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.

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.