Drug companies like to say that their most expensive products are fully worth their breathtaking prices. Now one company is putting its money where its mouth is — by offering a money-back guarantee.
Johnson & Johnson has proposed that Britain’s national health service pay for the cancer drug Velcade, but only for people who benefit from the medicine, which can cost $48,000 a patient. The company would refund any money spent on patients whose tumors do not shrink sufficiently after a trial treatment.
The groundbreaking proposal, along with less radical pricing experiments in this country and overseas, may signal the pharmaceutical industry’s willingness to edge toward a new pay-for-performance paradigm — in which a drug’s price would be based on how well it worked, and might be adjusted up or down as new evidence came in.
“I think payers will say, ‘If the product works and it creates value, we will reward you for it,’ ” said Anthony Farino, a pharmaceutical industry consultant at PricewaterhouseCoopers. “ ‘If not, we won’t reward you.’ ”
It is far too soon to tell whether such a pricing paradigm can actually work, in particular because it can be difficult in many cases to measure how well a drug is working. And the approach would probably be most feasible in countries, like Britain, where the government is the primary payer.
But even here in the United States, Medicare and private insurers are already experimenting with new ways to create cost-justified payment systems for medical treatments.
The potential benefits might go beyond simply saving money. Pay-for-performance pricing could make it easier for patients and their doctors to try expensive treatments without busting the bank or forcing insurers to make all-or-nothing decisions about reimbursement.
That was the rationale behind another experiment that is already under way in Britain. Four makers of multiple sclerosis drugs have agreed eventually to lower the prices of their drugs — which can currently cost as much as $18,000 a year — if the medicines do not fully meet expectations.
GlaxoSmithKline also says it has made similar agreements with two European governments, although it declined to identify either the countries or the drugs involved.
Such “risk sharing” deals, as they are being called, would be harder to arrange in this country. “There’s no way we could ask for it and have any leverage,” said Dr. Lee N. Newcomer, senior vice president for oncology at the large American insurance company UnitedHealthcare. He said that state regulations and marketplace pressures make it virtually impossible for an insurer to refuse to pay for a drug that has been approved by the Food and Drug Administration, regardless of its price.
Yet UnitedHealthcare is trying a risk-sharing experiment with Genomic Health, a company that sells a $3,460 genetic test meant to help determine whether a woman with early-stage breast cancer would benefit from chemotherapy.
The insurer has agreed to pay for the test for 18 months while it and Genomic Health monitor the results. If too many women are still receiving chemotherapy even if the test suggests they do not need it, Dr. Newcomer said, UnitedHealthcare will seek to negotiate a lower price on the ground that the test is not having the intended impact on actual medical practice.
“The point is to try to make the manufacturer responsible for how their product is used in the medical marketplace,” he said.
Genomic Health said it could not comment on individual contracts but acknowledged it was working with various payers on performance-based contracts.
The pharmacy benefit management arm of Cigna, another big American insurer, has a more audacious idea. It is trying to persuade the makers of cholesterol-lowering pills to agree to pay the medical expenses of patients who suffer heart attacks even though they have been steadfastly taking their medicine.
“It’s their opportunity to show they stand behind their medication and are confident of the results,” said Thom Stambaugh, the chief clinical officer for Cigna Pharmacy Management. He said that the drug companies seemed interested in at least considering the proposition.
Pfizer, which makes the best-selling cholesterol pill Lipitor, said it did not comment on confidential discussions with individual managed care organizations, though it was always receiving proposals.
Medicare, meanwhile, has agreed to pay for certain expensive products or procedures — like some implantable heart defibrillators and the use of PET scans to detect dementia — only if the patients participate in studies to assess the long-term benefits.
Medicare could eventually use such data to decide whether to pay for the product or procedure. However, it does not have the authority to negotiate prices, said Dr. Sean Tunis, a former chief medical officer of Medicare and a major architect of the evidence-gathering policy.
Some companies that sell expensive drugs — including Genentech, which makes cancer treatments, and Genzyme, which makes drugs for rare diseases — said they were not involved in or considering any risk-sharing plans. They said they already helped make their drugs available to patients who cannot afford them. Genentech also said it was working on tests to better determine which patients should get a drug in the first place.
But drug companies might need to be more flexible in countries like Britain, where drugs are paid for only if they are deemed cost-effective — as measured by how much the health system must pay to achieve certain gains in the length and quality of patients’ lives.
“If we didn’t enter into the risk-sharing scheme, we wouldn’t really have a market here in the U.K,” said Pete Smith, a manager in Britain for Biogen Idec. The company makes Avonex, a multiple sclerosis drug that costs the equivalent of about $18,000 a year in Britain and is covered under the risk-sharing arrangement.
