When healthcare wonks talk about alternative payment models for pricey treatments like gene and cell therapies, they’re usually referring to pay-for-performance deals such as the one Novartis struck with the Centers for Medicare & Medicaid Services for its $475,000 CAR-T cancer treatment, Kymriah. If patients don’t respond within a month of treatment, CMS doesn’t pay.
Now, two U.S. senators want to take that model a step further and allow insurers to spread those payments over time, with installments potentially tied to the effectiveness of the products they’re covering. Senators Bill Cassidy, M.D. (R-La.), and Mark Warner (D-Va.) have introduced a draft of a bill (PDF) they call the Patient Affordability, Value and Efficiency Act. It proposes amending the Social Security Act so that it will be legal for drug and medical device companies to strike payment deals with insurers that are linked to the performance of their products.
“With input from experts and key stakeholders, we’ll be able to ensure that pharmaceutical companies and medical device manufacturers are incentivized to develop more effective treatments at a better price,” Warner said in a statement.
The bill garnered the support of 14 patient groups, including the Michael J. Fox Foundation, CureDuchenne and the Friedreich’s Ataxia Research Alliance. In a letter to the senators, the groups said they were excited about the emergence of gene and cell therapies that have the potential to cure life-threatening diseases, but that because of their high prices they are “concerned that patient access to them could be greatly threatened.”
Many biopharma companies that are developing advanced therapies have made it clear that they’re hearing the chorus of legislators and patient groups who are criticizing high drug prices. And Wall Street analysts have been preparing investors for months for the potential impact of alternative payment models.
After Sens. Cassidy and Warner released their draft bill, analysts at Leerink Partners sent investors a note predicting that the early test cases for the viability of "annuity"-based payment models would be Novartis’ Zolgensma to treat spinal muscular atrophy and Bluebird Bio’s LentiGlobin for transfusion-dependent beta-thalassemia—both of which are gene therapies. The products are expected to be approved by the FDA this year.
“Both companies are leaders in cell and gene therapy, and we see these payment models as an opportunity to set the tone for constructive engagement with payers and deliver substantial social benefit,” Leerink analysts wrote in a note they sent to investors Thursday. That said, they added the warning that “the impact on shareholder returns may be mixed, according to our analysis of valuation implications across our coverage.”
Bluebird, in fact, had already disclosed that it’s cooking up a special payment model for LentiGlobin. The company’s executives said during a presentation (PDF) at the J.P. Morgan Healthcare Conference in early January that they might charge insurers an upfront fee for LentiGlobin but then spread the rest of the payments out over a period of up to five years. The company didn’t say how much it intends to charge for the treatment, but it vowed the price wouldn’t exceed $2.1 million, which the company believes is the product’s “intrinsic value” —what it returns to the healthcare system in extending the lives of patients and improving their quality of life.
As for Novartis, its history as an innovator in alternative payment models suggests it will come up with a plan for Zolgensma that payers will accept. The company has not yet disclosed the price it plans to charge for the product, but the cost watchdog Institute for Clinical and Economic Review said in December the gene therapy would be cost effective at a price of $2 million—an analysis Novartis was happy with, said Dave Lennon, president of the company’s AveXis unit, during a panel discussion hosted by FierceBiotech last week.
Lennon said Novartis is mindful of the need to develop alternative payment models for products like Zolgensma so the company can provide “a mechanism to stave off some of the pricing pressure that exists, because we find a mechanism to give value back.” He added that by working with payers to find affordable payment plans, the industry has “an opportunity to reset the paradigm under which we’re discussing what we should be charging for medicine, justifying that, and then really staying behind that based on outcomes.”
But tracking outcomes is likely to be a challenge for everyone involved, because there is no infrastructure in place for pharma companies or insurers to follow patients long after they’ve been cured of a disease. Tracking patient outcomes “in the real world … is often messier and more uncertain than the clinical trial setting,” the Leerink analysts said.
Earlier this month, Leerink released a report assessing the potential impact of five-year annuity payment models on the makers of gene and cell therapies in its coverage universe, including Bluebird. The analysts said they’re confident the company’s five-year payment plan for LentiGloblin is solid, but they warned that there are plenty of variables that could affect the profitability of products that are reimbursed via alternative payment models, not the least of which is uncertainty about the long-term benefits of gene and cell therapies.
“While it is premature to assume patients will derive a life-long benefit until the durability of gene therapy is shown in long-term studies, we believe payers will be willing to pay for durability demonstrated during clinical trials or linked” to value-based agreements, they wrote.