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Our Take: Value-based payment for prescription drugs: Will industry or the feds lead the way?

Oct 25, 2021
The news about Pfizer’s “warranty program” for Xalkori (crizotinib) prompted us to go back and take another look at the Biden administration’s proposed plan to lower prescription drug costs — because part of that plan is to test models that use value-based payments in Medicare Part B, “in which payment for drugs is directly linked to the clinical value they provide patients.”

Essentially, that is what Pfizer is doing with its Xalkori warranty program — linking payment for the drug to the clinical value patients derive from it.

Xalkori is approved for certain types of metastatic non-small cell lung cancer and large cell lymphoma. The warranty program is set up so that eligible patients can get a refund for their out-of-pocket costs if the drug doesn’t work within the first three months of treatment.

Eligible patients include those who pay for the drug with cash, as well as those with commercial or Medicare Part D coverage. The prescribing physician must attest that there was a clinical reason for discontinuing treatment, and treatment must be discontinued before the fourth bottle is dispensed.

Pfizer will refund up to $19,144 per bottle, which is a 30-day supply, for a total of up to $57,432. For patients who are insured, Pfizer will refund up to the maximum the health plan (or Medicare) paid, minus the patient’s copay (which is refunded to the patient).

For now, the program is open only to patients who receive their “first dispense” during the period from June 1, 2021, through the end of this year.

The plan that the Department of Health and Human Services (HHS) released in September, in response to President Joe Biden’s executive order, offers a number of ways in which the value of a prescription drug (or biologic) could be incorporated into Medicare policies.

For example, the plan suggested that the Center for Medicare & Medicaid Innovation (CMMI) could consider small-scale mandatory models for Medicare Part B that link payment for prescription drugs and biologics to improved patient outcomes. The models could include incentives for the use of “high-value” therapies and could also include outcome-based arrangements with drug manufacturers. These models could also be made available to employer-sponsored health plans, plans sold through on the Health Insurance Marketplace, and Medicaid.

Such an approach, HHS said, has the potential to reduce costs in both the public and private sectors, expand the use of biosimilars and generics, and encourage drug companies to develop innovative new drugs.

Another possibility the Innovation Center is looking at, according to HHS, are payment models in which prescribing providers and the federal government share Medicare Part B savings from the use of biosimilars, generics, and other high-value products. Such models could lower premiums for beneficiaries with wrap-around supplemental coverage, and lower out-of-pocket costs on drugs for those without supplemental coverage.

Yet another option would be episode-of-care payment models that include drugs and biologics that account for a large percentage of Medicare Part B drug spending. The bundled payments could also include drug administration services.

And a fourth type of payment model could test holding prescribers accountable for lowering the total cost of care over time, including drugs under both Part B and Part D. The objective would be to see if the model leads to changes in drug utilization, reduces total spending, and improves patient outcomes.

Additionally, CMMI is assessing the impact of a voluntary model that began in January of this year. The Part D Senior Savings Model gives beneficiaries more choice in terms of enhanced alternative Part D plan options with predictable out-of-pocket costs for insulins. HHS said the model could be updated to include other drug classes associated with high out-of-pocket costs for beneficiaries.

These are only a few of the potential methods outlined in HHS’ plan for lowering prescription drug costs.

As expected, the plan was met with a healthy dose of skepticism by some, such as Michael Tanner, a senior fellow at the Cato Institute who told Reuters that Biden’s legislative agenda for reforming federal drug payments would probably encounter the same obstacles as previous attempts did.

“The main reason that nothing can be done is that Medicare” can’t refuse coverage for a drug it considers to be too expensive, he said.

Stephen Ubl, CEO of Pharmaceutical Research and Manufacturers of America, referred to the plan as “a laundry list of old partisan ideas and not a serious plan to address what patients pay out of pocket for prescription drugs.”

