Pharma must lay its cards on the table and build a more transparent relationship with payers
If the relationship between payers and pharma were given a bill of health, there would be a notable footnote – room for improvement. While there are many issues that separate them, one occupies the center ground – drug costs.
“We are facing, in the external environment, more headwinds than tailwinds, and it is getting tougher out there,” says Martin Price, VP Health Economics, Market Access and Reimbursement at Janssen EMEA. “It troubles me that payers often seem to view their investment in drugs as a cost burden rather than a prudent investment to improve the health of their patients. As an industry, we have more to do to communicate what we do and how we contribute dramatically to societal health.”
This attitude is reinforced by recent events, he adds. “We have seen a number of scandals concerning pricing lately and this is disappointing, because the industry I read about in the papers is not the one I recognize from my own experiences. I am very proud to work in pharma, so there’s a definite disconnect, but the fact that they’re out there clearly shows that we are getting something wrong. We can’t place the blame externally, we have to accept responsibility for that.”
With cost the predominant player in healthcare decision-making, the pharma-payer relationship must evolve through a “lens of access and affordability”, he says.
“As an industry, we’ve done a pretty good job with some ‘easier’ diseases but today we’re focused on tougher challenges – harder to treat, complex conditions in smaller patient populations that require cutting-edge scientific innovations,” says Price. “So, orphan drugs, specialty drugs, targeted oncology treatments tend to be designed for small patient populations. This means that they tend to be higher priced, so companies can recoup the costs of R&D, return a profit and enable them to invest for the future.
“These higher headline prices can leave payers with the view that we are moving into an era where healthcare costs are going to be unsustainable. However, when you look at the data on overall healthcare expenditure, the reality is different. The proportion of money spent on medicines has actually been falling since 2007,” he says.
A HEATED DEBATE
Perhaps the real question to ask is why funding on drugs has remained static for so long, says Price. “Why are we not investing more when doing so will clearly save patients’ lives?
I don’t think we are successfully making a strong case for more investment in drugs; if you look at a range of indicators in diseases such as cancer, investment in drugs with proven effectiveness are a good investment for patient health and for society.”
He cites of the example of HIV, which has been transformed from a terminal disease to a chronic, manageable condition in less than a generation, thanks in large part to innovation from the pharma industry. There have been similar advances in hepatitis C, as well as huge improvements in a range of cancers. With cardiovascular disease, many of these lifesaving medicines are now widely generic and available at very low-costs, showing how the R&D model of the industry can generate huge patient benefits and help save the system money in the long term.
“The innovation cycle is incredibly important and delivers real value to society. Unfortunately, the value that we create gets lost in the relationship with payers and the tension created in the debate around drug costs,” he says.
Pharma faces a range of challenges as payers act to control costs; for example, we are seeing increasing cross-country collaboration, with moves towards joint procurement (evidenced in the 2016 Sofia declaration between Bulgaria and Romania), changes in international reference pricing mechanisms and moves to deal with combination oncology medicines.
“Rebates, discounts and risk-sharing requirements mean that erosion of net price is a growing challenge for companies, and the challenge grows ever bigger,” says Price. “Launching a medicine is similar to buying a new car; as soon as you drive it out of the showroom it starts to depreciate. With medicines, as soon as you launch you start to face big pricing pressures, and where you start determines where you will ultimately end. It’s not only that you’re losing value, it’s that price erosion today impacts the whole lifecycle until loss of exclusivity.”
Given this, how can we come together to work more collaboratively with payers and what do we need to do differently as an industry? It has to begin by laying our cards on the table, he says. “We need to do more to explain how we go about pricing our products because, at the moment, it’s a black box and that lack of information breeds mistrust.”
He advocates doing more to carefully explain our business model, for example, by laying out the facts and figures on the costs of bringing products to market.
“We need to illustrate that we’ve delivered and continue to deliver huge value to society, yet we also have to be profitable as this is a high-risk, costly business. We have to change the conversation to access and affordability to change perceptions. I would love to sit with payers and have safe-harbor discussions about future access models, because if they feel they have a future problem with funding, we have a duty to work together to try and find sustainable solutions for both sides. Having an adversarial relationship doesn’t help anyone.”
Within Janssen, we are tackling these issues, says Price. “We developed our Value, Access and Pricing framework that guides us in how we establish our pricing policies. To do this, we focus on three areas: the value the product delivers compared to the current standard of care and the seriousness of that condition; the need for incentives for innovation; and access and affordability for patients. The latter encompasses not only the headline price but how we can use innovative managed-entry agreements, equity-based tiered pricing (where less-developed healthcare systems pay less than rich Western countries) and self-pay strategies to ensure we do everything we can to address patient access within an equitable framework.”
In the States, Janssen has taken the decision to issue a transparency report to help stakeholders better understand its business. It provides clear answers on a range of questions commonly asked by stakeholders, such as spending on sales compared to R&D, access to clinical trial data and Janssen’s pricing approach in the US market.
“For example, if you know the US market, you know there are a lot of intermediaries in the system who benefit from price increases,” says Price. “Again, we are trying to explain where the value is distributed across the supply chain, and that we take a responsible approach to setting our price levels.”
Will they follow suit in Europe? ““We can do more in Europe; to start with, we need to explain better how companies like ours already make big efforts to manage affordability across the region, so we need to be more transparent, but Europe is very different. International Reference Pricing can hinder our ability to be as transparent, but we can do more. We have to if we are to build trust and move forward.”
Shifting the focus onto outcomes (and outcome-based pricing schemes) could be a way forward. If we focus the debate more on what the medicine delivers for patients, it could give the payer-pharma relationship a shot in the arm. “I would make the case that outcome-based schemes are something that could really help move us forward,” says Price. “If we can have better dialogue with patient groups, the public and other stakeholders it could help show we are thinking about solutions, about being good business partners and looking to find solutions that can work for both sides.”
While payers’ first concerns are often about prices, beneath the surface are a many other worries, including budget impact, affordability and financial or clinical uncertainty. “Financial schemes are useful but outcomes-based schemes are attractive because they can deal with a whole lot of other issues,” he says. “The beauty of outcomes-based agreements, as opposed to just lowering prices, is that they can enable management of, or sharing of risk in a much more effective way.”
Beginning work early – ideally on products due to reach the market in a few years time – allows time for ‘safe-harbor’ discussions with payers in advance of high-pressure reimbursement negotiations. Through such discussions, pharma can work out how to share the risk with payers.
“For the payer, the advantage of these arrangements is that they only pay when [a drug] works and delivers a meaningful health outcome for the patient. You can also use these schemes to risk share around data uncertainty, and even to collect data to resolve that uncertainty. It provides a means to enable coverage of evidence development and could drive co-creation and creation of appropriate infrastructure.
“We need to go at it as individual companies and as an industry; we need to find ways to talk to payers outside of a specific negotiation on a product,” concludes Price. “Focusing on outcomes will not only have the benefits I’ve already described, but also take the focus and discussion back to why we are all here – delivering health outcomes and delivering benefits for patients.”
This article is featured in the latest issue of our specialist publication, Trends in Market Access.
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