Paying for Cell & Gene Therapy in the US: Is the Future Already Here?
In my second post, I am returning to the challenges that payment models for cell and gene therapy (CGT) have faced, the multiple models now under development, and why an open and collaborative approach among US healthcare stakeholders is needed if the significant legal and practical barriers are to be overcome.
The ascent of cell and gene therapies over the past few years has been astonishing. And their rise looks unstoppable: By 2025, the FDA expects it will be reviewing 10 to 20 of these transformative drugs per year. But as we listen to affordability concerns from payers, providers and patients, we’ve also had to ask, perhaps a bit provocatively, how we can afford to pay for this boom in future cures?
Insurers have warned that without solutions to help payors manage the cost, some of the members may make the choice and write policies to exclude coverage. Exclusions may still be the exception, but they have already come in – for example from employer groups such as the United Food and Commercial Workers (UFCW). Its regional members in Missouri, Illinois, and Indiana – blue-collar essential workers in grocery stores, packing houses and distribution centers – received the notice last November that their plan would cease coverage of “any medical and/or prescription drug charges for or related to gene therapy, whether they have FDA approval, or are experimental.”
Current reimbursement systems are not meant to manage a multitude of transformative therapies. In the future it will likely not be appropriate for all gene therapies be conveniently grouped into one category – some may not have one-time administration in the label, others may be indicated for broader populations than ultra-rare, or have potential treatment alternatives, all of which will make it hard for employers to apply a binary solution as a singular benefit category.
Seeking alternative financing solutions
There has never been any doubt that we must, of course, be able to pay for the new wave of therapies. We already have close to three dozen marketed cell and gene therapies available globally. Germany, Italy and Spain entered into outcomes-based contracts for recent approvals. But it has been widely discussed that the US fundamentally lacks an effective system through which to enable innovative reimbursement models for such novel products.
Payers express anxiety around actuarial management (how many eligible patients will be in our insurance pool?), therapeutic performance (how to assess long-term real-world effectiveness of these treatments) and payment timing (how to administer payment given beneficiary migration).
Alternative financing solutions seeking to address these concerns include outcomes-based performance contracts, annuities payments or reinsurance models. And while no single one of today’s solutions provides a panacea for all types and modalities of transformative therapies, they collectively offer a set of useful tools.
If we acknowledge that cell and gene therapies will eventually reach larger populations, there is also an opportunity for saving on the chronic treatment cost traditionally occurred. There will ultimately be a huge opportunity for one-time treatments to deliver value, both on the fairly immediate patient benefits in terms of the efficacy curve, as well as significant economic cost-offsets accruing over time. One model companies such as bluebird bio have been advancing would price solely on the intrinsic value of the product, that is how it extends and improves quality of life, and return cost-offsets to the payer. This approach may be disruptive, but it of course depends on the level of certainty that the treatment effect will indeed persist.
The road to a seamless reimbursement system for CGT is still rocky. When surveyed, both payers and developers are quick to list considerable limitations around program complexity, information tracking burden, insurance, regulatory barriers and government price/ reporting requirements – all valid factors impeding broader adoption. At the same time, a sense of optimism is warranted if we pay attention to the most recent CMS position on innovative contracting (which we explore below), as well as the considerable activity of trailblazers in the market in recent years. Gilead, Novartis, AveXis, Spark or Kite are among the leading developers who have pioneered functioning reimbursement models, driving patient access to their transformative therapies within the status quo.
Emerging remedies to up-front ‘sticker shock’
Collapsing decades worth of potential cost-offsets into the one-time administration of a drug may produce considerable up-front budget hits for some payer types. The actuarial challenge isn’t entirely new, however, as payers have already found effective mechanisms to pay for complicated high-cost surgeries which are also sudden one-time events from a budget perspective.
