The Call for Further Advancement of Indication-Based Pricing

In a world where medicines can increasingly be used in different indications and patient sub-populations, payers and pharmaceutical companies must shift away from the traditional “one drug, one price” approach and expand the “indication-based pricing” approach.

Over the last decade, while there has been a welcome rebound in new molecular entities (NME), pharmaceutical companies have been facing some criticism from governments and society regarding the cost of drugs. In this context, payers, especially in the EU-5 countries,[1] have made access conditions for drugs more stringent, sometimes initially refusing access to innovative drugs whose costs are perceived to be unsustainable.

In a world where medicines can increasingly be used in different indications and patient sub-populations, it is becoming clear that a drug’s price needs to differ across indications and patient sub-populations if its relative patient benefits differ between these. Shifting from a one drug, one price approach to an indication-based pricing approach will ensure that payers and society pay the right price for the right value. For pharmaceutical companies, it will also ensure the commercial viability of drugs over time.

The current one drug, one price approach is no longer sustainable

Payers may question why the price of a drug should be the same for all of its indications when the drug could have different benefits across indications. Indeed, one single price across indications results in a drug’s price being too high for indications with relatively lower patient benefits or cheaper treatment alternatives; or conversely, being too low for indications with relatively higher patient benefits. Even though contracting-through outcome-based agreements-allows having different net prices across indications, such types of agreements are not common in the majority of European countries.

Likewise, pharmaceutical companies may question why a drug should nowadays almost systematically face a price decrease upon indication extension, simply because the extension of indication will have a negative impact on payers’ budgets. As a consequence, managing the sequence of launches for a drug has become a critical part of a pharmaceutical company’s strategy-as the price of the firstly-launched indication usually sets a ceiling that cannot be exceeded upon further indication extensions. This can act as a brake to continuing R&D investments in a particular drug.

A first step toward indication-based pricing

The idea of indication-based pricing is not entirely new. In Europe, Italian and French payers illustrate this game-changing disruption. In Italy, risk-sharing schemes have led to different net prices per indication for some drugs in oncology. In France, a decree adopted in 2016[2] reformed the conditions for the inclusion of hospital drugs in the liste en sus, which allows for extra funding on top of the diagnosis-related group (DRG) tariff. This decree resulted in a series of medicines being struck off the list-sometimes on a per-indication basis, as was the case of Roche’s Avastin.[3]

Eric Baseilhac, economic and international affairs director for the French Pharmaceutical Companies Association (Leem), and former market access executive director at Janssen, France, goes further by suggesting a combination-based pricing approach:

“With the advent of combination therapies, payers will need to adopt different prices on a per indication basis and a per combination therapy basis. Indeed, innovative drugs that can be used in monotherapy and in combination are subject to complex pricing negotiations, as adopting a single price can significantly increase the cost of treatment of the disease where these drugs are used in combination.”

Pharmaceutical companies have also indicated a growing preference for the indication-based pricing model. Roche has been an early mover and is currently collaborating with payers to implement personalized reimbursement model (PRM) solutions to optimize access to its oncology drugs. As such, Roche has taken the angle of an indication-based pricing model, whereby the reimbursement is driven by the value the therapy delivers to patients, and one product can have different prices per indication.

Payers, pharma, and society will benefit

Indication-based pricing would allow the price of a drug to be aligned to its clinical value in each approved indication and sub-population, which will benefit payers, pharmaceutical companies, and society.

First, upon indication expansion, payers will no longer be biased or limited by the price originally set for a drug. In contrast, they will have complete latitude to fix the price of a drug for each of its follow-on labels, which could allow for cost-savings in indications where a drug provides lower patient benefits. This would also ease the dialogue between payers and pharmaceutical companies, who may sometimes perceive payers as only being concerned about the budget impact of their drugs.

Second, indication-based pricing will allow accepting the idea that, upon indication extension, the list price of a drug can be increased if the drug has demonstrated an incremental improvement in the new indication. This should encourage pharmaceutical companies to continue their R&D investments and seek to expand the labels of their drugs. 

Last, society will benefit from improved access to innovative medicines as pharmaceutical companies will be incentivized to further invest in novel drugs and bring them to market.

Education will foster wider acceptance

If the indication-based pricing approach is set on the list price level, Baseilhac points to the need for pharmaceutical companies to educate society, as the public may not understand why a single molecule may present different prices across its approved indications.

Further, if the indication-based pricing approach occurs on the net price level, Baseilhac emphasizes that pharmaceutical companies will have to communicate with more transparency on the significance of the use of confidential discounts “often perceived as contributing to the opacity of the pricing and reimbursement system, and nourishing society’s criticisms around the cost of healthcare.”

Conclusion

A new era for drug pricing has emerged, and both payers and pharmaceutical companies acknowledge the need to shift from the existing system widely perceived as sclerotic. If payers, drug manufacturers, and society embrace this transition, they will ensure that the price of medicines continuously reflects their actual efficacy, and, in turn, improve patient access to innovative drugs.

Anaïs Frappé is a Consultant at The Boston Consulting Group in London.

[1]France, Germany, Italy, Spain, and the United Kingdom

[2]Decree no. 2016-349 on the procedure and conditions for registration of pharmaceutical products on the T2A exclusion list

[3]Following the decree, Avastin was removed from the liste en sus in three indications as of Sept. 1, 2016: in combination with paclitaxel in metastatic breast cancer in first line, in combination with capecitabine in metastatic breast cancer in first line, in patients for whom treatment with chemotherapy including taxanes and anthracyclines is not considered appropriate, and in combination with interferon alfa-2a in metastatic and/or advanced renal cancer in first line.