There is a lot of hype currently around Innovative Pricing. It is one of the ‘buzz words’ of Market Access and loops neatly into the zeitgeist around other topics such as; patient access, effectiveness over efficacy, a more collaborative relationship with payers and physicians etc.
Every conference, webinar and article seems to pass comment on this new way of contracting and how you should be employing them for your treatments. Heck, I’ve written two articles on the subject in the last few months (Innovative Pricing, an introduction and Innovative Pricing, the wider picture).
However, as with all new, shiny ideas, we should always think about context. Not just doing the newest, bright idea because it’s new, but only applying it if it makes commercial sense in your particular circumstance. So for once, let’s pursue that line of thought instead of continually inflating the balloon.
Are these types of contracts right for your drug?
The short answer is yes.
Innovative Pricing is a broad church and there is a type of contract for virtually any situation, for any treatment.
A more pertinent question really is, which type is going to have the biggest effect on the metrics you care about (most likely market share, sales and effectiveness), while being commercially viable (i.e. still making a profit)?
I have outlined the different types of schemes before (see article link above), so I thought we could tackle this the other way around this time. Profile a drug and then show some of the options that could be available.
- Drug 1 has recently been launched.
- It is clearly more effective than the existing treatments on the market (as shown by your Phase III data), however, because of it’s price, there is a question about the cost-effectiveness of the treatment.
- Because of these questions, there has been limited uptake by physicians to date
- Drug 1 has clearly defined, short-term outcome parameters (e.g. RCP31 in Asthma)
- Drug 1 has clear financial savings if successful (reduction in secondary spend2), or long-term outcomes
Innovative Pricing Options:
Outcome Based Schemes: (direct variable)
If Drug 1 does not reduce a measurable variable by ‘X’ amount within ‘Y’ time period, the pharma company will pay back the cost of the treatment thus far to the payer.
- Payer only pays if the drug does what it is meant to, and presumably performs better than the competition (thus negating the cost-effectiveness argument).
- Limits financial risk to a short-term (e.g. 8 week) window
Outcome Based Schemes: (secondary spend)
If a patient experiences a relevant acute event while taking the treatment (chance of which should be significantly reduced by prescription of Drug 1), the pharma company will pay for the cost of the intervention.
- Payer is covered against long-term (unforeseen) secondary spend if the treatment does not hit its long-term outcomes
- Provides long-term cover dependent on the drug reaching long-term targets ‘try before you buy’
The patient will receive first 10 doses for free. Payer only starts paying after the initial set of doses.
- Removes the financial risk of swapping a patient to a new treatment, which may not suit the said patient, covering tolerance and patient preference.
- Although not directly linked to patient outcomes, this style of the contract also allows the physician to assess the drug’s effectiveness in that individual patient before having to pay.
- Midlife cycle treatment for an acute event (such as antibiotics)
- Clear pass/fail criteria for the drug
- Variable length of time to reach outcome (might take 10 doses, or 12)
- Significantly better against certain acute events, than others.
Innovative Pricing Options: ‘Pay for Outcome’
- Rather than a ‘price per dose’ model (which is generally used currently), utilise a ‘pay for outcome’ model. Payer only pays for 10 doses, even if it takes 12.Indication Variable Pricing
- If the drug is prescribed for ‘X’ use where it is very effective, it is one price. If it is prescribed for a different use where it is less effective, it is ‘X-50%’.o Allows a more nuanced cost effectiveness discussion
- High-end prevention medication for a complex condition (such as heart failure), usually linked to multiple comorbidities and many overlapping end points3.
- Generally considered a more effective treatment but difficult to prove to a patient by patient basis on individual variables (short-term endpoints)
- Long-term outcomes show considerable benefit (reduced secondary spend)
Drug is chronically under prescribed because of pathway4 failings
Innovative Pricing Options: Population Pricing
Pharma company partners with payers to improve pathway in a given disease area
Said improvements increase the number of patients being appropriately prescribed Drug 3 (increased sales)
- The commercial equation becomes a simple ‘Return On Investment’ (ROI) discussion. If investing X, increases sales by Y, we make a profit.
- Pricing clauses can be attached to such a scheme
- E.g. If A&E attendances are not reduced by x% over the entire population within 12 months, the pharma company will pay back Y.
I hope these worked examples might be of use to you, showing some real-world applications for the buzz word.
If you are interested in having a look at some specific options for your treatment, please do not hesitate to get in touch.
(1). RCP3, Royal College of Physicians 3 Question, Asthma control questionnaire. Used throughout the NHS to measure a patients control of Asthma.
(2.) Secondary Spend covers any money spent on the patients care due to the limitation or failings of the initial treatment or intervention. In the case of Asthma, this could be additional GP visits due to Asthma Attacks or Chest Infections, A&E attendances, additional reliever inhalers etc.
(3) I.E A&E attendance for chest pain. Could be breathlessness from Asthma/COPD, Heart Attack from Heart Failure, or linked to Diabetes etc.
(4) A pathway is the term for patients experience through the Healthcare System with a certain condition (or set of conditions). A failing of the pathway might be, not enough high risk (high severity) diagnosis, leading to a chronic under the prescription of high-end treatments.
Author: Adam Marsh, firstname.lastname@example.org