Indication-Specific Pricing: Challenges in the US Context


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.

What is Indication-Specific Pricing?

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.

Potential Benefits of ISP

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.

Potential Risks of ISP

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).

Models of ISP

The summit identified 3 basic models of indication-specific pricing:

  • Distinct product differentiation: This is when 1 drug agent is authorized and marketed under different brand names with different prices. For example, sildenafil is marketed as 2 branded products: Viagra for erectile dysfunction, and Revatio for pulmonary arterial hypertension.
  • Separate discounts for each indication: In Italy, for example, some products—like Avastin (bevacizumab), Cimzia (certolizumab pegol), Erbitux (cetuximab), and Afinitor (everolimus)—are subject to indication-specific registries. Patient data is collected on medication usage, and different risk sharing agreements are applied for each indication.
  • A single weighted average price: 1 weighted price is determined based on estimates of indication use across the population, “with possible retrospective reconciliation through rebates based on actual use.” Australia uses this approach for multi-indication drugs covered by public insurance, collecting clinical and pharmacoeconomic data from manufacturers, and calculating incremental cost-effectiveness ratios to compare a new medication to existing therapy.

Implementation Challenges in the United States

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:

  • Multiple pathways and intermediaries in the drug purchasing and supply chain.
  • Limitations of drug formulary tier structure and difficulty aligning value-based pricing with patient cost-sharing in a transparent way.
  • Insufficient and disparate data systems and analytic capabilities.
  • Potential misalignment with Medicare provider reimbursement for physician-administered drugs.
  • Unintended pricing effects on Medicaid “best prices” and rebates.
  • Restrictions on negotiating ISP for off-label indications.
  • Scrutiny under the Anti-Kickback Statute.


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.

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