Third-party stop-loss insurers do offer services that can provide relief for incident populations as well. Finding ways to set up predictable costs ahead of time is key in helping to alleviate payers’, and in turn employer groups’, concerns about a broader pipeline of 10-18 therapies coming to market in the next 18 months. To prevent shock claims for employers and plan sponsors, Cigna started bundling services from its Pharmacy Benefit Manager Express Scripts (PBM), medical management and specialty pharmacies to offer health plans the ‘Embarc Benefit Protection platform’, a network for two gene therapies with possible expansion to other marketed products.
Members pay a $12 monthly fee per patient. CVS Health (with insurer Aetna and through PBM Caremark) responded by launching a similar service earlier in the year. Given the low prevalence of the current conditions, some employers – especially small ones – may think twice about signing on just yet.
Further innovation is in train. Payers, employer benefit consultants, financial entities and other non-traditional actors are engaging with leading developers to collaboratively work on the next generation of payment models. New kinds of commercial players may emerge to serve so far unmet market needs. Such new entities may seek to combine the risk-bearing of reinsurers with the contracting capabilities of PBMs, distribution facilities and provider network building, and medical management capabilities of insurers.
Paying over time – an answer to ‘patient portability’?
Whilst it is true that paying-over-time arrangements coming from the developer are challenging today, such payments can be administered through a third party.
Under current regulations, payment over time in Medicaid conflicts with States’ obligations to deliver balanced budgets. Notably, the only bi-partisan legislation in Congress, the Senate Finance Committee drug bill (Grassley/Widen), would enable Medicaid plans to amortize the cost of delivering curative gene therapy over time. Several floor amendments from both sides double down on the notion, and the White House supports it.
In the long-term perspective, portability is not as big a barrier it may appear today. 25-30 million Americans are estimated to live with a rare disease already, with diagnosis rates rising. For every rare disease patient insurers lose today where they paid for CGT, they will likely gain a new patient who’s on therapy over time. Furthermore, research shows that the churn in orphan populations tends to be much lower. Rare disease patients tend to stay with their insurance for five to seven years. At the current cost to treat one hemophilia A patient ($500,000 annually at the current standard of care), a novel gene therapy with a $2M price tag would already be cost-effective after four years.
Balancing the insurance pool is important, but considering advances in epidemiological analytics and prediction, it should not become the next new reason to avoid entering value-based agreements. Regulation may furthermore address portability concerns. Some have argued for essential health benefits under the Affordable Care Act (ACA) to function as purveyor, drawing on the protections of preexisting conditions to provide a basis for coverage requirements if gene therapy is considered as the standard of care.
‘Value based contracting’ (VBC) – unleashing a second wave?
Another evolving area in CGT payments is value-based contracting. Today, such arrangements exist in the commercial markets across various therapeutic areas and are executed in Medicaid programs under supplemental rebate agreements across eight states (Arizona, Colorado, Louisiana, Massachusetts, Michigan, Oklahoma, Texas and Washington). MassHealth can further draw from recent state legislation stipulating that a failure to negotiate with the developer allows the state to define its “proposed value”. If steps are unsuccessful to come to an agreement, high-cost drug developers may be referred to a Policy Commission which is authorized to require developers to submit disclosures and testify at public hearings, in short, leveraging subpoena power. The state had reach supplemental rebate agreements with 13 companies across 35 products as of earlier this month. Negotiations with an additional 12 developers are currently ongoing.
Washington and Louisiana have further experimented with innovative payment options, pioneering lump-sum subscription pricing (for HCV drugs). The subscription model has unquestionable public health value. But the approach is limited to indications and categories where continued R&D can be sacrificed for budget surety. As soon as one company receives the rights to serve one, and potentially other Medicaid markets, innovation funding will naturally drop. While this model may sound appealing to developers at first sight – annual recurring revenue and cash flow certainty, reduced sales and marketing costs etc. – the shift may only be appropriate for a limited set of competitive scenarios, and the current bidding process more often than not renders the approach unfavorable. A simple probability-weighted simulation reveals that when properly accounting for the potential loss of the entire segment as a result of the bidding process, the commercial rationale of licensing models is lost in most scenarios.
