Are the unmeasured, potential benefits of indication-specific pricing worth the complication and risk?
Indication-specific pricing (ISP) was the topic of the annual policy summit convened by the Institute for Clinical and Economic Review (ICER) in December 2015.
Forty-four health care leaders representing 22 insurers and pharmaceutical companies came together to discuss the potential value of ISP and its prospects for implementation in the United States. The result was an ICER white paper addressing the pros and cons of ISP from the perspective of payers and life science companies.
ISP is a differential pricing method based on a drug’s relative clinical benefit for each indication or for a distinct patient subpopulation. The white paper explained the rationale behind ISP by illustrating that the average comparative clinical value of one drug can vary widely across indications.
The United States is rooted in a history of pricing drugs by dosing unit, according to ICER. With multi-indication drugs on the rise, payers and manufacturers are considering to what extent indication-specific pricing could align with value-based benefit designs.
The ICER summit indicated that ISP has the potential to help balance payer needs for affordability with manufacturer needs for sustainability. Conceptually, ISP also seems to support innovative thinking around value-based health coverage and can offer payers cost savings, especially on lower-value follow-on indications.
For manufacturers, ISP could offer incentives to develop indications for small populations while protecting existing prices for high-value indications. ISP would provide rationale for higher prices for secondary indications that provide greater clinical benefits, and it could help address payer resistance to new indications.
The white paper identified several potential risks that would accompany the introduction of ISP in the United States. For payers, implementation may come with the cost of considerable administrative burden. The rationale for differential pricing may be difficult to explain to patients and other stakeholders, and ultimately, ISP may have minimal impact on overall affordability, or may even increase total drug spending.
Manufacturers run the risk of triggering payers to limit patient access to new, higher-value indications. Manufacturers may find that value-based pricing actually constrains their pricing power and reduces potential returns on developing lower-value secondary indications. ISP also would entail potential risk for arbitrage by purchasers and potential conflict with other pricing policies such as Medicaid Best Price and average sales price (ASP).
The summit identified 3 basic models of indication-specific pricing:
The complex, multi-payer environment of the US healthcare system poses considerable challenges compared with single payer environments in other countries, the paper said.
To implement ISP in the United States, stakeholders would deal with many barriers:
ISP poses considerable challenges that would make it an uphill battle in the United States without a clear picture of economic benefit. While summit participants agreed with the broad goals of ISP to improve patient access to innovative medicines, some payers thought they could achieve the same with existing tools like step therapy, tiered formularies, and value-based price negotiation. Manufacturers were wary that they might never realize gains from ISP after jumping over its many logistical hurdles.
All eyes will be on an ISP pilot initiative currently underway in the United States. Express Scripts announced that they will collaborate with manufacturers to set indication-specific pricing for some cancer medications. What happens with Express Scripts may lead the way for the future of ISP in this country.