Why should it cost more than 30 times as much for essentially the same drug just because it’s being used to treat an eye condition rather than cancer?
So-called indication-specific pricing may seem absurd to some observers but makes perfect sense to industry insiders. Drugs are often approved to treat several different diseases, often with varying patient population sizes. For example, Allergan plc's Botox (onabotulinumtoxin A) is approved to treat more than eight indications, including wrinkle reducing and migraines. While insurers may choose to cover these indications differently, indication-based could mean these two indications are priced at opposite ends of the pricing spectrum, for example, and could better align reimbursement with value.
There are plenty of examples of drugs approved for wildly different patient populations. Yet, so far, indication-based pricing is not a reality in the U.S.
A weighty decision
Indication-based pricing raises some tricky questions. Novartis AG recently discovered its monoclonal antibody canakinumab is effective in reducing cardiovascular risk. Canakinumab is currently marketed as Ilaris for a few very rare inherited inflammatory diseases at a cost of about $104,000 per year. (Ilaris is approved to treat periodic fever syndromes.) Rare diseases typically come with high price tags as the markets they serve are so small.
But for a cardiovascular indication, which would include many more patients and go head-to-head against many other treatments, the company might want to price the drug considerably lower to compete with low-cost, generic statins.
As a result, Novartis faces a weighty decision. The company estimates canakinumab could help about 40% of post-heart attack patients avoid strokes. Analysts have estimated adding those patients to the label could raise the drug’s revenue from about $283 million per year to between $1.5 billion and $3.6 billion.
Yet there is no guarantee that cardiologists would adopt the treatment, especially with competing products available. That move would also mean risking the revenue stream from the rare disease indications, because the price would have to drop dramatically.
That’s a problem, because if a company drops the price for one indication, current U.S. government rules require the price to drop for others. It's probably one reason Roche AG's Genentech developed Lucentis (ranibizumab), instead of just adding an eye indication to its blockbuster Avastin (bevacizumab). Lucentis, a drug approved for age-related macular degeneration, costs about $2,000 per dose and is a variant of cancer treatment Avastin, which costs about $60 per dose. Both are VEGF-inhibitors developed by Roche.
Today, many doctors opt to use Avastin off-label, mainly because of the cost. Even so, the company has tried to show the added value of Lucentis, presenting data showing that Lucentis, which is a modified version of Avastin, is safer in eye patients.
But why shouldn’t drugmakers be able to price drugs according to indications? Doesn’t that make business sense? For example, what if the market is smaller, as in rare diseases or the condition is more dire, as with cancers? Or perhaps if there are fewer treatment options, as with certain neurologic conditions.
More options, but challenges remain
It’s very clear that drugs work differently for different conditions. "However, despite different clinical benefit across indications, the reimbursement system in the United States, rooted in a history of pricing by dosing unit, assigns a single uniform price to a drug, no matter how it is used," write the authors of a 2015 Institute for Clinical and Economic Review (ICER) report on indication-specific pricing. "As a result, price and clinical value do not necessarily align well across multiple indications."
That creates a disincentive for drug developers and a disconnect for payers. The drugmakers will shy away from adding low value indications to a drug’s label, even if it could benefit lots of patients. Payers, meanwhile, are increasingly interested in reimbursing based on value. The argument goes that if a drug is the optimal treatment for one condition, but just one of several just-as-good options for another, shouldn’t the price be different?
The bottom line is that indication-specific pricing could give patients more options. The ICER report, however, also outlines three potential downsides. First, it’s not clear how easy this would be to administer, due to the difficulties in determining which patient was getting what drug and why. It’s also not clear if this strategy would lower overall drug costs or raise them.
Finally, it will continue to be important to try and minimize the impact of drug costs on patients. If they are just seeing higher out-of-pocket costs overall, it won’t make a difference to them how the drugs are being priced.
Pricing versus payment
The big issue is not primarily pricing, it’s payment, thinks Peter Kolchinsky, managing partner at RA Capital Management, a healthcare and life science fund manager. "The problem is that insurance companies have made patients fear they cannot afford drugs," he said. "Eliminating draconian cost-sharing by properly covering patients so they can get what their physicians prescribe for them would go a long ways towards easing public anxiety over drug prices."
It hasn’t helped that there have been several high profile cases of drugmakers raising prices, seemingly arbitrarily. "Yes, there are problems, and I have no love for companies that price-jack sole-source generic drugs just because they can," Kolchinsky said. "That business model has nothing to do with innovation, which is what the biotechnology social contract should incentivize."
And innovation is currently booming. Cancer, which has many high-priced drugs, accounted for more than a third of the total number of programs in progress between preclinical and Phase 3 stages, according to a recent report by The Analysis Group. Rare diseases, which also includes some drugs with eye-popping prices, are also surging, with more than 800 drugs in development.
Indication-based prescribing could be one aspect of value-based payment — a strategy many are pointing to as a way to curb overall healthcare costs. "Not all patients are alike, and they do not all benefit equally from each medicine," said Holly Campbell, a PhRMA spokesperson. She points to groundbreaking programs from pharmacy benefit manager Express Scripts, including its Inflammatory Conditions Care Value Program, which combines indication-specific formulary management and refunds for early discontinuation of therapy.
Mike Cottler, a partner in law firm Goodwin Procter, also sees Express Scripts as a potential model for this strategy. "Their blended pricing takes into account the value for each indication, to each patient," he said. He also pointed out that sometimes a brand will have more approvals than a generic. "And you cannot promote off-label use, even if it would be cheaper and as effective as the brand."
While it gets lots of attention, many experts say drug prices are not the main thing driving healthcare costs. "It won’t cut insurance premiums by much if you push everyone to generics and further genericize all currently branded drugs without regard for patents," Kolchinsky said.
"It might cut premiums by 10% at that moment, since that’s what we spend of the healthcare budget on branded drugs, but then the hospital costs and other services will go up, and premiums will soon exceed former levels. Meanwhile, you’ll see the pipeline for new drugs dry up, and our kids will never have better therapies than whatever drugs we have today."