PE: Do pharma's experiences with payers in other countries offer insight into what it should do in the US?
JH: In Europe, pharma's need to understand the payer landscape seemed to precede that in the US, given the strong and early role
of the national organizations that approve and reimburse drugs. In the late '90s, pharma was already commissioning studies
on this topic.
For example, in France, the way the system works is that pharmaceutical companies are bound to make agreements with the government
on the amount of their total revenues, with total revenues being a multiple of your price versus the quantity, so that if
you start to sell a lot more of it, they force you to reduce your price.
TS: You launch a drug, and there's typically some price/volume agreement in place, where you provide France with a budget projection,
including the number of appropriate patients and the annual cost. And then, if you exceed that, there are mandatory price
cuts across the total volume of your business. In oncology, in particular, when products first come to market, they often
target a very late line of disease and a fairly small population. But the company's goal is typically to continue to demonstrate
the value of the drug and move up the treatment pathway into an earlier stage. As you do that, you start treating more and
more patients. So then you're running into the likelihood of triggering those price/volume agreements—more patients, more
In addition, in terms of international price referencing, the French price that a company achieves for its drug is important
not only because France is a major market but because it is probably one of the most referenced countries in the world due
to the very methodical and transparent way it assesses drugs.
JH: Transparency is a growing imperative in terms of pricing. Increased transparency with more government systems publicly accessible
both in the US and in the EU is supporting the growth of informal cross-country price referencing and sharing of information
that works its way into national-level decisions. Public scrutiny of the cost of drugs is also increasing, of course.
TS: There are other mandated approaches in other markets across Europe. In Germany, oncology therapies have not been part of
physicians' annual drug budgets, so there has been minimal price exposure there as well. If a new drug is able to demonstrate
"incremental benefit," it should not be subjected to price discount negotiations.
In markets that rely more heavily on health technology assessments, like Canada and the UK, oncology agents are subject to
the normal review processes. In Canada, maximum pricing is determined at the national level and then each province can negotiate
prices below that, deciding whether to add a product to its formulary on the basis of clinical effectiveness. Private payers
sometimes offer broader coverage. In the UK, NICE conducts its QALY-based analysis, and as a rule of thumb drugs must stay
below the £30,000 per QALY threshold to win NICE endorsement.
Of course, in the US, nothing like that exists. For pharma, the problems arise because of having to deal with its fragmented
payer system. Private and public payers do evaluate new agents, but their approaches vary significantly: Some private payers
manage products more stringently than others, relying on assessments of clinical value in the context of economics and their
ability to contract for price discounts.
What all of this means is that the strategies that pharma uses to engage with payers necessarily must be flexible and multifaceted.
I think there's room for some innovation, but payers aren't necessarily going to be embracing innovation unless it also brings
them high profitability.
JH: Exactly. You always go back to the economic argument to convince the payer that not only is this treatment in the best clinical interest of the patient, but it's in the best management interest of the patient—that using it leads to quicker recovery, fewer side effects, and so on, so the overall cost of the
patient's entire treatment is less, even though the cost of the new drug may be two, three, or 10 times more expensive than
the standard of care.
TS: There's a justified awareness among payers of that argument, which is why there's a greater desire on their part to see things
like comparative-effectiveness data.