The new economics of innovative therapies: Navigating emerging payment models
By Alberto Rubio
For years, market access strategies for new therapies almost exclusively depended on data supporting efficacy and safety. While these factors are still critical, clinical differentiation and its effects on healthcare outcomes and resource utilization and optimization require more comprehensive approaches. Developers of advanced therapies must demonstrate the optimal combination of disease need, clinical efficacy and economic value of their product to payers, providers and patients.
The approach rests on a more expansive view of value, which is especially important with advanced therapies where there may (or may not) be alternate therapies that are available without the high price tag. In this outcomes-driven environment, developers must assess value through the lens of payers but also in context of the political and social environment. What are some key questions to ask when considering the value proposition? How do we determine product value when there is no comparable therapy? What are stakeholders’ evidence requirements especially where the patient population may be small? What is a feasible price range? Have we considered the unique payment models in each market? What are key learnings from past failures and successes?
Stronger value propositions. Implications for market acceptance.
No approved drug has been received with more controversy than Biogen’s new Alzheimer’s drug Aduhelm (technically called aducanumab), which was approved by the US Food and Drug Administration (FDA) in the first half of 2021. The cost of the drug – $56,000 per person, per year1 – was enough to lead to immediate backlash by both the independent review panel which recommended against approval and major health systems which said they wouldn’t administer the treatment to patients after their own panels reviewed its efficacy.
Experts have predicted that Medicare’s roughly 60 million enrollees would likely see their premiums rise to cover the new medication. Despite the controversy, Biogen has made the case that Adulhelm will actually cost the system less to treat Alzheimers and treatment will bring value to patients, caregivers and society.2 While Aduhelm is not considered an advanced therapy, the case does point to how much public attention high-priced therapies are receiving and how much influence the political and social environment can have on market acceptance.
And just around the corner? Zolgensma, a treatment for spinal muscular atrophy, a rare genetic disease that damages nerve cells. A one-time treatment of the life-saving drug for a young child costs $2.1 million.3 By the end of the decade, there is expected to be dozens of cell and gene therapies, costing hundreds of thousands to millions of dollars for a single dose.4
As transformative as innovative therapies can be in terms of treatment potential, these examples demonstrate the unique challenges when it comes to developing pricing strategies and navigating various payment models across markets and regions. As a consequence of their role in treating conditions that may have no other known treatment – or even curing a disease that may be considered incurable – pricing advanced therapies requires innovative economic evaluation methods in combination with economic methodologies and techniques that help organizations build the case for market acceptance among health authorities, providers, and patients.
While patients in need await these life-changing therapies, companies developing advanced therapies must experiment with new pricing models. The threshold to determine efficacy of a multi-million-dollar therapy brings a whole new set of challenges to pricing and payment strategies. But economics is just one side of a complex equation.
Gene therapies stand poised to shift the economics of healthcare
Alongside economic planning are policy discussions and advocacy for a particular treatment pathway. Organizations should begin advocacy efforts to ensure their therapeutic approach can be discussed, potential roadblocks navigated, and price negotiations can occur well before the therapy is ever ready for market.
Companies need to think creatively but plan with economic rigor so they can help stakeholders see the value of the therapy – in the short-term, but over the lifespan of the patient where advanced therapies may actually help lower costs in the long run.
Given the trailblazing nature of advanced therapies, it’s crucial to collaborate with health authorities in helping shape guidelines for new therapies and presenting the appropriate economic evaluations and budget impact studies so outcomes are well understood and agreed to. Part of this work may involve developing new reimbursement models (e.g., shared risk models) and impact studies that outline the financial consequences of those models.
Here is a snapshot of the more innovative payment models emerging in the US:
- Outcomes-based contracts, which reimburse when the treatment successfully achieves a predetermined clinical endpoint.
- Installment payments, which are spread out over a predetermined time period.
- Risk pooling for curative therapies where public and private payers set aside a portion of healthcare budgets into a dedicated fund.
- The subscription or so-called “Netflix” payment model where the payer pays a fixed annual subscription fee to the manufacturer for unlimited access to drugs.
Creativity, collaboration, compromise
Improving access to advanced therapies requires creativity, collaboration and compromise across commercial and private payers, patient advocacy groups, developers of advanced therapies and regulatory authorities. Taking proactive steps now to develop innovative payment models will help ensure that healthcare systems are ready to deliver on the promise of gene therapies and you are aligning your value proposition to the market.
Interested in learning more about how to identify and mitigate risks early in development? Download our white paper, The Future of Advanced Therapies: Strategies to Evolve Global Health in a Post-COVID World.
1.Seimetz D. The key to successful drug approval: an
effective regulatory strategy. J. Becker und T.R. Villinger (Hrsg.), Life Science Venturing,