Could Value-Based Pricing Be Yet Another Roadblock To Biosimilar Uptake?

By Anna Rose Welch, Editorial & Community Director, Advancing RNA

Over the last year, the terms “value-based pricing” and “pay-for-performance” have been increasingly used in the pharma space. Pay-for-performance deals (interchangeable with value-based pricing) involve linking a drug’s performance to its price tag. Large drugmakers Novartis and Amgen recently made headlines for the value-based deals they’ve struck with different payers. Similarly, in an interview with The Wall Street Journal, Merck’s CEO, Kenneth Frazier, mentioned Merck’s interest in pay-for-performance.

Given Big Pharma’s increasing attention to value-based deals, it might seem this is a new concept. However, pay-for-performance is far from novel. In fact, according to a 2012 Deloitte report, the value-based payment concept goes back as far as 1994 when Merck launched the earliest known example for Proscar (finasteride), followed by Sandoz’s Clozaril (clozapine) in 1995. While this model has been commonly used in Europe and the U.K., which are single-payer systems, it hasn’t taken root in the U.S. yet because of the complexity of our payer system.

But when it comes to establishing this pricing model, I’m left wondering where biosimilars will fit in. There are a number of pharma companies delivering newer and more effective treatments for biosimilar-targeted conditions. And, we’re facing a community of doctors who lack knowledge (and trust) of biosimilars. Though there will likely always be a need for a generics/biosimilar market as brand drugs go off patent, this new pricing scheme could provide yet another challenge for players entering the biosimilar market in the future.

Troy Brennan, CMO and EVP of CVS Healthcare, recently discussed some of the trends he’s observed in the prescription and pricing realms. According to Brennan, the medicines that saw the greatest increase in prices were in the diabetic and dermatological therapeutic areas. But one of the most interesting tidbits of information he imparted was that he’s witnessed “a failure (among physicians) to adhere to evidence-based guidelines for prescribing.” More physicians have chosen to overlook the older, cheaper metformin for more costly brand meds. If doctors are being drawn to glitzy branded drugs over a cheaper treatment, this does not bode well for biosimilars, about which many physicians lack awareness and full understanding.

Of course, this trend could be unique to the indication. Diabetes meds pose a slightly different challenge for biosimilar makers than some of the other biologics going off-patent. Because of evergreening — expanding a reference drug’s patent life for small changes to the drug or its administration methods — the generic landscape for diabetes treatments has been inhibited.

But Novartis is facing some interesting challenges in establishing its own value-based deal with Cigna and Aetna for its new heart failure drug, Entresto. (I give props to Novartis leadership here, being one of the first companies in the U.S. to forge a performance-based deal, in addition to bringing the first biosimilar to the U.S.) What caught my attention about Novartis’ deal was the company’s need to win over cardiologists. As Modern Healthcare writes, “The Entresto deal will involve changing the prescribing behaviors of cardiologists, who are accustomed to using cheap, effective generic drugs and may be less inclined to switch to the more expensive Entresto.” Doctors’ preferences for generics is not necessarily a trend within other therapeutic areas — diabetes being a good example. But obviously, if swaying doctors toward brand drugs is a key part of a value-based pricing system, this comes as a threat to biosimilar makers that enter the market with the goal of doctors turning to their treatment over newer branded meds.

I acknowledge that it is still early in the game for this type of payment structure. And it is impossible to predict how the cards will fall for these deals. As Peter Neumann, director of the Center for Evaluation of Value and Risk in Health at Tufts Medical Center, tells Modern Healthcare, “I think we have underestimated how difficult they are to do because they are conceptually so appealing.” And Neumann isn’t the only one on the fence. When it comes to establishing pay-for-performance, many express uncertainty that these arrangements, though alluring on the surface, will really help lower costs. For one, these deals require cooperation from a large number of parties, including doctors, insurers, pharmacy benefit managers, and (often times competing) drug companies, to share data. Similarly, these parties need to negotiate how outcomes will be measured, and the proper infrastructure will need to be put into place to track health outcomes. To expect that these models will be a cure-all for rising healthcare costs and that all biosimilars will be challenged is a fantasy. But it’s hard to overlook some of the ways these deals could prioritize the newer branded drugs. 

Luckily, it does sound as though CVS has plans to curb the increasing utilization of expensive brand-name drugs. As Brennan says, the payer can put new prior authorization programs in place that are more sophisticated in order to prioritize cheaper meds. That certainly is good news for biosimilar makers as more enter the market at cheaper prices than biologics — but in keeping with Neumann’s argument, Brennan sure does makes this sound easier than it likely is.