Heather A. Brand, PharmD, MSPBA Candidate

Historically, pharmaceutical manufacturers have reaped the benefits of operating independently in pricing and discounting drugs based on volume sold in the United States.

This model, unshared by any other health care system in the world, has resulted in Americans subsidizing the cost of pharmaceuticals for the rest of the world’s population. Total health care expenditure in the United States reached $3 trillion in 2014, making it the most expensive in the global market.

Of this $3 trillion, drug expenditure represents the fastest-growing and most dynamic segment.  Last year was the second time the US drug trend realized a double-digit growth trend, consuming $425 million of the health care budget.

However, despite the fact that Americans pay the highest price for their medications and health care, the United States is consistently ranked the worst among developed nations in terms of delivering health-related outcomes. One survey showed Americans had the lowest scores in 3 indicators of overall health: mortality amenable to medical care, infant mortality, and healthy life expectancy at age 60.

In the current model, the relationship between the pharmaceutical manufacturer, the payer, and the patient ends at the point of sale.  However, this model is being challenged by the rise of performance-based contracting, which dictates that a manufacturer links the amount it charges for a particular medication to the value that it actually creates in the marketplace. 

There are multiple forces in the industry catalyzing this transition. One force in particular is the rise in the number of high-priced biopharmaceuticals, which bars the increased access touted by the Affordable Care Act. 

The rise in high deductible health care plans that have shifted a large portion of the expense to patients has created a significant barrier to therapy. Cries for cost-containment have magnified in the wake of this trend, as have demands for better outcomes from patients who are more financially vested in their health decisions.   

The advances in big data are another catalyst. Large pools of data have created an opportunity for health care providers and payers to accumulate, digest, and utilize drug adherence, utilization and efficacy data. 

Placement on formularies is becoming dictated by the ability of the manufacturer to go beyond gaining FDA approval. Pharmaceutical companies are now called to present proof of comparative benefit in terms of improved health outcomes to secure access to the large numbers of patients represented by a pharmacy benefit manager (PBMs). 

Insurers armed with stronger and more robust metrics and tools are poised to experiment with new contracting models moving forward. The transition to outcomes-based reimbursement is already evident in the US marketplace. 

The introduction of PCSK9 inhibitors heightened the sensitivity of payers to high-cost therapies, as this was the first time specialty pricing threatened to encroach on the management of a common chronic condition. 

Cigna abruptly re-strategized negotiations to secure value-based contracts with PCSK9 manufacturers Sanofi and Amgen. Terms of the contract enable Cigna to collect further discounts off the negotiated price if members fail to achieve low-density lipoprotein (LDL)-lowering synonymous to what was achieved and presented in clinical trials.

Other insurers and PBMs, such as Express Scripts, have negotiated similar deals targeting high-cost medications, such as those used to treat malignancies and hepatitis C.

 Despite the growing level of interest in pursuing outcome-based reimbursement models, many remain cautious. 

The administrative expense and complexity of tracking outcomes is daunting to a system built and accustomed to a pay for volume model. In 2012, only 16% of health plans utilized novel payment models based on patient outcomes, but 37% expected to pursue alternative payment models in the near future.

Barriers to adoption of such models include the lack of data infrastructure and the complexity of negotiating contracting with manufacturers. Layered on top of these hurdles is the timeline of tracking and attributing outcomes that characteristically do not become evident for years. 

While LDL lowering can be expected in a relatively short period of time and demonstrated with routine blood work, other outcomes are more difficult to assess. For example, a reduction in the cardiovascular risk of a patient receiving therapy with PCSK9 inhibitors, which is the anticipated results of the long-term phase 3 outcome trials currently underway, is a more difficult metric to track. 

The complexity of tracking long-term outcomes of patients increases as they change insurers, jobs, or leave private insurers to become a Medicare beneficiary. The specialty pharmacy business model is one strategy leveraged to track long-term outcomes.

Manufacturers pursue limited distribution networks for novel therapies and house data mining within these networks. In this manner, outcomes data remains with the patient, and can theoretically be accessed by all stakeholders despite changes in employers or insurers. 

However, questions over ownership and the right to access of this information may challenge the ability of payers to leverage the information to negotiate alternative payment contracts. True collaboration amongst all stakeholders in the form of data sharing is required to eliminate waste and maximize patient outcomes. 

