What Do Payers Need to Help Value-Based Contracting Deals for Novel Therapies Succeed?

What Do Payers Need to Help Value-Based Contracting Deals for Novel Therapies Succeed?


There are currently 2,053 gene therapies and genetically modified cell therapies in development from the pre-clinical to the post market stage.  By 2026, it’s predicted that spending for these therapies will reach $30 billion. However, the rise of cell and gene therapies with the potential to treat and even cure rare and chronic disease come at a steep price. A panel discussion at the annual Covers Forward conference in Puerto Rico last month sought to identify some of the innovative financial approaches that can be applied to managing these costs, and address what payers need for these financing models to be sustainable.

The panel discussed how value-based pricing arrangements can align incentives amongst payers, pharma companies, providers and patients. It also highlighted what payers need to make these value-based contracting deals work.

Anne Winter, senior managing director with FTI Consultingmoderated the session, Finding a better way to manage the future wave of high-cost specialty drugs. She offered an overview of some of the financing approaches companies are taking to make highcost drugs accessible to people who need them.

“As you can imagine a lot of different types of organizations have been working to come up with alternative financing and coverage policies and methodologies,” Winter said.

Although cell and gene therapy reimbursement is in its infancy, there are a few approaches that are gaining traction.

MACPAC came up with the recommendation in 2021 for a new national Medicaid drug benefit that involves the federal government purchasing certain highcost products, such as cell and gene therapies. Winter observed that the program is remarkably similar to the CMMI proposal from the Biden administration that would mandate carving these therapies out of Medicaid proposals.

Stop-loss provisions for self-insured employers are intended to help limit employers’ claim exposure for high cost, low frequency catastrophic claims. They function similarly to reinsurance.

PhRMA strategies are focused mostly on non-U.S. markets. For example, Swiss Re provides reinsurance to China for Novartis cancer drugs. In this model, Roche provides data on the types of cancer and treatability that Swiss Re then uses to calculates the risk and cost and provides reinsurance.

The NEWDIGS Think Tank at Tufts University ranks alternative financing options such as warranties, cell and gene therapy companies, and re-insurance. Financing and Reimbursement of Cures in the U.S. (FocUS) Project  is working to develop options for innovative financing and reimbursement models for curative medicines in the U.S. that make it easier for patients to gain access to treatments and are affordable for public and private payers. It also seeks to ensure that these options enable sustainable innovation for manufacturers.

Girisha Fernando, Founder and CEO of Lyfegen, a software company to accelerate and increase affordability of high price drugs through value based agreements, said successful value-based contracts involve stakeholders having “skin in the game.”

Fernando noted that these contracts need to satisfy a few basic criteria:

  • Does the drug or therapy really provide the benefit in the real world that it showed in a clinical trial?
  • Budget impact, especially with cell and gene therapies, which carry high upfront costs.
  • Value differentiation: What are the outcomes that are measured?
  • Value differentiation: What does success look like?

Rafa Chaves, executive director of global policy and environmental, social and corporate governance at an organnoted that data is critical to predicting and verifying the therapy’s effectiveness. He also noted thatwhen a third party is needed to verify the data, “trust is crucial.

Kali Panagos, executive vice president of pharmacy benefits consulting firm ARMSRx noted that having a complete, holistic view of the patient is crucial so companies are able to effectively evaluate outcomes to demonstrate value of the therapy.

“Clients are keenly alarmed about pricing around novel therapies. Is it sustainable? Is there a cohesive process in place? We could establish benchmark pricing on these therapies based on effectiveness,” Panagos said. “But it has to be a model that aligns with what can be issued right now and allows clients [the flexibility] to fail and fall back on a traditional model they have in place without creating a significant downward impact.”

David McLean, CEO of Emerging Therapy Solutionsrecalled that in 2018, he was asked by investors to assess what payers were up against in cell and gene therapy reimbursement. To develop this assessment, his team spoke with cell and gene therapy manufacturers, medical centers, and payers. The payers shared four things they need to have in order to provide reimbursement for these novel therapies.

“How do we price for this? Who do we cover?  Where are we going to get medical information? How do we measure outcomes?  Some of these things are on the market so fast that the relevant information is not yet available from manufacturers. [Payers] need medical content to make informed decisions.”

McLean noted that payers will need to have a lot of help to figure out how to assess the quality of centers of excellence and negotiate financial terms. He noted that re-insurance and stop-loss carriers told him they have to pay millions for patients. He likened it to the expense of bone marrow transplants and open heart surgery.

One of the things that keeps payers up at night, in part because of the way health insurance works in the U.S., whereby it is mainly obtained through employers, is that an employee will satisfy the need for a milliondollar gene therapy but then switch employers or lose their job.

Although the world of cell and gene therapy reimbursement is still in the early days of its development, we can be encouraged by indications that these therapies are more effective so insurers may actually reap benefits from reduced hospitalizations in the long term. It’s also possible that medication costs will go down if patients can be cured of their conditions without the need to be on medication for the rest of their lives.

Photo: zorazhuang, Getty Images



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