The clinical benefits of a drug can vary widely among different indications or different patient subpopulations within the same indication. The United States, however, uses a reimbursement system that assigns a single uniform price to a drug despite how it is used. An indication-specific pricing model, which involves setting different prices for different indications or for particular subgroups of patients eligible to receive a certain medication, may better balance the needs of payers for affordability and manufacturer needs for sustainability.
At the health care forum, “War on Cancer,” hosted by The Economist in Boston, Massachusetts, numerous policymakers, physicians, pharmaceutical company executives, and health insurance officials gathered to discuss and debate innovations to reduce the costs associated with drug development, distribution, and administration. One hotly debated area was indication-specific drug pricing.1,2
“We are very sensitive and aware of rising drug costs,” said Josh Ofman, MD, MSHS, senior vice president of global value, access and policy at Amgen. “Cancer represents 1% of health care costs but payers are seeing rising costs. We are on the verge of a breakthrough. We are winning this war on cancer; the death rate from cancer has dropped 22% in the last 2 decades.”
“The return on investment is unequivocal and remarkable in cancer care, but we are not necessarily having the right conversation on value,” Dr Ofman explained. “We should be discussing value-based insurance design. There should be different out-of-pocket costs for drugs that work better in certain patients. Instead we’re talking about budget caps on biopharmaceuticals. We should be focused on the 7 billion dollars spent on waste and the 4 billion spent on low-value care. Our conversation about budget is disguised in a conversation on value.”
In March 2016, the Institute for Clinical and Economic Review (ICER) released a report on indication-specific pricing of pharmaceuticals in the US health care system. According to the report, potential benefits of this model for payers include: the potential to save the system money and facilitate access patient access to medications, allowing more appropriate pricing for lower value follow-on indications, and highlighting competitive advantages for innovation in value-based pricing mechanisms.3
For manufacturers, this model addresses payer resistance to new indications, provides incentives to develop indications for small populations, and aids in decision-making with respect to pipeline prioritization.