Should the US Gamble with Risk Sharing?

September 1, 2011
Pharmaceutical Executive, Pharmaceutical Executive-09-01-2011, Volume 0, Issue 0

Especially when payers come to the table holding the best cards - leaving industry second-guessing its strategy.

In the last couple of years, the idea of 'risk sharing' has been edging further into the ongoing debate in the United States about the pricing and reimbursement of medicines, occasionally generating a buzz that might suggest it is pharma's "next big thing." But the practicalities of risk sharing to alleviate the cost burden of paying for new innovations raise some difficult questions. How can innovative contracting models, well established—if not wholly successful—in Europe and Australia, be adapted and implemented in the context of the murky US managed care environment? Could US payers actually sustain their side of a risk-sharing bargain? And can we even define the concept?

Getty images: The Power Of Forever Photography

We can outline risk sharing simply as an agreement between a pharmaceutical company and a payer, whereby the former guarantees a product's efficacy in return for reimbursement from the latter. But participants at a recent CBI conference came up with at least 15 ways to interpret risk sharing. Indeed, the closer one looks at existing deals, the trickier it seems to be to identify examples where risk is truly shared.

"That is what a risk-sharing deal should be- a put-your-money-where-your-mouth-is deal." - Ed Schoonveld, Principal, ZS Associates

"If one takes the definition of share taught in kindergarten," says Ed Schoonveld, principal of ZS Associates, in his book "The Price of Global Health," then "most deals share no risk at all." Schoonveld prefers the term "alternative pricing schemes" to cover the broad range of initiatives that attempt to overcome a particular nation's pricing and reimbursement hurdles. Under this heading, he identifies seven basic types of deals that account for all of pharma's current so-called risk-sharing activity.

Among these are the agreements between Onyx and Pfizer and the Italian government regarding Nexavar and Sutent, respectively. Sutent and Nexavar have been approved in Italy for partial reimbursement for the first three months of use; after that, the Italian government only pays for patients showing an agreed-upon level of response to the treatment. Then there is Janssen Cilag's Velcade in the UK. Velcade was rejected by the National Institute of Health and Clinical Excellence (NICE) in 2006 after being deemed not cost-effective. Janssen had NICE reverse that ruling by offering to pay for treatment in patients who had less than a 50 percent reduction in serum M-protein. These are examples, Schoonveld says, of the 'surrogate endpoint-based reimbursement deal.' But the problem with this type of deal, he told Pharm Exec, is its focus on short-term outcomes. "There's no risk there," he says. "You know after the trial program what the tumor response rate is."

A deal that in Schoonveld's view is a truer example of risk sharing is the agreement between Novartis and a number of German sickness funds, where the company refunds the cost of its osteoporosis treatment, Aclasta, for patients who suffer a fracture despite taking the drug. There is also the deal, established in the UK in 2002, between NICE and four manufacturers of MS drugs, which follows 9,000 MS patients for 10 years to see if the drugs' long-term targets in slowing the progression of the disease are being met.

Labeling the MS deal an example of 'the population-based performance guarantee deal,' Schoonveld champions this as, in many ways, the "ideal" agreement. "But no one seems to like it anymore," he says. "I don't like all elements of it. It was horribly executed and, unfortunately, the results weren't good either. But just because the clinical results were not good doesn't mean that the deal was bad."

The problems with the UK's MS risk sharing agreement controversially came to light in 2009 when it was revealed that the patient outcomes were much worse than predicted. The disease had progressed faster in patients who were taking the drugs than in those who were not. The British Medical Journal called the scheme "a costly failure," and estimated that if an assessment had been completed after the first two years of the deal, the NHS could have saved around£250 million ($412 million) for use on other patients. "It did take seven years to gather two years' data," concedes Schoonveld. "But the point is, there was uncertainty over a product with a very high need. This scheme was a way of bridging that uncertainty and bringing the drug to patients when there was no other way of doing it."

Benefit from industry updates and case studies related to this article

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A Strong Hand in the US?

But if this is the best example, in principal, of an existing risk-sharing deal, what hope is there for the concept taking off in the US? Although there is a growing amount of attention on the idea, it is clouded not only by the same inconsistencies and confusions that are dogging Europe, but also by a strong wave of resistance that holds that risk sharing just won't work in the US's fragmented—and highly price-sensitive—market.

Whether a robust form of risk sharing takes hold in the US, or just fizzles out as it did in the late ’90s, is open to question.

Current US examples of risk sharing are thin on the ground. Why is it, asks Jamie Sidore, principal at The Amundsen Group, that there are only two such agreements that anyone can point to? One is the Merck/Cigna deal, where the drugmaker promised the insurance company bigger discounts on its diabetes treatments Januvia and Janumet in return for a better placement on Cigna's formulary (assuring lower copayments for its patients). The other is Proctor & Gamble's commitment to reimbursing Health Alliance Medical Plans with discounts for the medical costs of osteoporosis-related fractures in postmenopausal women taking P&G's osteoporosis drug Actonel. Genentech's Avastin Patient Assistance Program, which allows patients who reach an annual dosage of 10,000 milligrams to receive Avastin free of charge for the remainder of the period, effectively capping the drug cost at $55,000 per calendar year, falls outside consensus definitions of risk sharing.

