Indication-based pricing is a method used to reimburse drug makers according to a drug’s indication-specific value when the drug has multiple indications. A number of healthcare payers have already implemented or are planning to implement IBP, including Express Scripts, the largest US pharmacy benefit manager.
Indication-based pricing (IBP) is a method used to reimburse drug makers according to a drug’s indication-specific value when the drug has multiple indications. A number of healthcare payers have already implemented or are planning to implement IBP, including Express Scripts, the largest US pharmacy benefit manager. Express Scripts uses IBP for reimbursement determination for 3 anticancer drugs, and may be expanding its use to other oncologic and autoimmune conditions.
Although IBP is promising, the model is limited by the fact that efficacy estimates are typically based on clinical trial data to determine the expected value of a drug for each indication, but in many cases, estimates derived from efficacy data differ from effectiveness data derived from real-life experience in the patient population of a health plan.
Writing in the October 2017 issue of the Journal of Managed Care Specialty Pharmacy, Kai Yeung, PharmD, PhD, and colleagues say that their research shows that adapting outcomes-guarantee contracts to IBP helps achieve IBP supported by real-world effectiveness. An outcomes guarantee is a type of performance-based risk-sharing arrangement in which an outcome target and reimbursement level are agreed on by the payer and manufacturer, and outcomes are tracked prospectively. If a drug fails to meet its outcome target, the manufacturer provides financial adjustments to the payer to achieve the agreed-upon reimbursement level. In theory, manufacturers could also receive a higher price if the drug outperforms its expectation.
The authors illustrate their point using a simulated case study of trastuzumab for the treatment of metastatic breast and gastric cancers. The authors estimated costs and outcomes under traditional IBP (expected value IBP) and outcomes-guarantee frameworks, and calculated incremental cost-effectiveness ratios (ICERs) comparing treatment with and without trastuzumab. Efficacy data were acquired from pivotal trials, whereas effectiveness data came from observational studies. “We adjusted trastuzumab prices in order to achieve target ICERs of $150,000 per quality-adjusted life-year (QALY) under each framework and for each indication,” they wrote.
To achieve the ICER target under traditional IBP, the unit price of trastuzumab using efficacy evidence was adjusted for metastatic breast and advanced gastric cancers from an average sales price of $9.17 per mg to $3.50 and $0.93 per mg, respectively. Under an outcomes guarantee, the unit price of tratuzumab using effectiveness evidence was adjusted for metastatic breast cancer and advanced gastric cancer to $8.66 and $0.20 per mg, respectively. Thus, the researchers were able to show that, relative to an outcomes-guarantee contract, a traditional IBP would be likely to produce an underpayment for metastatic breast cancer and an overpayment for advanced gastric cancer.
“Hence, if a health plan had used an expected value IBP, it would have overpaid in gastric cancer and underpaid in breast cancer according to the actual value that was realized,” the authors write. “This illustrative example demonstrates the potential use of outcomes-guarantee contracts in implementing IBP and addressing uncertainty in real-world effectiveness.” They conclude that payers and manufacturers who wish to implement a value-based purchasing scheme for pharmaceuticals should consider outcomes-guarantee contracts when the real-world value is uncertain and when analytic resources are available to support such agreements.