Read: Big pharma’s go-to defense of soaring drug prices doesn’t add up
The dilemma only becomes starker the higher a drug’s price tag. That’s why the Philadelphia-based Spark Therapeutics offered a partial refund last year if its gene therapy for blindness—priced at $850,000 for a single patient’s course of treatment—were to stop improving patients’ eyesight. And Alnylam Pharmaceuticals struck this deal with three major insurers: If its newly approved $450,000 infusion failed to treat nerve and liver damage from a rare hereditary disease, the Boston drug manufacturer would return some of the money—and in a worst-case scenario, cover a liver transplant.
“It’s a way to prevent the price tag from being a barrier,” says Michael Sherman, the chief medical officer of the Massachusetts-based insurer Harvard Pilgrim Health Care, who’s negotiated more than 15 such contracts over the past three years, including another in the works with AveXis for its soon-to-be-approved gene therapy for spinal muscular atrophy.
A Duke University team found that 11 drug manufacturers and nine private insurers together implemented 210 value-based agreements from 2014 to 2017, according to a paper published in February in The American Journal of Managed Care. In theory, the agreements solve two problems for private insurers. First, they reassure insurers that their money will be well spent. “If an insurer pays $1 million, they’re going to get really annoyed if it doesn’t work,” says the economist Mark Trusheim of the MIT Center for Biomedical Innovation. “These let reasonable people be reasonably uncertain. Rather than guess, they can pay according to evidence.”
Second, these agreements focus attention on how drugs perform over time, which is especially crucial for therapies without a track record of five to 10 years of research data to support their claims—or for rare-disease therapies that were tested on a small number of people.
Read: When evidence says no, but doctors say yes
Yet critics worry that, far from keeping costs down, these agreements only make it easier for drugmakers to charge high prices. Peter Bach, the director of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center, says such agreements allow insurance companies to spread out hefty payments over multiple years, which then get passed on to patients in the form of bloated premiums. Installment structures support exorbitantly high prices that wouldn’t survive in the marketplace naturally. “When Bluebird says, ‘We’ve got a $2 million therapy,’ they just made that up,” he says. “Markets should set prices—not financing mechanisms.”
Moreover, there are operational challenges, too, that have prevented value-based agreements from becoming more popular. Under the federal government’s “best price” policy, a drug manufacturer has to sell its products to state Medicaid programs at the lowest cost it offers to private insurers. A refund of more than 23 percent off the list price would trigger a new Medicaid best price. If a $1 million therapy stops working for the patient, says the economist Gregory Daniel, a member of the Duke research team that studied value-based agreements, state programs are going to want back more than 23 percent.