Value-Based Drug Pricing: a Challenging Approach to Cost Control

Drug maker Biogen recently announced that it has developed a framework to predict outcomes in specific patient populations taking its drugs in order to arrive at the best value-based pricing agreements with payers. Such agreements attempt to correlate the prices charged for therapies with the benefits that patients obtain from them. Jen Norton, vice president of market access for Biogen, said in an interview with MM&M that the company has struck 4 such agreements so far.

Those deals, which focus on Biogen's multiple sclerosis drug portfolio, are with 3 healthcare systems—Harvard Pilgrim Health Care, SelectHealth, and Moda Health—and with the pharmacy benefit manager Abarca Health. "We believe this pilot will provide valuable information that we can apply to future contracting approaches as we work to tie the pricing of our products to the clinical value and expand formulary access for patients," said Michel Vounatsos, Biogen's CEO.

Biogen—developer of biosimilar etanercept, infliximab, and adalimumab—says that in pricing its products, it hopes to strike a balance among key business principles. It sees the need to uphold the clinical value of its therapies, the impact of its drugs on health systems, and returns on investment. To that end, it employs its value framework and engages payers and Health Technology Assessment (HTA) authorities early in the process of drug development in order to better understand the types of evidence that it will need to produce to gain reimbursement for its drugs.

Such approaches are becoming increasingly common in the pharmaceutical industry; Forbes recently reported that approximately 25% of health plans now have at least 1 value-based payment contract with a drug maker, and that an additional 30% are currently negotiating outcome-based contracts.

Yet, as Dana Goldman, PhD, and Anupam Jena, MD, write in StatNews, measuring the value of a given therapy can be fraught with challenges. Differences in assumptions used in value assessments can dramatically alter the outcomes of assessments, and can “distort the cost effectiveness of a therapy and lead to unsound coverage decisions and wasted resources.”

Among the challenges inherent in developing an appropriate framework, say Goldman and Jena, is the problem of choosing appropriate data sources and updating data as evidence develops. Because real-world patients may be sicker, have less monitoring, or demonstrate less adherence to their treatments than patients in clinical trials, the choice between real-world data and clinical trial data can impact the accuracy of the cost assessment.

The common HTA practice of using list prices for drugs—rather than prices that health plans will pay after rebates or discounts—can also skew perceptions of cost, as the difference between list prices for generics or biosimilars and their branded products may overstate the cost savings produced by using a follow-on product.

While drug makers and health plans may not yet have perfected their approaches to creating value-based contracts, Norton indicates that at Biogen and elsewhere, the industry is looking to such frameworks as a way to address the problem of high drug costs. “As an industry, we're still working through ways to truly tie price to that value that's realized by the patient,” Norton said. “Building a model that's thorough, that's measurable, that's objective, and to figure out how to measure that value is the critical step where we're at today.”