October 21, 2016

1. Value based drug pricing
Peter B. Bach, MD, MAPP
Memorial Sloan KetteringCancer Center
bachp@mskcc.org
@peterbachmd

3. Recent
Projects
•Indication Specific
Pricing
•Medicare Part B
Payment Pilot
•Excess cost from
drug waste
•Tracking of Recent
Pricing Trends

4. Rising prices of cancer drugs

5. Cost for an additional year of life goes
up each year in cancer

6. Monthly cost of lowering LDL-C by one mg
Year
Approved
Drug Statin Intolerant No prior statin
1996-2003 Crestor/Lipitor $ 1.85 $ 1.85
2005 Ezetimibe $ 9.36 $ 10.68
2015 Alirocumab $ 11.59 $ 14.15
Cystic Fibrosis Drugs
Year
Approved
Drug
Forced Expiratory
Volume
improvement
Price/month Cost/% FEV
2012 Kalydeco 10.6-12.5% $25932.41 $2254.99
2015 Orkambi 2.6-3% $21583.33 $7708.33
Diminishing returns

7. Price hikes = diminishing returns
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Cost($)
Year
Prices of Gleevec vs. iPhone over time
Price of
iPhone/GHz
with contract
AWP of 1 week
treatment of
400mg Gleevec

8. Price hikes are mainstream

10. Prices Access

13. http://blogs.wsj.com/washwire/2016/06/30/the-next-big-debate-in-health-

14. https://www.princeton.edu/~reinhard/pdfs/ALTARUM_JULY_2016_XX_7-18-2016.pdf

15. Solutions?
• Competition?
• Pay for outcomes?
• Value based insurance design
• Value based pricing

16. Timelines for FDA approval of orally administered anticancer drugs.
Caroline S. Bennette et al. Health Aff 2016;35:805-812
©2016 by Project HOPE - The People-to-People Health Foundation, Inc.
Competition?

17. Exhibit 3
Change in costs for a thirty-day supply of oral anticancer drugs recently approved by the
FDA, 2007–13
Change after: Change in costs 95% CI P-value
Additional supplemental indication +9.2% 4.3, 14.3 0.001
Additional compendium-
recommended off-label indication
+4.3% 0.0, 8.9 0.061
FDA approval of a competitor drug −1.8% −3.1, −0.4 0.003
One year +4.4% 3.1, 6.0 <0.001
Effect of “competition”??
Competition?

18. Pay for outcomes/performance
• Price of drug/service linked to how well it
works in the ‘real world’
• Involves up-front payment, then post-hoc
true up or reconciliation
• Not a lot of working models in the US, no
data

19. Tight Broad
Price of pill
$$$$
Price of pill
$$

20. Performance-based pricing schemes
Neumann, Peter J., et al. "Risk-sharing arrangements that link payment for drugs to health
outcomes are proving hard to implement." Health Affairs 30.12 (2011): 2329-2337.

21. Value Based Insurance Design
• Focuses on patient out of pocket costs (co-pay)
– Lower OOP costs for services that are more
beneficial
• Core notion is lower OOP costs increase use
– No OOP for screening tests, for instance
• Does not contemplate the price of the service or
drug

22. Value based drug pricing
• Price should match benefits
• Insurance coverage should follow
– Low copays, no additional discounts
• Puts a ‘third person’ at the negotiating
table with the ‘proper price’

23. Bach, Peter B., and Steven D. Pearson. "Payer and Policy Maker Steps to Support Value-Based Pricing for
How market would respond to value-
based prices

24. Comparison of four solutions
Solution Effect on ‘options’
for doctors
Type of alignment
sought
Relation to overall
budget
Competition Limits About market power Only indirect
Outcomes based pricing None required Benefits to price
(through real world
observation)
Only indirect
Value Based Insurance
Design
None Patient OOP aligned
with benefit
None
Value based pricing None, should lower
OOP costs
Overall price aligned
with benefit
Explicit

25. www.drugabacus.org

26. An example of DrugAbacus pricing: Blincyto
(a drug for leukemia)
The market price for Blincyto is $64,260 a month,
but the suggested DrugAbacus price is just $12,612.
26

28. Indication specific pricing

29. Disintermediate prescribers

30. Figure 1: No change in proportion of cancer doctors in
rural and urban settings from 2012 to 2016 (a time
period that bridges the 2013 sequestration).
Figure 2a: No effect of sequestration on
migration of patients from doctors’ offices to
hospitals
For 12 week-treatment: Paclitaxel Abraxane Difference
Cost to Medicare $201 $16,686
Current Doctor’s Profit: $12 $1,001 $989
Proposed Doctor’s Profit $72 $484 $412
With Sequester:
Current Doctor’s Profit: $ 9 $717 $709
Proposed Doctor’s Profit $68 $216 $148
Figure 3: High variability in cost to Medicare and profits for physicians between
paclitaxel and Abraxane, both indicated for breast cancer, with and without
sequestration.
Figure 2b: No effect of sequestration on percent
of patients receiving care in both doctors’ offices
and HOPD
Figure 2c: No effect of sequestration on percent
of patients where HOPD treatments were more
expensive than treatments in doctors’ offices

31. Copayment central to new models, so
what about copay assistance?
Copay cards have corrosive effect on prices:
Solutions –
 Segregate coupons from cash payment
 Central registry so all patients can find
 Include for life cycle of prescription (don’t just end when OOP
max is reached)
 Incorporate into Medicaid Best Price determination

33. Thank you