20 Jan 2017

Donald Trump, the new US President, knocked billions off pharma and biotech share prices last week saying that the industry was “getting away with murder” for its prices. 

His comments grabbed the headlines and rightly so. A move to lift the ban on Medicare negotiating drug prices would be significant as the US fund for older patients accounts for about a quarter of all medicines spending in the USA, and therefore about 10% of total global spend.

But this is not the first move to challenge US prices. A quiet revolution has already started in American medicines assessment and pricing which will inform whatever President Trump does in practice, and which could have a wider and longer lasting impact. It is reaching the 60% of US medicines spend covered by private health insurance and other non-government funds, and will affect the way the industry and health systems behave globally.

In recent years, a series of value frameworks have begun to gain traction with commercial health plans. They are turning America into a market-access and value-based healthcare system. Commercialisation in the US is now increasingly about evidence – and this is changing fast.

A US Market Access lead at a major pharma company noted recently that the number of health economic and outcomes research staff in her team had grown from six to 20 in just three years, and that the internal perception of HEOR has changed from being a nice-to-have, to business critical. And in some companies, European teams are now undergoing a transformation in the eyes of their global peers – from comparative under-performer to being called a vanguard. After years of frustration with restricted access in European markets, US teams are asking for advice from European colleagues on how to handle their new domestic challenges.  

The five main US value frameworks are:

– American Society for Clinical Oncology (ACSO)

– Memorial Sloan Kettering Cancer Center (MSKCC) DrugAbacus

– National Comprehensive Cancer Network (NCCN) Evidence Blocks

– Institute for Clinical and Economic Review (ICER)

– American College of Cardiology / American Heart Association

They all take different approaches and none give the full HTA assessment that medicines receive at, for example, NICE in England – although ICER, which has a clear agenda to cut prices, was founded by a former fellow of NICE and some of its processes emulate those of NICE.  In contrast to the intensity of NICE or other European HTA, the ASCO model is a DIY value framework, providing an algorithm for payers to run an assessment, and providing a scoring sheet, thereby leaving the payer to make their own cost and value judgement.

The methodologies of the five frameworks are also shifting and being sharpened through experience. Different payer organisations are using different frameworks, and some are switching between frameworks for different medicines or therapy areas. Unsurprisingly, US payers are using them mainly to assess oncology products at present. There is no single definition of value for medicines in the US yet, but together the frameworks form a toolbox that is informing value-based contracting and negotiations in the US – enhancing data, making it more available and leveraging it to help broader assessments of value.

A survey of US payers presented at ISPOR 2016 showed an increasing familiarity with the five frameworks and a high proportion saying they will use them more in the comings years. When asking US payers what they want from a value framework, the number one answer was comparative effectiveness information, followed closely in second by value rankings based on product cost and clinical benefit, and in third place by a tool for value-based price assessment and negotiation.

So what does all this mean?

The biopharma industry has been talking about the need to change its business model for as long as most people can remember, but change has been incremental and often at the margins. This is not surprising because there has been no genuine burning platform. The American market is industry’s cash cow – providing about 40% of global revenues from medicines despite having less than 5% of the world’s population.

One European company CEO describes European market restrictions on medicines as frustrating to global pharma but only an irritation – “like an itch on the leg; not a systemic problem”. The pharma business model can handle this and still stay healthy on American revenues. But an American market access environment will cause a systemic shock – and a lower margin US market will bring change to how the industry operates. 

The one saving grace is that industry will become stronger and better prepared to engage in market access strategies and data creation – starting earlier and going deeper.

A likely consequence of US adoption of value assessment and squeezed prices will also be to accelerate the adoption of value assessment in other markets, bringing a rapid increase in challenge to existing pricing and access strategies globally.

Greater use of data to demonstrate value, the need to build stronger additional service propositions, to work with health systems to deliver outcomes, to build patient compliance programmes to guarantee those outcomes, and utilise behavioural scientific approaches with HCPs and patients – these, as well as tougher negotiation, bigger discounts, and more flexible and complex pricing models, will become more commonplace.  More fundamental changes to the R&D model may also ensue.

The moves by Trump and the US value frameworks will likely empower and embolden European payers and HTA to press ahead with further measures, safe in the knowledge that they are not only going with the grain of global practice, but leading it. The one saving grace is that industry will become stronger and better prepared to engage in this environment – more resource will be invested by headquarters in market access strategies and data creation during the global development of medicines, starting earlier and going deeper.