These deals have hardly been welcomed as ringing endorsements of risk sharing. "Our take is that the Health Alliance deal is a pure publicity play," says Sidore. "The pharmacy director of Health Alliance was on the lecture tour circuit for three years after that deal was done. And P&G got more impressions in the press for that deal than they got from all the money they spent on Actonel the previous year." As for Merck/Cigna, Sidore fails to see how it can set a worthwhile commercial precedent: "If you are Takeda with Actos or Novo Nordisk with Victoza and you're looking at the Merck Januvia deal, nothing about that disadvantages your access in any way; there's no incentive to compete, to outfox them in a different payer. I've seen nothing to suggest that Cigna is working harder to maintain adherence for Januvia patients than they are for Actos or Amylin's Byetta patients."

Schoonveld offers a more sympathetic assessment. "The Merck deal was really a deal around compliance, and that's a good thing," he says. "The payer and the company both have an interest in improving compliance, because in diabetes that's a major health issue. In that context, the fundamental idea of closing a deal is good." The problem was that the outcomes as they were measured improved after a year, and Merck gave additional discounts. "Merck should have gotten money back if it was a true risk-sharing deal, so a lot of people are saying that it was really just a pay-for-play kind of deal, a way of getting it on formulary. But I think the concept was great." The P&G/Health Alliance agreement, however, Schoonveld says, has "a true risk-sharing element, a very strong health benefit, and will also save you money." There could end up being more fractures than claims, but, he adds, "that is what a risk-sharing deal should be—a put-your-money-where-your-mouth-is deal."

Folding So Soon?

Even so, Sidore does not see there being any broad opportunity for risk sharing in the US, even in the same products that are driving the concept in Europe. "The European examples tend to be very high-cost products that would not get any access at all unless they were willing to say, 'Pay us only if it works.' In the US we don't have to do that, because the pharmaceutical companies are going to get paid in 95 percent of situations whether the drug works or not." He adds that the European models are driven by the single-payer environment. Even in nations that are not pure single payers, the role of government in pricing and price negotiations creates a much higher de facto level of control than in the US. "The fragmented system here negates the power of the central purchasing authority," Sidore says. "Under a fragmented system, the need is reduced and the incentives to participate are reduced."

It is worth remembering that the US has dallied with risk sharing before, only for it to quickly lose momentum. Speaking to Biotechnology Healthcare in October 2009, Bruce Pyenson, consulting actuary with Milliman Inc., reminded us that "in the 1990s, we saw physicians and hospitals taking risk in the form of capitation and other kinds of arrangements. Some of those survived, many of them did not." Ultimately, political concerns that capitation was an overt tool to ration healthcare helped abort the trend before it took root.

Benefit from industry updates and case studies related to this article

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Drawing that Full House

So how can the US really achieve a win-win? Sidore believes it's by keeping patients on medicine. "Using innovative contracts to lower and eliminate copays for certain focus medications is an area with win-win potential," he explains. "In many specialty cases, and even chronic disease retail classes, both the plan and the manufacturer are better served by having lower copays—as the patient stays adherent and manages his condition better. Contracting to provide copay offsets directly to patients, in return for favorable or exclusive formulary status, is a promising win-win area." Step therapy is another path that is friendly to the diverse and clinically heterogeneous US environment. It can be defined as "creative contracting," which is basically putting some modest limits on the choices that providers have in prescribing, rather than simply telling providers what they can or cannot use in treating individual patients.

For Schoonveld, the US's goal should not be risk sharing at all. "It should be bringing the best treatment to patients." He cites comparative effectiveness research (CER) as a worthy trend, "but we need to make sure we don't simply use it as an excuse to block out innovation." Gathering that kind of data takes time, so it could easily become an excuse for payers to say that a treatment has not been proven. But, he says, CER is where alternative pricing schemes could prove helpful.

An offshoot of CER that tallies more closely with some of the risk sharing deals mentioned above is coverage with evidence development (CED). CED allows for reimbursement of a product at a price determined by the manufacturer, but only for a set period of one or two years. After this period, a price review takes place based on real-time evidence to assess how the product has showed value against agreed outcomes. If the product has failed to show any value, the payer withdraws the price and sets it lower against existing standard of treatment.

CED seems to have gained some traction among major managed care payers in US, such as the Blue Cross and Blue Shield (BCBS) companies. Dr. Allan Korn, the BCBS Association's senior vice president and chief medical officer, currently chairs the Technology Evaluation Center (TEC), which has developed scientific criteria for assessing medical technologies through reviews of clinical evidence; TEC now averages 20 to 25 assessments a year. Korn has also led the creation and implementation of "Blue Distinction," a portfolio of initiatives to "acknowledge clinical excellence and foster quality improvement in collaboration with providers."

These initiatives notwithstanding, whether a robust form of risk sharing takes hold in the US, or just fizzles out as it did in the late '90s, is open to question. It is certainly never going to become, according to Bob Carlson in Biotechnology Healthcare, a panacea for pharmaceutical and biotechnology companies. "It's not even a preferred option, but a last resort," he says. But it could mean the difference "between getting reimbursement and good access or not." And, as Bruce Pyenson asserts, the US is now at a point where doing business in "the usual way" is unsustainable.

It seems, however, that we'll need a few more convincing examples of effective risk-sharing deals, both from Europe and the US, for it to enter the US mindset, let alone the market, as a practical solution for the future—whether as a necessary stop-gap or a whole new way of doing business.

Benefit from industry updates and case studies related to this article

CBI's 3rd Annual Risk-Sharing and Innovative Contracting Models for Bio/Pharmaceuticals

Pay-for-Performance | Outcomes-Based Agreements Pricing | Reimbursement Approaches

March 22-23, 2012

Philadelphia, Pennsylvania

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