We are on the cusp of many groundbreaking therapies that promise significant benefits to patients; some are curative, while others can greatly improve quality of life. Although these therapies provide high value, they often come at a high upfront cost. Examples of these therapies include direct-acting antivirals for hepatitis C (HCV) and chimeric antigen receptor T cell (CAR-T) therapies for certain cancers. The transformative nature of these therapies creates many challenges for payers, including payment timing, performance uncertainty and actuarial uncertainty (e.g. how many patients).
An expert panel was convened at the 2019 International Society for Pharmacoeconomics and Outcomes Research (ISPOR) annual meeting in New Orleans, La., to discuss the need for novel payment approaches to address the challenges that accompany transformative therapies. Given the large upfront payment, the multiple layers and players of the payment ecosystem, including self-insured employers and payers and reinsurers, need to be considered. One-size-fits all payment approaches will no longer work. Instead, there is a need for “precision financing” approaches (performance annuities, milestone contracts, and orphan benefit reinsurer manger) that are tailored to each situation, such as the type of payer, therapy, population size or disease burden. The State of Louisiana’s approach to treating people with hepatitis C provides an illustrative example of how these new approaches can meet the needs of the both the purchaser (Louisiana) and the manufacturer.
HCV has been curable on an individual level since 2013; however, this was not an achievable goal at the population level due to the high costs and side effect profile. Patients experienced flu-like symptoms for roughly one year due to weekly interferon injections. That changed with the FDA’s approval of direct-acting antivirals (DAAs), new types of medicines with a significantly improved treatment profile that made curing HCV at a population level an attainable goal. The potential for public health success generated a significant amount of pressure on payers like state Medicaid programs to treat; however, treating 90% of the HCV population—a level required to eradicate disease--was challenging as the costs of treating some 39,000 people in Louisiana approached $780,000. Given its limited budget, Louisiana had to determine how to allocate resources not only for health care, but for higher education and other important state priorities as well.
These factors led Louisiana to create a customized approach for hepatitis C using a subscription-like model for Medicaid beneficiaries and the prison population. The subscription model is a good approach to achieve this goal in Louisiana because the market for DAA treatments has significantly matured. Increased competition has put gradual downward pressure on costs. Under this approach, treatment expenses would be handled as a flat fee for unlimited use, enabling Louisiana to reach its clinical goal of eliminating hepatitis C while staying within its budget constraints.
This new arrangement is beneficial for all stakeholders involved. Manufacturers benefit from increased certainty in their business model over the five-year period of the proposed arrangement. The health system benefits from both knowledge and public health spillover effects. Providers seeing Medicaid patients can develop their expertise with the new products and apply that expertise when making treatment decisions for their commercially insured patients. Perhaps the most significant benefit of this model is the ability to treat more HCV patients at earlier stages of the disease. By linking patients to treatment sooner, the system can prevent the long-term complications, and associated costs, of HCV. Treating such a large proportion of the prevalent population also can potentially limit the spread of this infectious disease.
This proposed approach is not without its challenges. These types of arrangements were not envisioned when Medicare regulations were developed, nor was the science. Medical innovation has surpassed the existing regulations. As a result, Louisiana had to be creative in implementing the arrangement through the use of Medicaid supplemental rebates. Additionally, given the complexity of outcomes-based contracts, the current arrangement does not include tracking or linking outcomes to payment. In general, the best candidates for these outcomes-based contracts will have well-defined patient populations with outcome metrics that are easy to measure. While HCV has relatively clearly defined outcomes, it is important to remember that there are costs and numerous operational challenges associated with the inclusion of outcomes-based contracts in new payment mechanisms. Despite these limitations, the Louisiana subscription-like model is an important step forward as it provides expanded access to an important medication that will improve patients’ lives. Given state budget limitations, this type of access is only possible because of this new innovative payment approach.