Abstract and Introduction
Background and Aims: High unit prices of treatments limit access. For epidemics like that of hepatitis C virus (HCV), reduced treatment access increases prevalence and incidence, making the infectious disease increasingly difficult to manage. The objective of the current study was to construct and test an alternative pricing model, the Payer License Agreement (PLA), and determine whether it could improve outcomes, cut costs and incentivize innovation versus the current unit-based pricing model.
Methods: We built and used computational models of hepatitis C disease progression, treatment, and pricing in historical and future scenarios and quantitatively analyzed their economic and epidemiological impact in three high-income countries.
Results: This study had three key results regarding HCV treatment. First, if the PLA model had been implemented when interferon-free direct-acting antiviral (DAA) combinations launched, the number of patients treated and cured would have more than doubled in the first three years, while the liver-related deaths (LRDs) would have decreased by around 40%. Second, if the PLA model had been implemented beginning in 2018, the year that several Netflix-like payment models were under implementation, the number of treated and cured patients would nearly double, and the LRDs would decline by more than 55%. Third, implementing the PLA model would result in a decline in total payer costs of more than 25%, with an increase to pharmaceutical manufacturer revenues of 10%. These results were true across the three healthcare landscapes studied, the USA, the UK and Italy, and were robust against variations to critical model parameters through sensitivity analysis.
Conclusions and Relevance: These results suggest that implementation of the PLA model in high-income countries across a variety of health system contexts would improve patient outcomes at lower payer cost with more stable revenue for pharmaceutical manufacturers. Health policy-makers in high-income countries should consider the PLA model for application to more cost-effective management of HCV, and explore its application for other infectious diseases with curative therapies available now or soon.
Pricing model evolution has impacted many industries, enabling closer linkage of price demanded by the producer and value delivered to the consumer. The shift from unit-based to volume-based pricing models typically share three critical properties: (1) initial misalignment of the time of payment to the producer and the time over which value is delivered to or consumed by the customer; (2) value delivered that varies widely depending on the customer served; and (3) zero or relatively low incremental cost of goods sold (COGS). In pharmaceuticals, the pricing of treatments in many therapeutic areas satisfy these three properties. First, the pharmaceutical company (producer) is paid upfront, though the beneficiaries—the patient, the payer, the government—accumulate value over time in outcomes improvement and/or cost avoidance. Second, the variance in value delivered can be large: the same treatment that prevents one patient's mild discomfort may prevent the next patient's death. Finally, COGS for many branded pharmaceuticals are very low relative to price after the high costs of research and development.
We first suggested the "Netflix model" for pricing curative treatments of an example disease, hepatitis C virus (HCV), after reflecting on the properties of pricing model evolution and the limited set of current solutions in healthcare. This model, also called a Payer License Agreement (PLA), is based on three structural changes to traditional pharmaceutical economics: (1) the pricing basis, that is, the indivisible product or service that is sold, is the full population served by the payer, as opposed to the individual patient or treatment; (2) the value of the drug, and thus the price, is linked directly to the incremental cost avoidance; and (3) the payment is annuitized and contracted as a subscription over a period of 5 or more years. Conceptually, this is analogous to Netflix's model, where Netflix pays content providers a fee negotiated for unlimited access over a specified time while Netflix's customers capture that value differentially based on how much content they consume.
In charging upfront for value delivered variably over time, pharmaceutical companies face payer budget constraints and downward price pressure that have caused them to pursue alternative models. Differential pricing—including indication-dependent, combination therapy-based and geography-specific pricing—addresses differences in value delivered among patient segments. Outcomes-based pricing, a collection of models in which the manufacturer is compensated depending on the success of the therapy for each patient using agreed-to outcomes metrics and rebate mechanisms, and academic proposals using third-party financing to spread costs, addresses the temporal accrual of value. Capitated pricing, where a payer determines the maximum reimbursement for the complete management of a particular disease, formalizes the definition of therapy value in relation to other sources of cost such as hospital procedures. While each of these pricing models can better align value and price, none of them simultaneously addresses the crucial value differential both between patients and in time.