While the industry continues to receive growing criticism for the prices it charges for new drugs, strategies to contain costs must be careful to not curb innovation. Pharmaceutical manufacturers are going to be challenged in the future to set prices that optimize access, while also ensuring the research and development departments of their companies have the resources available to continue revolutionizing patient care.  

Heather Brand earned her BA in Chemistry and PharmD from the University at Buffalo, SUNY. She worked for an oncology based pharmacy for six years prior to transitioning to a consultant role for a benefits management firm. She is currently enrolled in the Masters of Science in Pharmacy Business Administration (MSPBA) program at the University of Pittsburgh, a 12-month, executive-style graduate education program designed for working professionals striving to be tomorrow’s leaders in the business of medicines.

Centers for Medicare & Medicaid Services. National Health Expenditure Data.  December 2015. 

https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/nationalhealthexpenddata/nationalhealthaccountshistorical.html

IMS Institute for Healthcare Informatics, Medicines Use and Spending in the U.S. A Review of 2015 and Outlook to 2020. 

http://www.imshealth.com/en/thought-leadership/ims-institute/reports/medicines-use-and-spending-in-the-us-a-review-of-2015-and-outlook-to-2020#form

Davis K, Stremikis K, Squire D, Schoen C.  Mirror, mirror on the wall: How the performance of the U.S. healthcare system compares internationally. June 2014.  

http://www.commonwealthfund.org/~/media/files/publications/fundreport/2014/jun/1755_davis_mirror_mirror_2014.pdf

Cigna’s Newsroom.  Cigna’s two new value-based contracts with pharma for PCSK9 inhibitor cholesterol drugs tie the financial terms to improved customer health. 11 May 2016.  

http://www.cigna.com/newsroom/news-releases/2016/cignas-two-new-value-based-contracts-with-pharma-for-pcsk9-inhibitor-cholesterol-drugs-tie-financial-terms-to-improved-customer-health

Loftus P and Wilde-Matthews A. Health insurers push to tie drug prices to outcomes. Wall Street Journal. 11 May 2016. 

http://www.wsj.com/articles/health-insurers-push-to-tie-drug-prices-to-outcomes-1462939262

Unleashing value: The changing payment landscape for the US pharmaceutical industry. Health Research Institute. May 2012. 

http://pwchealth.com/cgi-local/hregister.cgi/reg/pharma-reimbursement-value.pdf

Articles

Pharmaceutical manufacturers historicially reaped the benefits of operating independently in pricing and discounting drugs based on volume sold in the United States. 

The Importance of Outcomes in High Cost Drug Therapies

		Centers for Medicare & Medicaid Services. National Health Expenditure Data.  December 2015. 

		IMS Institute for Healthcare Informatics, Medicines Use and Spending in the U.S. A Review of 2015 and Outlook to 2020. 

		Davis K, Stremikis K, Squire D, Schoen C.  Mirror, mirror on the wall: How the performance of the U.S. healthcare system compares internationally. June 2014.  

		Cigna’s Newsroom.  Cigna’s two new value-based contracts with pharma for PCSK9 inhibitor cholesterol drugs tie the financial terms to improved customer health. 11 May 2016.  

		Loftus P and Wilde-Matthews A. Health insurers push to tie drug prices to outcomes. Wall Street Journal. 11 May 2016. 

		Unleashing value: The changing payment landscape for the US pharmaceutical industry. Health Research Institute. May 2012. 

The biggest spender doesnâ€™t always come out ahead in the world of specialty medications.

The Demand for Outcomes in the US Drug Market

Historically, pharmaceutical manufacturers have reaped the benefits of operating independently in pricing and discounting drugs based on volume sold in the United States. This model, unshared by any other health care system in the world, has resulted in Americans subsidizing the cost of pharmaceuticals for the rest of the world’s population. 

Total health care expenditure in the United States reached $3 trillion in 2014, making it the most expensive in the global market.

 Of this $3 trillion, drug expenditure represents the fastest-growing and most dynamic segment. 

Last year was the second year the drug trend in the United States realized a double-digit growth trend, consuming $425 million of the health care budget.

 However, despite the fact that Americans pay the highest price for their medications and health care, the United States is consistently ranked the worst among developed nations in terms of delivering health-related outcomes. 

One survey showed Americans had the lowest scores in 3 indicators of overall health: mortality amenable to medical care, infant mortality, and healthy life expectancy at age 60.

 In the current model, the relationship between the pharmaceutical manufacturer, the payer, and the patient ends at the point of sale. 