Ubl said the plan omitted “any attempt to fix a broken insurance system that discriminates against sick patients and [it] does nothing to hold insurers and middlemen accountable for pocketing savings from our companies that should go to patients to lower their costs.”

The naysaying and finger pointing are wearisome, to say the least. With a Congress so deeply divided, we don’t see where any legislative action will be taken any time soon, and there’s only so much that can be done via executive order.

So maybe we need to put more faith in the drug industry itself. Taking steps to ensure that patients have access to the treatments they need and only pay for those treatments when they actually work will help.

Pfizer isn’t the only member of Big Pharma to offer an outcomes-based arrangement, though most of the previous deals have been with payers, and not directly with patients. Many drugmakers offer patient-assistance programs, but not so many tie payment for their drugs to patients’ outcomes.

It will be interesting to see if Pfizer extends its warranty program for Xalkori at the end of the year. If not, we’ll be left wondering whether the program was conceived as a way to garner good press rather than an effort to truly help patients.

On a separate note, CMMI released a “strategy refresh” white paper last week that outlines how the agency plans use innovative payment models to make Medicare and Medicaid more value-based in the next decade.

In a webinar held the same day the white paper was released, CMMI officials said one goal is to have every Medicare beneficiary and most Medicaid members in an accountable care arrangement in the next 10 years.

What else you need to know
After confirming reports that it reimbursed providers up to 40% less for COVID-19 vaccinations than the rate set by CMS, UnitedHealth Group has committed to automatically reprocessing all related commercial claims submitted between mid-March, when CMS issued higher reimbursement rates for the vaccines, to July 1, when UnitedHealth updated its fee schedule, according to a letter Sen. Bob Casey sent to UnitedHealth Group’s CEO. (Sen. Casey chairs the Special Committee on Aging, which investigated press reports from earlier this year that said UnitedHealth was reimbursing pediatricians at rates that failed to meet the costs of administering the vaccines.)

Although insurers are not required to pay the recommended federal rate, Modern Healthcare said federal investigators confirmed that UnitedHealth was “the only national carrier that had not agreed to pay at least $40 for vaccine administration.” UnitedHealth said it had problems updating its various fee schedules with CMS’ new rate, prompting Sen. Casey to ask how the company plans to avoid reimbursement delays in the future when CMS issues new reimbursement codes and rates — such as if/when the FDA authorizes COVID-19 vaccines for children ages 5-11.

Ascension and AdventHealth are pulling the plug on Amita Health, a joint operating company they formed nearly seven years ago to serve the Greater Chicago area. The health systems said in a joint statement that their leaders “have determined that going forward separately is in their collective best interest in order to more nimbly meet the changing needs and expectations of consumers in the rapidly evolving health care environment.” Amita Health has 15 acute care hospitals, four specialty hospitals, and more than 230 outpatient sites. After the partnership has been dissolved, each health system will operate its hospitals and care sites in the Chicago area.

AstraZeneca, Merck, Pfizer, and Teva, along with Amazon Web Services and Israel Biotech Fund, recently launched AION Labs, which they described in a news release as a first-of-its-kind innovation lab. With both a wet lab for biomedical research and a cloud-based computational lab, AION Labs will create and invest in early-stage start-up teams that focus on artificial intelligence and computational biology in drug discovery and development. Mati Gill, who was a senior executive at Teva Pharmaceutical Industries, is the CEO of the new innovation lab, which will have its international headquarters in Rehovot, Israel.

Two physicians at Northwell Health have been appointed to senior leadership roles, the health system said in a news release. Effective immediately, Dr. Jill Kalman is Northwell Health’s senior vice president, chief medical officer, and deputy physician-in-chief. Dr. David Battinelli has been named executive vice president and, effective Jan. 1, 2022, will be physician-in-chief. Dr. Battinelli will also be dean of the Zucker School of Medicine at Hofstra/Northwell for the incoming class next August. Dr. Lawrence Smith, who is currently dean, will serve as the founding dean of the medical school.

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