WASHINGTON -- Value-based drug payments are one part of the solution to the rising price of prescription drugs, several speakers said at a forum on drug pricing hosted by the Department of Health and Human Services.
The Centers for Medicare and Medicaid Services (CMS) would like to hear more ideas about how to implement value-based payments for this kind of treatment, according to CMS Acting Administrator Andy Slavitt.
"As a purchaser, the logical question for us is 'Are we getting good value for consumer and taxpayer dollars?" Slavitt said at the forum here last Friday. "Just as we pay for quality in care delivery, how should we create incentives which take the entire health and outcome of the individual into account? What's the best way to pay for targeted therapies when they work for some patients and not for others?"
Under value-based payments, insurers and other payers reimburse for drugs based on patient outcomes and similar factors, rather than paying a set price.
One problem with trying to get a handle on drug pricing is that pricing is complex, Slavitt continued.
"There are list prices, wholesale prices, average wholesale prices, rebates, supplemental rebates, markups from hospitals, markups from physicians, different costs when drugs are administered outpatient than inpatient, formulary tiers, mail order prices, biosimilar prices, and of course patent expirations, compounds, samples, and many other ways that end up obscuring the reality of the price paid, who pays, and how it all influences treatment decisions."
The rising cost of drugs -- especially certain specialty drugs like those for hepatitis C -- has taken a toll on state Medicaid budgets, noted Justin Senior, JD, deputy secretary for Medicaid at the Florida Agency for Health Care Administration, in Tallahassee.
"We serve about 4 million Floridians in any given month ... Last year we built in about an 18% pharmacy [cost increase] ... and I don't think that's out of the ordinary," he said, noting that his agency spent about $120-$130 million from Jan. 1, 2014 through August on hepatitis C treatments alone.
Such spending comes at the expense of spending on health education, which could reduce problems like obesity and teen pregnancy, Senior pointed out. "When we have to spend an enormous amount of money on our Medicaid program, this plays out year after year in budgets ... in every state, in the fact that other priorities will have to be put on the chopping block as a result of this program which is taking up a greater and greater percentage of state budgets."
In addition to the high-priced specialty drugs, prices for certain generic medications that have been easily available for years "have increased substantially without any benefits for patients," noted Slavitt. "This is a concern across the country, but particularly for seniors on fixed incomes."
Chip Davis Jr., JD, president and CEO of the Generic Pharmaceutical Association here, noted that in 2014, use of generics saved the U.S. healthcare system $254 billion. "There will always be stories about anecdotes and outliers, but we have to be mindful that making policy decisions based on outliers and anecdotes can drive unintended consequences."
He noted that one program to use co-pays to encourage use of generics among low-income beneficiaries in the Medicare Part D drug program was scored by the Congressional Budget Office as potentially reaping $18 billion-$30 billion in savings.
States have been trying strategies like value-based purchasing to bring down their drug costs, but there are barriers to doing so, such as "best price" requirements, Senior said. "The requirement you're supposed to give [the Medicaid] program the 'best price' available -- it becomes very difficult to calculate that when you're in a value-based purchasing arrangement. It's used as an excuse for getting out of those types of arrangements by pharmaceutical companies."
In addition, when the FDA approves a drug, it only indicates that the drug works; "it doesn't necessarily say whether it works better than things previously approved, and that can create friction toward dealing with providers who want to gravitate toward the latest drugs," he said. " Comparative effectiveness [data] would really help ...potentially tell which populations would benefit more from drug A than drug B and could allow states and managed care plans to really more target types of treatments to the individual."
Steve Miller, MD, senior vice president and chief medical officer at Express Scripts, a pharmacy benefit management company in St. Louis, said his firm plans to introduce disease-specific value-based pricing in 2016. For example, erlotinib (Tarceva) was originally brought to market to treat lung cancer and extend life by an average of about 4 months, but was then studied for pancreatic cancer, where it was found to only extend life for 12 days. So the idea would be to pay differently for the drug depending on which indication it is being given for.
For any other product, "do you pay the same for a product that works 1/10th as well?" he asked. "We had to change our systems so we could adjudicate drugs at indication level and not just at drug level -- we have to get information on the indication it will be used for."
Kenneth Frazier, JD, CEO of drugmaker Merck, in Kenilworth, N.J., said his firm is in a deal with Cigna, a larger health insurer, to improve diabetes care among Cigna enrollees.
Merck realized that "it's very important to make sure that diabetic patients are reaching their blood glucose goals, so we said, 'Let's provide ... an additional rebate to Cigna if they can show that under their broad auspices -- not just pharmacological interventions -- that they're getting patients to their goals,'" he said.
"Instead of just paying people for the amount of market share that we get from that particular health plan, we incentivized people to make sure patients got the benefit of the medicines ... That's a very good example of what we can do," Frazier said.