However, this model is being challenged by the rise of performance-based contracting, which dictates that a manufacturer links the amount it charges for a particular medication to the value that it actually creates in the marketplace. There are multiple forces in the industry catalyzing this transition. 

One force in particular is the rise in the number of high-priced biopharmaceuticals, which bars the increased access touted by the Affordable Care Act. The rise in high deductible health care plans that have shifted a large portion of the expense to patients has created a significant barrier to therapy. Cries for cost-containment have magnified in the wake of this trend, as well as demands for better outcomes from patients who are more financially vested in their health decisions.   

The advances in big data is another catalyst. Large pools of data have created an opportunity for health care providers and payers to accumulate, digest, and utilize drug adherence, utilization, and efficacy data. 

Placement on formularies is becoming dictated by the ability of the manufacturer to go beyond gaining FDA approval. Pharmaceutical companies are now called to present proof of comparative benefits in terms of improved health outcomes to secure access to the large numbers of patients represented by a pharmacy benefit manager (PBM).

The introduction of PCSK9 inhibitors, a novel treatment for high cholesterol, heightened the sensitivity of payers to high cost therapies, as it was the first time specialty pricing threatened to encroach on the management of a common chronic condition. Cigna abruptly re-strategized negotiations to secure value-based contracts with manufacturers Sanofi and Amgen. 

Terms of the contract enable Cigna to collect further discounts off the negotiated price if members fail to achieve LDL lowering synonymous to what was achieved and presented in clinical trials.

 Other insurers and PBMs, such as Express Scripts, have negotiated similar deals targeting high-cost medications, such as those used to treat malignancies and hepatitis C.

Despite the growing level of interest in pursuing outcomes-based reimbursement models, many remain cautious. The administrative expense and complexity of tracking outcomes is daunting to a system built and accustomed to a pay for volume model. 

In 2012, only 16% of health plans utilized novel payment models based on patient outcomes, but 37% expected to pursue alternative payment models in the near future.

 Barriers to adoption of such models include the lack of data infrastructure and the complexity of negotiating contracting with manufacturers. Layered on top of these hurdles is the timeline of tracking and attributing outcomes that characteristically do not become evident for years. 

While LDL lowering can be expected in a relatively short period of time and demonstrated with routine blood work, other outcomes are more difficult to assess. For example, a reduction in the cardiovascular risk of a patient receiving therapy with a PCSK9 inhibitor, which is the anticipated results of the long-term phase 3 outcome trials currently underway, is a more difficult metric to track. The complexity of tracking long-term outcomes of patients increases as they change insurers, jobs, or leave private insurers to become a Medicare beneficiary. 

The specialty pharmacy business model is one strategy leveraged to track long-term outcomes. Manufacturers pursue limited distribution networks for novel therapies and house data mining within these networks. In this manner, outcomes data remains with the patient, and can theoretically be accessed by all stakeholders despite changes in employers or insurers. 

However, questions over ownership and the right to access this information may challenge the ability of payers to leverage the information to negotiate alternative payment contracts. True collaboration amongst all stakeholders in the form of data sharing is required to eliminate waste and maximize patient outcomes. 

 earned her BA in Chemistry and PharmD from the University at Buffalo, SUNY. She worked for an oncology based pharmacy for six years prior to transitioning to a consultant role for a benefits management firm. She is currently enrolled in the Masters of Science in Pharmacy Business Administration (MSPBA) program at the University of Pittsburgh, a 12-month, executive-style graduate education program designed for working professionals striving to be tomorrow’s leaders in the business of medicines.  

		Centers for Medicare & Medicaid Services.  National Health Expenditure Data.  December 2015.  

		IMS Institute for Healthcare Informatics,  Medicines Use and Spending in the U.S.  A Review of 2015 and Outlook to 2020. 

		Davis K, Stremikis K, Squire D, Schoen C.  Mirror, mirror on the wall: How the performance of the U.S. healthcare system compares internationally.  June 2014.  

		Cigna’s Newsroom.  Cigna’s two new value-based contracts with pharma for PCSK9 inhibitor cholesterol drugs tie the financial terms to improved customer health.  11 May 2016.  

		Loftus P and Wilde-Matthews A.  Health insurers push to tie drug prices to outcomes.  Wall Street Journal.  11 May 2016.  

		Unleashing value: The changing payment landscape for the US pharmaceutical industry.  Health Research Institute.  May 2012.  

Performance-based contracting is challenging the current paradigm in specialty pharmacy.