The times they may be a-changin’, to borrow loosely from Bob Dylan’s ballad about social change in the 1960s. It is unclear to what degree policy changes to promote lower pharmaceutical prices will succeed. While pricing pressures will vary and orphan products can expect some protection now, the suggestion here is that brand planning should evaluate the merits of risk contracting for the future.

At least four new developments target the broader pricing landscape, and two could potentially create downward pressure on orphan products in the years to come.

Neither TrumpRx nor the Medicare drug negotiations should affect orphan pricing. Products under TrumpRx are direct to consumer, bypassing insurance and making net prices directly available to patients. With Medicare negotiations, legislation excludes orphan products, so long as they are only orphan-indicated and not approved for non-orphan conditions.

Potential threat comes from two other developments. The first is most-favored nation (MFN) pricing. However, there is the following two-part caveat:

1. MFN pricing is tied to Medicare Parts B and D seven-year pilot programs.
2. Medicare’s priority is budget impact, so any future MFN pricing will focus on drugs with populations exceeding orphan populations.

The situation is more equivocal with commercial insurance. On the one hand, MFN pricing is gaining traction in current discourse; on the other hand, for orphan products, there are no signs insurers will find MFN benchmarks more effective than price protection and other concessions realized from manufacturers.

The second threat involves pharmacy benefit managers and net pricing. Here, battles against the rebate business model appear to have prevailed on the regulatory front, but it is unclear how they will prevail in the market. Since the rebate model has been embedded in financial arrangements for at least 40 years and customers want rebate guarantees, the movement to net pricing is likely to be uneven—especially for orphan products where rebates play a relatively small role.

With MFN and net pricing not expected to have a material impact on orphan products near-term, the justification for manufacturers evaluating risk contracting is staying ahead of the curve.

Reasons for risk contracting

Four reasons support the argument for employing risk contracting for orphan products. They include:

1. It justifies higher pricing in an emerging landscape keyed to downward pricing pressure.
2. It creates entry barriers to future competition.
3. It is the ultimate expression of manufacturer commitment to value-based principles.
4. Where low net price and MFN pricing drive commoditization, risk contracting provides protection.

Reasons against and their limits

Payers will cite three reasons against risk contracts, but each has a counterpoint. First, they are difficult to administer. Aside from the manufacturer’s commitment to ensuring simplicity, as artificial intelligence advances, customized administration will become easier to design and implement at scale.

Second, with orphan populations, patient volume is too small to justify the complexities of a risk contract. The counterpoint is that the cost of a health plan’s “orphan bucket” is escalating, so while one product may have a handful of patients, costs overall justify a new cost management strategy.

Third, health plans prefer to avoid risk arrangements that cover multiple fiscal years. Here, there are at least three counterpoints, including the following:

1. Since efficacy and durability will likely be evident within a 12-month period, risk arrangements can reasonably be for two years.
2. Currently, rebates earned one year are routinely realized by the health plan (or employer) the next year.
3. Concern that patients will leave the plan during the risk period is unrealistic. Despite health plans losing members annually, the likelihood of patients starting orphan disease treatment and leaving over a two-year period is exceedingly small.

A year too soon

“A year too soon rather than a year too late” was the rule of Branch Rickey, famous as the Brooklyn Dodgers general manager who brought Jackie Robinson to Major League Baseball, for trading players. Useful in many ways, it also applies to orphan product planning, given the emerging pricing environment.

While the merits of risk contracting need to be evaluated on a case-by-case basis, orphan product manufacturers implementing successful risk arrangements are likely to achieve two key objectives: maintain higher pricing and create a steeper climb for future competitors.

Ira Studin, PhD, is president, Stellar Managed Care Consulting. He can be reached at istudin@stellarmc.com.