OVER THE PAST few decades, countries have experimented with a variety of approaches to controlling the cost of on-patent prescription drugs. From direct price controls, to health technology assessment, to market friendlier methods that encourage discounts, pharmaceutical policies reflect countries' political, cultural, and economic environments. They are also unique in the ways in which they are established in the context of a country's broader health care system.
The concept of "limit prices," introduced in this article, would serve as an interesting approach in the United States that could strike a balance across these dimensions. On the political and cultural dimension, limit prices would be consistent with the US market-friendly approach to controlling health care expenditures. The Centers for Medicare and Medicaid Innovation (CMMI) could encourage and support limit pricing pilots with payers and risk-bearing providers who serve Medicare and Medicaid populations. In a similar vein, in 2016 the CMMI will begin CMS' Oncology Care Model, a bundled care program that seeks to improve oncology care at a lower cost through per-beneficiary-per-month payments for oncology care and the potential for performance-based payments. Model 2 described by the authors, limit pricing for pharmaceuticals within provider-directed episodes, could fit nicely into these pilots.
Limit pricing is a great first step in using pharmaceutical reimbursement as a tool to encourage focus on value in drug development. It appropriately considers the value of drugs in the broader context of the health care system, recognizing the role of pharmaceuticals within integrated treatments rather than as products that patients consume independent of the rest of their health care. It also serves as a practical solution where payers have tightly constrained budgets, especially in the case of Medicaid.
As is the case with every payment model, the concept of limit prices has its limitations. The article acknowledges the need for further consideration in the case of drugs that may have a net cost increase. Many of the blockbuster medicines of the previous decade would have fallen into this category, such as SSRIs, proton pump inhibitors, and triptans. Although these drugs may produce modest savings in the health care system, their real benefit is likely in the form of increased quality and length of life. In addition, there could be significant savings to society from patients consuming these drugs, such as increased productivity at work, something that would be difficult to take into account in limit pricing.
There also remain many modeling challenges in the implementation of limit pricing. The health care savings from some drugs may be longer term, making it difficult to quantify the net benefit during a 3- to 5-year contract period. IT systems need to provide integrated cost and benefit information to quantify the financial impact on the health care system. In addition, demographic information and detailed time series data on utilization at the individual patient level are necessary to conduct analyses proving that a drug has produced the intended outcome. Although many providers and payers have made significant investments in IT, it may still be a challenge to access the exact data that are needed. Recently Novartis announced its intention to engage in pay-for-outcomes contracts for its new heart failure drug, Entresto, only to later announce its retreat from such a model because of challenges in quantifying the reductions in strokes, readmissions, etc., resulting from the drug.
Finally, limit pricing may not lead to better value where the comparable drug is already highly priced. For example, following Sovaldi, Gilead introduced Harvoni at the price of $94 500 for a 12-week round of treatment. A limit pricing calculation for Harvoni would include the $84 000 price tag of Sovaldi, resulting in continued price premiums. Thus for limit pricing to reduce the incidence of high-cost drugs, it would have to be applied comprehensively to appropriate classes of drugs.
Nonetheless, where limit prices may not be applicable to drugs that increase quality or length of life and where limit prices do not address the problem of comparable drugs with high prices, there remains the opportunity for negotiated discounts through arrangements such as subscription pricing, as the authors acknowledge. The key in the United States is to find a way to better align the negotiated discounts with the value of the drugs. Currently, market giants such as Express Scripts and CVS Caremark achieve discounts that largely reflect the dynamics with the manufacturers rather than being tied to the value of the drug itself. For example, in 2014, Express Scripts took Sovaldi off its formulary completely, whereas CVS Caremark received a large discount of almost 50% to keep it on its formulary. A pricing framework where discounts more directly reflect the increased value of the drug in a consistent way would be a step in the direction of more efficient pharmaceutical purchasing.
In summary, limit pricing is an interesting, innovative proposal that would reward higher value drugs, while taking into consideration the reality of payers' budgets constraints. It would also fit nicely in the political and cultural framework in the United States that strives for market-friendly policy solutions. The problem of affordable medicines in the United States will only increase with treatments such as immunotherapy and genetic therapy in the pipeline. Experimenting with new pricing approaches now will offer an improved menu of options down the road.