was priced at a lower level than for other indications? It is highly unlikely that the maker of an originator product will want to match this pricing scheme.

Although ISP has several challenges, including the big one—how to identify the indication for which the drug was prescribed—it is not impossible. The winds of change may be blowing this way.