We are pleased that the PLA model has begun to get traction in the United States (USA) and Australia,[6–8] but believe the model would benefit from a more complete theoretical treatment. Here, we clarify the conceptual foundations for the PLA model, then quantify its potential epidemiological and economic impact. We model three different health landscapes, the USA, Italy and the United Kingdom (UK), selected for their diversity in payer structure, HCV prevalence rates, per capita healthcare budgets, overall population size and approaches to reimbursement decisions. The USA is a multi-payer, while the UK is a single payer, and Italy has a large out-of-pocket treatment cost; Italy has among the highest prevalence rates in Europe, while the USA and the UK are lower (1.2%, 0.76% and ~0.24%, respectively, in 2017); annual pharmaceutical spend in the USA is $1170 per capita, the UK is $480 and Italy is $630; and UK treatment decision-making is tightly linked to incremental cost-effectiveness on a QALY basis, while US private payers typically have shorter time horizons for integrating costs to make reimbursement decisions. We optimize for the interests and incentives of three key stakeholders by (1) providing universal patient access to necessary treatment; (2) reducing health system cost from its current state; and (3) growing the incentive for pharmaceutical companies to innovate and to compete.
We chose HCV direct-acting antiviral (DAA) therapies as an example case owing to the urgency of the need and the impact of the therapy. Globally, more than 71 M people are infected with chronic HCV, with 1.8 M new cases and 400 000 deaths in 2015.[11,12] In the USA prior to COVID-19, death caused by HCV was more common than death caused by the next 60 most deadly infectious diseases combined. Since 2011, DAAs have been approved for use in the USA,[14,15] in Europe and much of the rest of the world, and as of 2014, non-interferon DAA combinations achieve virological cure, or sustained viraemic response (SVR), in >95% of patients. Despite this scientific innovation, price has remained a barrier to widespread treatment access. Treating the full chronic HCV population is prohibitively expensive, costing up to 190% of total annual pharmaceutical budget at current prices on a purchasing power parity-adjusted basis, and up to 5.3 years worth of average annual individual income. As a result, many health systems have restricted patient reimbursement based on liver fibrosis severity, coinfection of HIV, drug and alcohol use and prescriber type. For example, Medicaid reimbursement in 2014 for most US states (74%) required at least fibrotic stage 3 for treatment access and remained at 44% of states by 2016. In Europe, 46% of countries and jurisdictions required patients to have fibrotic stage 2 or higher as of 2017. Critically, the cost-efficiency of treating HCV varies by disease stage and becomes less attractive at early stages.[20–22] Taken together, reimbursement criteria are inconsistent with the clinical recommendation of treatment consideration for all patients who desire HCV treatment and have no contraindications, and price is a factor in determining these criteria. That is, treatment behaviour is consistent with the logic of providing access where the value accrued, or cost avoided, is high versus the price of therapy and limiting access where the value is low versus the price of therapy.
WHO identifies HCV as an epidemic, and has put in place ambitious targets to reduce incidence by 80%, achieve 90% diagnosis rate, treat 80% of eligible HCV patients and reduce HCV-related mortality by 65% by 2030. However, to achieve these targets requires substantial improvement in treatment efforts and reduction in current restrictions for DAA reimbursement, and only 12 countries globally are on track to achieve these targets. In this paper, we demonstrate that implementing the PLA model will achieve the WHO targets faster than with traditional industry economics while reducing payer's overall costs and compensating the pharmaceutical manufacturers with greater and more stable revenues. We first show that HCV disease progression results in significantly higher expected costs in later patient cohorts, motivating early-stage intervention as cost-saving. We then model the epidemiological impact if PLAs had been employed at the launch of DAAs in 2014. We finally analyse the epidemiological and economic impact of shifting to a PLA model in 2018–2030, and determine the cost-effectiveness versus the current commercial model.
Liver International. 2022;42(7):1503-1516. © 2022 Blackwell Publishing