Memorandum
Value-based care identified as the most potent solution, but well-formulated, evidence-based value definitions are required; Questions remain in diabetes: What marks value, in which populations, and over what timeframe?
Former star FDA commissioner Dr. Robert Califf and former Acting Administrator of CMS Mr. Andy Slavitt wrote a salient and timely JAMA editorial outlining their opinions on how to temper drug prices while still incentivizing innovation, settling on value-based payments as the most promising path forward. As the authors see it, the cornerstones of value-based care – pricing by demonstrated risk-adjusted costs of development and actual measured value in practice – are the most potent methods to focus rewards on useful innovation and reduce bloated distribution systems. We certainly see the value in “value,” for diabetes, though it is sometimes challenging to estimate long-term value, particularly when traditional payers prize short-term value (factors that reduce prices in the current quarter or year).
To be sure, implementation of value-based contracts, especially in a chronic disease as prevalent as diabetes, requires well-formulated and evidence-based definitions of value to avoid bankrupting a system in the short-term. This is noted by the definitional article of value-based care referenced by Califf and Slavitt: “Even for some treatments that demonstrate good long-term value through a cost-effectiveness analysis, if the population that can benefit from treatment is very large, cumulative costs in the short-term may create substantial budget pressures. In these situations, even drugs with excellent long-term value may be so costly that budgets for insurers and delivery systems are adversely affected, while patient access is severely restricted.” For these reasons, some diabetes experts, such as Dr. Timothy Wilt (Minneapolis VA and author of ACP’s glycemic target guidance), have questioned the data supporting the cost effectiveness of newer, pricier therapies like GLP-1s and SGLT-2s that have been proven at some length to be cardio-protective and renal-protective, as well as to reduce short-term costs like severe hypoglycemia.
To this end, how significant must a reduction in costly, long-term complications be to support a therapy’s use today? When a successful outcomes in defined by A1c reduction (with the goal of reducing microvascular complications), should payment be in discrete levels, or on a continuous spectrum (e.g., what is the “value” of a modest A1c reduction to a payer, and what would the payment schedule look like)? How can a focus on value shift the field’s focus toward macrovascular outcomes – which are impact by SGLT-2s and GLP-1s?
Further, Califf and Slavitt note that the trial populations informing many cost-effectiveness analyses are not generalizable to the broader, indicated group (e.g., ~22% of the type 2 population have established CVD, much lower than the proportion in CVOTs, per Dr. Robert Ratner. Cost-effectiveness can vary significantly based on patient characteristics – i.e., by giving a greater absolute risk reduction in higher-risk patients – conferring conflicting conclusions on value. For example, Grünenthal’s Dr. Phillip Larsen recently argued that PCSK9 inhibitors will never be cost-effective for people with diabetes, while Dr. Deepak Bhatt (Brigham & Women’s) disagrees for certain populations of people with diabetes. Would a value-based contract based on Dr. Bhatt’s analysis then only apply to the studied population, or could computational models provide accurate estimates for the general population (an approach taken by other countries, according to Califf and Slavitt)?
We note that several manufacturers in diabetes have tangible experience into value-based contracts: J&J’s 2018 US Transparency Report referenced value-based programs in diabetes, AZ has a value-based contract with UPMC for blood-thinner Brilinta, and Novo Nordisk and Lilly/BI both have value-based contracts with Prime Therapeutics. PBMs such as Express Scripts are also moving toward value, though few if any of these initiatives have the same level of transparency as, for example, Virta’s tying of all fees to 30-day engagement initially and A1c reductions in the long-term. And while it will take time for the results of these contracts to emerge, and while presumably there are many more around than merely the ones above that have been formally announced, we’re very enthusiastic about the shift. On a fundamental level, value-based care could align pricing with outcomes that matter to patients (rather than sales or volume trajectories) while removing the lack of transparency that prevents purchasers from protesting high prices – certainly a step in the right direction.
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Importation, reduction of administrative and marketing activities, and direct negotiations between federal payers and industry were identified as potential adjunctive ways to reduce drug costs for some populations. Per the authors, importation should focus only on fields with isolated, monopolistic pricing due to quality-control difficulties, while formulary construction and rebate negotiation must be made more transparent. Of course, more specific cost-driving measures posited by the authors – such as legal loopholes delaying the launch of generics, DTC advertising (only allowed in the US and New Zealand), and high physician payments – may necessitate solutions in their own rights.
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We found the following quote on current pricing shortcomings particularly powerful: “When a drug is critical for health, pricing tends to resemble that of new drugs, thus rewarding companies for exploiting markets and legal loopholes rather than innovative drug development… Many of the most expensive drugs are biological molecules that are complex and difficult to reproduce compared with the small-molecule drugs that are staples of the generic industry. US laws governing biosimilars were passed several years later than comparable European Union laws and have been difficult for the industry to assimilate. This situation has enabled manufacturers of older biologics to continue charging high prices well beyond the time that a biosimilar should be available.” When one considers insulin specifically, the large number of people taking insulin is a key consideration, in our view: While numerous other drugs are more expensive, the impact of insulin on healthcare costs – as a chronically and widely used drug – is immense.
--by Peter Rentzepis, Ann Carracher, Adam Brown, and Kelly Close