Boomerang Effect Of Gene Therapy on Oncology Contracting

The economics of one and done gene therapies dictate a revenue model that requires outcomes-based risk.

VALUE-BASED CONTRACTING OVERVIEW

Managed care is undergoing a sea change in provider reimbursement. Historically rooted in fee-for-service, a movement is underway to shift payment to various value-based forms. Focusing just on pharma and health insurance where contracts had been shaped by rebates for formulary access, managed care strategy is beginning to incorporate access contracts with rebates if products fail to deliver some level of value.

Value-based contracts cover a variety of arrangements.

These include:

  • indication-specific coverage
  • patient outcomes
  • patient adherence
  • preventing hospital readmissions
  • total cost of care

The last four can all be considered “outcomes” arrangements.

There are two sides to the value-based movement in pharma contracting. On the one hand, competitive forces push manufacturers to be proactive in offering value-based contracts. On the other hand, these contracts can be difficult to implement.

The most frequently cited difficulties involve:

  • agreement on outcomes definition
  • monitoring systems
  • administration
  • savings from aggressive, traditional arrangements exceeding savings from value-based arrangements

Consequently, value-based contracting tends to occur where:

  • There are multiple competitors with the same indication.
  • Products are relatively interchangeable.
  • Outcomes can be clearly defined.
  • Brands strategically commit to building their differentiation in value-based terms.

ONCOLOGY OUTSIDE VALUE-BASED TREND

Oncology is one area in which the trend to value-based contracting has not occurred. Multiple factors stand out:

  • Where there is only one agent for an indication, as is often the case in oncology, the manufacturer has no reason to contract.
  • Where there is more than one agent for an indication, it’s easier and more profitable for payers to obtain steep discounts in exchange for preferring one.
  • Oncology is not a natural environment for value-based contracting.
  • National plans benefit more by simply leveraging their size for steeper rebates.
  • Regional plans don’t have the size for an adequate number of patients with a particular diagnosis to justify manufacturer risk, let alone the size to command meaningful rebate for failure. (First mover plans work around these factors.)
  • Outcomes risk requires a labor-intensive element with case-by-case reviews, introducing complexity and cost that contradict payer priorities for simplification and efficiency.

GENE THERAPY CONTRACTING AND A BOOMERANG EFFECT

BACKGROUND

Introduction

In general, gene therapy comprises three principle approaches: gene replacement, gene editing, and blocking gene expression (antisense oligonucleotides [ASO]). The first two are potentially curative or disease modifying, while the latter treatment leans towards being palliative.

No boomerang effect with the palliative

From a revenue perspective, reimbursement for ASO treatment is ongoing, tied to regularly scheduled infusions or other administration avenues such as intrathecal injection. As long as treatment produces a clinical benefit, reimbursement continues. If benefit diminishes, payers are in a position to stop coverage.

This palliative approach in gene therapy has no crossover impact on oncology because of the ongoing revenue potential in ASO treatment.

  • Where gene therapy is ongoing, it creates no impetus for an outcomes-based turn in oncology contracting.
  • Where gene therapy is one time only—one and done—the potential emerges to prompt outcomes-based oncology contracting.

BOOMERANG EFFECT FROM ONE AND DONE GENE THERAPY

The economics of one and done gene therapies dictate a revenue model that requires outcomes-based risk. Since gene replacement and gene editing are administered once, the manufacturer has one shot at reimbursement. Consequently, the revenue model needs to maximize reimbursement for that opportunity.

Two points governing the economics of one and done gene therapies bear emphasis. First, decades of research and development and multi-billion dollar investments are synched to exceedingly small orphan populations. Second, once this prevalence is treated, the market is limited to incidence, a fraction of what was already a super small market.

The practical consequence is manufacturer pricing that can be expected to exceed $1 million. As manufacturers contemplate pricing for treatments that hold the promise of curing dire diseases, securing full upfront payment collides with the limits of health insurance budgets.

In addition to budget limits, durability of effect is uncertain. Treatment could be effective, partially effective or not effective. Treatment could also start off being effective, or partially effective, then lose its efficacy.

Consequently, it appears likely that gene replacement and gene editing will move inevitably to a time-structured revenue model based on annuity payments. The suggestion here is that it will be something like the following:

MANUFACTURER

  • Stretches the envelop on premium pricing.
  • Offers outcomes-based risk, meaning that only some cases realize full price.
  • Accepts partial upfront and subsequent annuity payments.
  • Establishes monitoring regime with designated centers to periodically evaluate outcomes.

HEALTH INSURER

  • Reimburses manufacturer with initial partial payment.
  • Reserves for multi-year annuity payments tied to specified outcomes.
  • Establishes a business unit to administer outcomes monitoring and annuity payments.

BOOMERANG EFFECT AND ONCOLOGY OUTCOMES CONTRACTING

The high cost and uncertainty associated with one and done gene therapies dictates outcomes-based arrangements with health insurers. What this means for oncology is that health insurers, having been forced to develop an operational capacity to accommodate outcomes-based risk with gene therapy, can naturally extend that capacity to oncology.

The boomerang effect on oncology contracting is the extension of a health insurer’s core competency in managing outcomes risk from one complicated, highly charged and high cost clinical area to another.

Three closing caveats. First, until there is a critical mass of approved one and done gene therapies, health plans can be expected handle reimbursement as one-off management issues. During that time, gene therapy contracting is unlikely to have any major effect on oncology contracting.

Second, once a critical mass of one and done gene therapies gains regulatory approval, one would expect health insurers to be operationally ready to administer outcomes monitoring and annuity payments in risk contracts. If public discussions of gene therapy pipelines are accurate, for brand planners in oncology this suggests that any trend for health insurers to seek outcomes arrangements is unlikely for at least three years.

Finally, the same two reasons gene therapy manufacturers will have to adopt outcomes-based risk, despite no other player having the same indication, apply to one and done cancer treatments targeting limited populations as well:

  • Threat of a legitimation crisis from multi-million dollar pricing.
  • Support for payer capacity to accommodate multi-million dollar pricing.

These last points suggest a potential rule shaping market behavior in the future super high cost specialty pharmacy space: once health insurers start covering a critical mass of one and done treatments, outcomes-based contracting consisting of partial upfront and out year annuity payments will follow.

About the Author

IRA STUDIN, PHD, MPH, is president of Stellar Managed Care Consulting. Stellar is a pharma business strategy consulting firm specializing in qualitative market research in the payer and hospital channels. Dr. Studin can be reached at istudin@stellarmc.com.