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Smart Thinking blog

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The Italian Job

Therapy efficacy and value-based reimbursement models
The Italian job

In my August column in this publication, I spoke about the need for establishing a mechanism that would allow stakeholders to gain some sort of reimbursement for 'ineffective' medications.

The challenges, of course, are myriad. How much of a discount? Who gets the discount if the therapy involves an insurance component and an out-of-pocket component? How do we determine a therapy's effectiveness? How do we follow patients in order to validate this lack of efficacy? How long do we wait for a patient's response (or lack thereof) for a therapy to be deemed 'ineffective'? How do we know if the lack of efficacy is due to the drug or some other factor?

Apparently these questions have not stopped manufacturers and stakeholders from striking deals.

Novartis, for instance, wants to strike deals on its heart failure drug Entresto, which reduced hospital visits for patients in clinical trials. Hospital visits are costly. So, Novartis wants to be paid more if Entresto keeps patients out of the hospital, and less if it fails to do so. Amgen arranged an outcomes-based arrangement on its cholesterol-fighter Repatha. The company and Harvard Pilgrim Health Systems agreed on LDL cholesterol targets for various patient groups, and if Repatha doesn't help patients hit those goals, the insurer collects bigger rebates. More rebates are due if Harvard Pilgrim's spending on the drug surpasses an agreed-upon threshold. Express Scripts will launch a new value-based reimbursement model next year, using comparative data and indication-specific pricing to favour 'clinically superior' meds. The pharmacy benefits manager will roll-out the approach in cancer first, with anti-inflammatory meds close behind. This Express Scripts idea builds on initiatives by the American Society of Clinical Oncology - which is rolling-out a drug-evaluation framework that rates the benefits, side-effects and costs of various treatments - and Memorial Sloan Kettering's Center for Health Policy and Outcomes, which advocates pricing drugs according to their results in individual indications. It also builds on a unique approach taken by the Italians towards out-of-control drug pricing.

This idea ... advocates pricing drugs according to their results in individual indications

The Italian Medicines Agency has devised deals with pharma companies that set payment based on how well a patient responds to treatment, and in some cases where the medication fails to help, the drugmaker gives a full refund. The medicines agency - responsible for drug regulation in Italy - established national registries in 2005 that track all patients' treatments and their outcomes, which provide the basis for the assessments and allow the agency to renegotiate contracts based on new data every two years or so. And we're not talking about a handful of products or an insignificant amount of money either. Italy was able to get a rebate of approximately 200 million euros - representing 1% of its national health budget - on utilisation of over 90 different medications. In fact, Italy seems to be so smitten with this approach that it has more than quadrupled the number of treatments under this innovative risk-sharing scheme (see graphic below).

The Italian job graphic 

Back to the long list of questions at the beginning of this column. How do we account for risk-adjustment? In other words, what if we're talking about a cholesterol-lowering medication and we've established LDL targets that would trigger the rebate. So, how do we account for patients that have different profiles at baseline? What if one patient is a smoker and one isn't? Or one has a sedentary lifestyle and the other doesn't? In other words, when is it about the drug and when is it about the patient? It will also be interesting to see how all these publicly-traded companies manage these rebates from an annual reporting perspective and whether that changes their appetite for such deals. Imagine a manufacturer with 10-15 different deals across multiple product lines in multiple jurisdictions. The total sum of potential rebates owed could be, arbitrarily, 500 million euros in any given year. Maybe more or maybe less. But let's go with this number. What happens when the paper number is less than or more than expected and the impact on earnings and profitability is affected. Will these eager risk-sharing actors still want to construct these deals? And finally, let's not lose sight of what the Italian model means. When a country gets rebates totalling 1% of their drug budget, it means that a lot of therapies did not work for a lot of patients. When a lot of therapies do not work for a lot of patients, we have a lot of patients who are still sick. And when we have a lot of patients who are still sick, no one wins.

Article by
Rohit Khanna

is managing director of Catalytic Health, a healthcare communications, advertising and strategy agency. He can be reached at: rohit@catalytichealth.com

7th March 2016

From: Sales

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