IN their article "Paying for On-Patent Pharmaceuticals-Limit Prices and the Emerging Role of a Pay for Outcomes Approach," Richard Fuller and Norbert Goldfield (2016) correctly identify the limits of the current model of revenue generation for innovative pharmaceutical companies, which is mainly based on a "price x volume" approach. Companies have been exploiting the relative "price insensitivity of demand" in health financing systems that guarantee patients' access to new treatments without imposing limits on coverage or being able to negotiate price. Since the United States is more or less the only remaining market where these conditions exist (although even there support is eroding), this classical model has reached its limits. The authors describe how it is turning into a lose-lose proposition, as payers in many markets delay coverage decisions with the result that patients do not have access to new treatments and companies cannot recoup their investment.

With "limit pricing," as defined by the authors, payers should be more willing to quickly adopt new medicines, in particular if these are highly effective in reducing the cost of disease episodes or annual treatment costs for chronic diseases. The authors make the assumption that improved long-term outcomes would also be included in the calculation (eg, a reduced risk of liver failure and need for transplant in a 5- to 10-year time horizon), but it is an open question whether decision makers in payer organizations are willing to enter into such long-term bets. Even if the math is correct, the economic incentives for payers in most countries may not be in favor of prepaying today for savings realized 10 years from now. If the model assumes that the payment is delayed until the benefit can be demonstrated in the treatment population, the manufacturer would probably ask for some kind of independent guarantee that makes the future payment enforceable even in case the administration and the rules change over time. Questions of discount rates come into play-positive or negative, depending on whether the assumed monetary environment is inflationary or deflationary.

Limiting the "limit pricing" approach to medicines that can demonstrate short-term savings looks easier but might reduce the applicability, as the industry may not be able to generate a significant number of novel compounds that have the potential to reach the market with sufficient evidence for short-term cost savings. Such medicines would likely be prioritized by payers in developed markets anyway (and potentially fast-tracked by regulators). The difference in aggregated sales over the patent lifetime may not be so big between the classical model and the "limit pricing" approach in such a case, although one would only know once the model has been tried and data (time-to-market, adoption curve) are available.

How about true breakthrough treatments that provide a cure for a previously deadly disease? Let's assume a manufacturer comes out with a drug that stops the progression of an otherwise fast growing malignant tumor but needs to be taken for lifetime to prevent recurrence (such as, for example, Glivec): Savings for the payer are limited, as the previous alternative would have been palliative treatment for only a few weeks or months until the patient passes away and is no longer a burden to the payer's budget. "Limit pricing" would probably not be a viable alternative under such conditions.

The authors point out that payers would (continue to) delay or deny coverage for medicines that are not likely to produce measurable savings to budgets, which could compensate for the added cost of the new treatment. It would be interesting to do a quick retrospective analysis of the last 30 to 50 new molecules introduced in the leading pharmaceutical markets. If the result is that the majority falls into this category, the applicability of "limit pricing" is likely to be further reduced, as in the absence of cost savings, there would be no positive limit price.

Given the anemic growth of pharmaceutical markets in developed countries, pharmaceutical multinationals have been heavily investing into faster growing developing markets. After some years of impressive growth, many of the payers in these markets have introduced often rather crude hurdles for innovators precisely to limit the budget impact of new medicines that, once accepted and included into coverage, were often overused and took a much larger share of the budget than anticipated. At first sight, larger middle-income countries such as the "BRICS" or Turkey, Mexico, etc, seem like the ideal candidate for a pricing model that better aligns the interest of payer and innovator. The problem in these countries is that health systems may not yet be up to the task of providing reliable data on which savings calculations can be based. This is not meant to discourage from further pursuit of the idea: maybe the prospect of better outcomes at the same or lower cost through an alternative pricing model can catalyze and accelerate the development of systems that improve data collection and overall efficiency in the use of resources in these countries. Pharmaceutical companies are already active as informal advisors to ministries of health and health insurance funds, realizing that if they help reduce wasteful spending, they have better arguments in their push for higher medicines expenditure.

In summary, the problem for which the authors present a potential partial solution is very real-in almost all countries, there are formal and informal mechanisms in place to delay the access to new medicines in third party payer systems simply for protecting the payer's budget. Under the current pharmaceutical pricing model, the short-term budget impact is almost always negative, forcing payers to make painful trade-offs. A pricing model that avoids these trade-offs would be welcome and should be explored. "Limit pricing," as presented by the authors, may have some potential, although it is not clear what share of novel products would fall into a category that could benefit from this approach. It may be worth looking at a few examples from recent history and simulating the "limit pricing" approach in a submarket that is reasonably well documented. True breakthrough products that significantly extend the life span of patients with otherwise deadly diseases would probably not fit the model, neither would products that promise marginally better clinical outcomes but without short- or mid-term cost savings, and we may find that the majority of new products fall into this category.

Many of the markets with higher growth potential may not yet have systems in place to support the "limit pricing" approach, but the discussion around this and other pricing models could potentially help accelerate reforms and implementation of systems that not only would support a more sophisticated pricing model but also generate savings from overall reduction of wasteful spending and improved outcomes if data are used to improve quality of care. We may observe in the future that pharmaceutical companies will work ever closer with payers and providers and take on additional functions in the management of chronic diseases that will not only open up new avenues for marketing their products but may also create additional revenue streams in the form of rewards for better outcomes at lower or equal costs. There is no doubt that the level of inefficiency in most health systems leaves ample room for such innovation.

REFERENCE