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Amid growing pressure on pharmaceutical companies to prove their drugs are worth the sticker shock, health insurers Cigna Corp. and Aetna Inc. said they will pay Swiss drugmaker Novartis A.G. for its newly approved heart failure medication based on how well the drug does its job.
Under Cigna's outcomes-based contract, the Bloomfield, Connecticut-based insurer will pay Basel, Switzerland-based Novartis for how well the drug Entresto performs, evaluated by the reduction in the proportion of patients hospitalized due to heart failure, Cigna announced in a statement Monday.
Entresto was approved by the U.S. Food and Drug Administration in July. According to Reuters, the drug costs about $12.50 per day or $4,560 per year.
A spokeswoman for Cigna declined to provide further financial details on the contract, which she said was proprietary, but said Cigna “will be tracking the outcomes based on our own claims data of our customers.”
But the division head of Novartis Pharmaceuticals, David Epstein, said in a Jan. 27 conference call with investors that the firm and two health insurers agreed to “a base rebate” that will “go up or go down” depending upon whether Novartis reaches its goal of reduced hospitalization.
A Novartis spokesman confirmed that Aetna is one of the two health insurers referred to by Mr. Epstein on the call.
Pay-for-performance contracts between drug companies and health insurers are rare, but pharmacy experts consider it a step forward from the pay-per-pill arrangements that characterize the U.S. health system.
Traditionally, insurers pay for each pill administered, regardless of whether it worked on the patient, which can be wasteful and costly.
Still, it's hard to pull off an outcomes-based arrangement and takes a very specific situation to be able to do so, sources said.
“It's not very common at all to do it. It's very complicated, and it takes time and it's expensive to do for all the parties,” said Randy Vogenberg, Greenville, South Carolina-based principal at the Institute for Integrated Healthcare and partner at Access Market Intelligence.
First, there needs to be a solid, measurable outcome, and different parties define a good outcome differently, said Mr. Vogenberg. For instance, a health insurer may look at outcomes within a fiscal year, while employers tend to view outcomes holistically, because they want their employee to be healthy long-term, and drug makers look for objective clinical measures, like blood pressure levels, he said.
The parties in the contract also must be able to collect and analyze data while ensuring patient privacy, which can be difficult, sources said.
In Cigna's case, because the insurer's commercial business contains both a pharmacy benefit management program and medical benefits, “they've got access to both ends of the deal, so to speak,” said Craig Oberg, St. Paul, Minnesota-based managing consultant with pharmacy benefit consultant The Burchfield Group Inc.
Despite the difficulties, pay-for-performance deals can be executed with “the right conditions and the right drugs as a solution to some of those conditions within certain populations,” Mr. Vogenberg said.
The deal with Novartis isn't Cigna's first outcomes-based arrangement. Cigna struck such deals with Merck & Co. Inc. in 2009, EMD Serono in 2011, and Gilead in 2015 for its hepatitis C treatment Harvoni, according to the Cigna spokeswoman.
Whether employers benefit from such pay-for-performance deals is debatable. Health plans don't necessarily have to pass cost savings to the employer, sources said. However, employers could find comfort in the fact that the health insurer is working to manage the overall health of its plan members.
For fully insured employers, much of the value from the outcomes-based contract is “kept by the health plan, and the health plan doesn't necessarily reduce the premiums to the employer, so the employer doesn't really see the value,” Mr. Vogenberg said.
Still, with added pressure on both health insurers and pharmaceutical companies to help solve the country's rapidly escalating health care spending, more outcomes-based deals may be on the horizon.
“I think that [pay-for-performance] will grow,” Mr. Oberg said. “I think it's also something that is kind of necessary in our country … Manufacturers are going to be challenged more and more to prove the real value of their medication.”
(Reuters) — Americans are paying way over the odds for some modern cancer drugs, with pharmaceutical companies charging up to 600 times what the medicines cost to make, according to an independent academic study.