Pursued on a state-by-state basis through state plan amendments, scaling value-based pricing is time-consuming for developers and state payers, however. “Unfortunately, government regulations, as they often do, are having the unintended consequence of hindering the new innovative payment models for prescription drugs”, noted CMS Administrator Seema Verma in June. CMS’ proposed rule on ‘value-based purchasing in Medicaid’ was seen as a milestone in addressing concerns around the incompatibility of best price reporting requirements and VBC, according to which payers would be rebated for patients whose therapy was unsuccessful.
Developer long feared that a single non-responding patient, triggering a 100% rebate, could set the official best price across all of Medicaid to zero. The proposed rule, if finalized, represents a major departure from this historical interpretation of ‘best price’ as a single price. Developers may not believe that it is, but such a model is already operationalizable today through a manual process. The rule would allow multiple price points within one NDC-11 in a single rebate period and thus remove a major barrier to wider VBC contracting. The CMS proposal does not consider milestone payments over time separately from outcomes-based agreements, but industry observers think it should.
Tying reimbursement to proven real world outcomes is a major path into the future, not just for transformative therapies. It would hopefully avoid occasionally crude utilization management measures and other access controls that often adversely affect the patient. A healthy skepticism about the developer’s value claims will always linger, and agreements should remain voluntary. Experts agree that the real future will then be where an agreed upon marker would, say within a month, report on proven real-world effectiveness and invoicing would be delayed until that point. In cases of treatment failure, should that occur, no invoice would be sent out to the plan.
As they prepare for the new reality, successful developers would be well advised to identify and simulate real world effectiveness in populations of interest, pressure-test program designs with their customers, and then adequately provision for monitoring and adjudication systems with market participants, old and new.
Internally, those on the frontlines of pioneering payment innovation should empower multi-disciplinary price steering committees and make sure their efforts are championed by executive commitment.
How to envision the payment future – thinking in ‘horizons of change’
If we acknowledge the imperfection of the current payment system, but want to continue moving forward – how can we best envision the degree of innovation that is required? To better conceptualize where we are, and where we’d hope to be, we may want to consider what the innovation literature considers horizons of change:
The first horizon (H1) has involved conducting pilots and has mainly driven patient access within the existing reimbursement system. These were the early attempts through informal discussion with CMS, proposals intended for CMMI models, use of Medicaid state plan amendments, and considerable VBC activity in the commercial markets avoiding best price implication. It works, but it’s cumbersome.
In the second horizon (H2), reimbursement models evolve through partnerships and collaborative structures beyond the traditional pharma-payer/PBM frameworks. We are looking at reinsurance risk pools, consortia for annuity funding, and new commercial actors taking on risk and therapy management. Leaders are active today in defining the new parameters required, disrupting historic arrangements by engaging with new partners.
And in the third horizon (H3), the aim is to unleash a regulatory transformation that would see today’s legal, systemic and practical barriers fully replaced with a novel reimbursement paradigm successfully enabling the value-based payment of any number and type of future therapies. The CMS rule, if finished, would be a major enabler in this direction. Other regulations may follow in the flood of drug pricing proposals reaching a new Congress in 2021.
While the degree of change and the expected time to implementation increases as we move from H1 to H3, activities are required across each horizon to accelerate a desired transformation.
We will need a lot more innovative effort to operationalize novel concepts. My recent discussion with leaders at some of the most innovative companies leave us hopeful: Pockets of the future already exist in the present. Given how entrenched the parameters of existing solutions are, within legal and operational constraints, this type of innovation will have to be shared and open, to be sustainable.
Let’s rise to that challenge.
Research and conversations for this piece have been kindly supported by eyeforpharma, versions if this analysis have been published on reutersevents.com and pharmaboardroom.com