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Five Keys to Drug Reimbursement

By Jennifer C. Smith-Parker 
June 20, 2013 | Getting an FDA stamp of approval is not sufficient to ensure a drug will do well on the market. The onus is on drug makers to ensure their drug is priced well and paid for, even while it’s still in the development stage. I’ve identified five steps used by drug manufacturers to ensure reimbursement:
1. Strategize Early. Payers focus on value and appropriate use, so between Phase II and III trials drug makers should consider pharmacoeconomics in trial design. Drug sponsors should consider how their drugs compare to standard of care and what endpoints could best evaluate drug value and quality of care. 
2. Consider Payer Input. It is becoming more common for drug makers to factor payer input into clinical trial designs to understand the reimbursement landscape, drug codes, and competitor products. While payer reactions to a blinded product profile will differ from the final drug, the engagement may help payers better understand the initial benefits the drug offers over its competitors.
3. Understand the Current Climate. Drug makers should be aware of how the current healthcare landscape is changing in terms of state insurance exchanges, Medicaid expansion and accountable-care organizations. The dynamic reimbursement environment will complicate the provider/patient relationship, so a thorough understanding is critical for drug makers.
4. Know the Competitive Strategy. Drug makers need to think ahead about the best contracting strategy to gain payer coverage, and how it compares with competitor strategies. They need to consider whether their drug is adequately compared to a comparator and keep abreast of possible generic competition 6-to-12 months ahead.
5. Create Portals for Patient Access. Drug makers have a responsibility to understand the venues by which patients will access their drugs; payment structures differ according to whether the portals are hospitals, pharmacy benefit managers, group purchasing organizations, etc.
Of these, considering payer input early in the process may be the most uncommon, but valuable step, particularly in orphan drug development. 
A recent U.S. payer survey by Infusion Pharma Consulting revealed that payers will continue to reimburse for high-value orphan drugs in most approved indications. Costs are manageable today but orphan drug pricing is appearing on payer radar screens. The interest in orphan products, particularly by large pharma, is occurring at a time of budget constraints.
With pricing pressures increasing worldwide, pharmaceutical companies are starting to engage payers early in the development process to obtain feedback and begin a dialogue in the hopes of bringing treatments to patients as quickly as possible. Earlier engagement also could offset payer pushback.
While pricing and budget concerns are relevant, there are few initiatives to manage orphans as a class. No payer wants to feel hostage to a drug sponsor's request for reimbursement, but the products are difficult to refuse. And the vocal nature of patient advocacy groups underscores the pressure to provide orphan coverage.
As upper-tier price points become routine, payers are increasingly skeptical of the patient value offered by some orphan drugs. Cost does not equate value. Payers must consider the combinations of cost, disease prevalence and treatment options in sponsor negotiations.
Payers gradually will become more discriminatory in coverage. Increasingly they want to see real, not modeled, data on saved hospitalization costs with outpatient use. 
Orphan drug sponsors will need to show endpoints that are clinically meaningful to payers. Premium value drivers are the clinical imperative behind a drug and treatment alternatives, the drug benefit in terms of percentage of patient response, mechanism-of-action clarity and tangible cost offsets. Payer-sponsors contracts that require orphan drug developers to offer, as an example, a 20% drug discount to cover an expectedly high-priced orphan drug, might be one of the few options to bring down costs.
Rebates, risk sharing agreements and the tried-and-true payer policies of prior authorization and patient case management are the few options U.S. payers have to push back against the creeping prices of orphan drugs, reimbursement and healthcare. Still, even these options may not work all the time since public and internal pressure to pay for rare disease drugs is inevitable. The oncology spectrum already has seen tighter payer controls such as ensuring on-label drug use and drug adherence.
Sharing the Risk  
Risk-sharing agreements are another scenario payers can consider. A sponsor would have to reimburse payers for drug costs if a patient were shown to be non-responsive to treatment. This engagement would require more case management intervention to ensure on-label use.
Payers may be able to push for rebates if a pharma company has a portfolio of products that include an orphan—in other words, "cobble together" a drug network for price protection. Another option for payers is to bargain with sponsors that their orphan drugs should not increase more than a certain percentage in price over the years if the drug is given a preferred formulary tier. 
But those strategies are short term because of competition from products becoming generic and from other orphan drugs. Drug competition may help payers, especially in orphan indications such as Gaucher's disease where there are several therapeutic options. There is a growing trend among payers to pit products against each other to find the best value for price.
Orphan drug sponsors can choose to offer a rebate or full refund for patients that do not have a certain therapeutic response. Pharma also could assume some of the responsibility to ensure patients are medication compliant rather than have payers and providers assume that burden. Payers are saying the days are over where a company can charge what they want for a drug and get away with it. 
In the short term, payers will increasingly require prior approvals and step therapy depending on the size of the dollar spend in case management. While health plans would prefer manufacturers simply cut the drug price, price points will be guided by whether the drugs can fall under medical or pharmacy benefits. Also, government regulations on how pharma companies can do contracts and rebates may limit their creativity.
Payers are placing orphan drugs on formulary tiers that require patient copays and co-insurance. There also are many people such as those on Medicaid who are on waiting lists for access to orphan drugs.
ACOs and Pharma 
Conceptually, Accountable Care Organization (ACO) and pharma partnerships make great sense considering the ACO goal is to lower price and improve health. But providers need to make sure any new ideas pass muster under fraud and abuse laws (anti-kickback statutes) and self-referral (Stark) laws, either by meeting the safe harbors or exceptions or waivers permitted under the ACO regulations. In particular, arrangements involving rebates and refunds may be implicated under the broad language of the anti-kickback laws, which have pretty broad limits on what can and cannot be offered for services rendered.
It would be difficult for branded companies to suggest savings on total health population costs, but if a branded drug company could suggest a clinical benefit a generic did not have, ACOs might be more inclined to choose the former. 
Overall, the trend to control drug spending and enhance patient compliance has been to focus on over-the-counter medications as first-line treatments, and then on prescribed generics. Thus it may be a hard sell for branded companies to make their case to ACOs on reduced costs if patient compliance on branded drugs falls off.
These strategies can help drug makers achieve the best value for their products once they enter the market. Regardless of your reimbursement strategy, it’s wise to plan for that point well before reimbursement is an immediate concern. 
Jennifer C. Smith-Parker is an award-winning, biopharmaceutical industry journalist and assistant editor at BioPharm Insight. BioPharm Insight offers companies in the global biopharmaceutical community an online business intelligence system of market analytics, key industry contacts, and reporting from an independent journalist news service. Smith-Parker can be reached at 
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