Value-based drug pricing: When does it work best?

“while the U.S. lags behind in adopting value-based agreements, many policymakers are realizing that value-based pricing can be an important, viable solution to the high and rising expenditures that payers lay out for prescription drugs.

Developing value-based agreements has never been easier. A large number of value-based agreements are now available and can be used to help payers, manufacturers, and providers develop new ones appropriate to their specific situations. [..]

Here are four scenarios for which I believe value-based pricing is appropriate.

  • When expected outcomes for a new treatment are clear and objectively measurable. [..] Treatments with clearly defined, meaningful, and measurable clinical results are also good candidates for such contracts. In contrast, therapies that treat conditions with broadly defined and subjective outcomes, such as pain management, are more difficult to measure for efficacy.Treatments that are expensive mainly because they can be used only by a small population of patients can yield clearly defined results in treating rare disease or some types of cancer, making them the most common subjects of value-based drug pricing agreements. The McKinsey analysis revealed a concentration of innovative drug pricing arrangements in the areas of oncology and hematology, rheumatology and arthritis, cardiology, and endocrinology.
  • When a new drug comes to market through the FDA’s accelerated approval program. [..] To receive full, traditional FDA approval, conditionally approved drugs must complete a follow-up Phase 4 trial to gather real-world evidence confirming the drug’s expected effectiveness, and evaluating the long-term risks and benefits. Manufacturers should be eager to enter into value-based pricing agreements for these new products: data collected during contract implementation can provide the real-world evidence needed to complete the FDA approval process more quickly, getting the drug to market and enabling the company to begin recouping its development costs.
  • When a new drug is highly innovative and very expensive. [..] Payers can model and mitigate the financial risk of covering a new drug with a value-based payment agreement, knowing that manufacturers are sharing in the risk of a drug not performing as expected.
  • When a new drug is a biosimilar. [..] Like other drugs under accelerated FDA approval, longer-term clinical trials are not initially required for biosimilars. Instead, the FDA uses a biomarker or measurement by surrogate or intermediate clinical endpoint that predicts a drug’s clinical effectiveness. Real-world data should confirm if the predictions were correct; if real-world data reveal they are not, the FDA will pull the drug’s approval. Here, too, real-world data is the main criteria for determining effectiveness, making biosimilars good candidates for value pricing.

[..] What’s common to these four scenarios are drugs being used to treat specific conditions that can yield measurable results, and their relative expense due to the high research costs that went into developing them. To arrive at a fair pricing scheme for such drugs, real-world data are needed to measure results and demonstrate to payers, providers, and, most importantly, patients, a drug’s value and benefit to health outcomes.

It sounds complicated, and the process is certainly involved. But payers, providers, and even pharmaceutical firms can all benefit from the process: payers by reducing their costs, pharma companies by developing more effective products that will enhance their reputations, and provide incentive for payers and providers to help advance their businesses.”

Full article, G Fernando, STAT+ 2022.7.14