A New Kind of Drug May Demand New Ways to Pay

Even before the advent of gene therapies, the fast-rising cost of specialty drugs was alarming patient advocates, insurers, employers, providers and lawmakers. The prices on the horizon present a new kind of challenge.

This is a scanning electron micrograph of a T lymphocyte. A new drug called Kymriah alters a patient's own T cells to attack the cancerous cells in children and adults with a rare form of leukemia. PHOTO CREDIT: NIAID

An innovative new class of therapies may cure some very sick patients who previously had little hope. But their six-figure cost could render them inaccessible to many — unless health care stakeholders can come up with equally innovative ways to pay for them.

These drugs are often referred to as gene therapies because they involve an injection of altered or healthy genes into patients with rare cancers or genetic disorders.

On Aug. 30 the U.S. Food and Drug Administration approved a gene therapy for the first time, a Novartis drug called Kymriah. It was approved to be used against an aggressive form of leukemia in children and young adults who have not responded to other treatments.

Kymriah, also referred to as a CAR-T therapy, involves harvesting some of the patient’s white blood cells, modifying their genetic content to attack the cancer cells and then injecting them back into the patient.

In a clinical trial, 83 percent of the patients were cancer-free three months after that one-time injection.

“We’re on the precipice of a Golden Age of medicine,” says Dr. Matthew Fontana, the chief medical officer of pharmacy for Blue Cross and Blue Shield Plans in Illinois, Montana, New Mexico, Oklahoma and Texas. “Their potential is that large.”

But large potential carries a large price tag: Novartis priced Kymriah at $475,000, and it may be followed by hundreds of other gene therapies in development that will be priced similarly.

Sticker shock

Even before the advent of gene therapies, the fast-rising cost of specialty drugs was alarming patient advocates, insurers, employers, providers and lawmakers. The prices on the horizon present a new kind of challenge.

When a gene therapy for a rare blood disorder was OK’d in Europe in 2012, it was priced at roughly $1 million. Experts expected a similar price for Kymriah before it was approved.

The pharmaceutical industry points to several factors as justifying a new tier of pricing for gene therapies. One is that they are a completely novel product and require large investments to create, test and store. In some cases each batch must be custom-made for a particular patient. And the patient pool can be very small. Since many gene therapies target rare diseases, manufacturers have fewer opportunities to make their money back. Another rationale is that these therapies may cure diseases that otherwise would require years of costly treatments.

They could be very expensive for a very long time.

And the prices aren’t likely to fall over time as they have other breakthrough drugs. Gilead Sciences caused a huge stir just a few years ago when it introduced its hepatitis C drug Sovaldi with list price of around $84,000 for a 12-week course of treatment. The net price of Sovaldi and similar hepatitis C drugs that came after peaked and then dropped off relatively quickly.

“But gene therapies, holy cow — they could be very expensive for a very long time,” Fontana says. That’s because there will be less competition in the short run for specific targeted therapies and the actual net unit cost for a course of therapy is expected to be a full order of magnitude higher that it was for the hepatitis C drugs.

Although Novartis priced Kymriah lower than experts had expected, some patient advocacy groups still see $475,000 as unreasonable, pointing out that federal grants covered $200 million of the development costs.

Innovative therapies call for innovative financing

The prospect of sustained high prices for gene therapies is prompting stakeholders to consider creative ways to make sure they reach the patients whose lives they may save.

A nonprofit organization that evaluates the value of medical treatments convened a group of health insurers, pharmacy benefit managers and drugmakers last year to explore issues raised by the pipeline of gene therapies.

“Their high cost is likely to present severe affordability challenges for payers and society,” the organization wrote in a report summarizing the meeting. “Alternative payment and financing strategies for gene therapies may be needed to manage short-term affordability while fairly rewarding value and providing the needed incentives to maintain investment in future therapies.”

Pharmaceutical companies, payers and providers are working together to come up with novel financing approaches, says Mark Trusheim, an expert on the economics of biomedical innovation and the strategic director of MIT’s New Drug Development Paradigms program, known as NEWDIGS.

“We believe the solution lies in all the relevant parties thinking about the total system of payments and using some creative tools that we haven’t used before in health care, but we do use all the time in other parts of the economy,” Trusheim says.

NEWDIGS is running a project called “Financing and Reimbursement of Cures in the U.S.,” which brings stakeholders together to create innovative financing models for curative medicines like gene therapies.

Here are three possible approaches:

1. Outcomes-based agreements: Manufacturers would only be paid if the therapy is effective for the patient. Novartis and the federal Centers for Medicare and Medicaid Services announced a collaboration to offer an outcomes-based payment model for Kymriah — the manufacturer would only get paid if the patient responds to the therapy in the first month of treatment.

The Council for Affordable Health Coverage, a coalition that includes insurers and pharmacy benefit managers, applauded the agreement.

“While we await more specific details of the agreement reached between Novartis and CMS, we believe this arrangement will be a win for patients, as it recognizes the need to reward outcomes and ensure the cost of treatment is a reflection of its clinical success,” Joel White, president of the council, said in a statement.

Novartis also has signaled it would adjust the price of Kymriah if it is approved to treat other conditions with a lower success rate, referred to as “indication specific pricing.”

Two drug policy experts at Memorial Sloan Kettering Cancer wrote recently in STAT that such value-based contracts are promising but can be gamed by pharmaceutical companies. “One approach is to charge a price that is far too high in the first place, so any reconciliation linked to outcomes only modestly moves the net price,” they wrote. “Another approach is choosing the wrong outcome, or one that tilts towards the drug delivering a benefit.”

2. Long-term financing:  This option would spread payments to the manufacturer out over time, making paying for gene therapies similar to paying for other big purchases, like a house or a car. This can work for gene therapies because, unlike other drugs, they are purchased once instead of every month or week.

The approach could take various forms. The patient could take out a personal loan to pay up front for the therapy, skirting health insurance altogether. A health insurance company could take out a loan from a third party to pay the drugmaker. Or the manufacturer could allow payers to pay in installments.

Trusheim warns that this approach may sound good on paper, but the devil is in the details. If a patient changes insurance companies, what happens to that long-term payment, for instance? Those details are still being worked out.

3. Government assistance: “There may be an opportunity for the government to play a role” in financing expensive but effective gene therapies, Fontana says.

Take dialysis as an example. The groundbreaking technology arrived in the late 1940s, promising to extend the lifespan of people suffering from end-stage renal disease. The treatment was expensive, but it was so effective that President Richard Nixon signed a law in 1973 to have Medicare cover the cost of dialysis for any patient who needs it.

Something similar could work for gene therapy coverage, Fontana says. But, he adds, the arrangement may be far-fetched given the current political climate.

The road ahead

Kymriah won’t be the lone gene therapy on the market in the U.S. for long — FDA approval of a therapy from Spark Therapeutics for childhood blindness caused by a genetic retinal disorder has received priority review and is expected soon. Many more are in the pipeline.

Trusheim believes a reasonable model for financing these treatments is out there. But he also warns it likely won’t be seen as a win by all parties involved. “I don’t think there’s an ultimate solution everyone is going to be joyful about.”

But to reach a solution at all, Trusheim says, insurance companies should engage with manufacturers early in the process to make sure the enormous promise of gene therapy is accessible to the patients who need it most.

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