In Developing Payment Mechanisms for Gene Therapies, the US Has a Long Road Ahead

High-cost drug therapies have long strained the US healthcare budget, and the advent of gene therapies is poised to increase that cost burden substantially.

To date, only 1 gene therapy has been approved in the United States—Luxturna, a treatment for inherited retinal disease that carries a list price of $850,000—but according to EvaluatePharma, the US healthcare system could see an influx of such therapies in the coming years, with combined sales forecasts of $16 billion in 2024.

Recently making headlines is Novartis’ proposed gene therapy, AVXS-101, a single-dose treatment therapy for spinal muscular atrophy. According to Novartis, the eventual treatment could be priced as high $4 million to $5 million per patient, a price that Dave Lennon, president of AveXis (the drug developer responsible for AVXS-101 that was acquired by Novartis) said could be cost-effective because it would administered only once, and could obviate lifelong, costly medical interventions while providing an added 13.3 quality-adjusted life years.

However, even if such drugs do prove to be cost-effective in providing patients with much-needed treatments for genetic diseases, the question of how to pay for these therapies remains largely unanswered.

In a recent paper published in JAMA, Anna Kaltenboeck, MA, of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center in New York, along with coauthor Peter B. Bach, MD, described a variety of value-based approaches that are being considered for paying for gene therapies, from value-based pricing (which may rely on benchmarks set by the Institute for Clinical and Economic Review, or ICER), indication-based pricing, outcomes-based contracting, mortgage pricing (under which a high-cost therapy is paid for over a period of years), and value-based insurance design.¹

In an interview with The American Journal of Managed Care^® (AJMC^®), Kaltenboeck said that, we're haven't yet arrived at an effective payment mechanism to handle gene therapies. Among existing approaches, “I think the greatest potential is in value-based pricing,” she said, because such a method sends a stronger signal to the marketplace about how to appropriately price products.

While bundled payment approaches and competition-based approaches have served purposes under some circumstances, she added, they have also been used throughout a period of sustained price increases for drugs.

Kaltenboeck also takes issue with mortgage pricing, saying that she does not view it as an appropriate solution to the problem of high costs. At the time at which the JAMA paper was published, there were no known instances of mortgage pricing, but Kaltenboeck noted to AJMC^® that there are rumored to be some mortgage-based offerings in the market today. However, she pointed out, it is not clear why such a mechanism would be used for a one-time treatment when payers have found effective ways for pay for high-cost one-time events, such as surgeries.

In looking to the future of paying for innovative healthcare, Kaltenboeck noted that, while a great deal of discussion has been dedicated to what value-based pricing is, far less has been made clear about what must be in place from a policy perspective to make value-based pricing functional for the United States market.

Other experts agree that the United States has not yet arrived at a functional system for addressing the cost of gene therapies. Michael Ciarametaro, MBA, the vice president of research at the National Pharmaceutical Council, told AJMC^® in an interview that there are not, to date, any particularly effective financing mechanisms for treatments that come with extremely high price tags.

Notably, Ciarametaro said that, according to research conducted by the Massachusetts Institute of Technology, approximately 40 to 60 gene therapies will be on the US market by 2030, and the aggregate impact of these drugs on overall healthcare costs will be manageable. “Where the issue resides,” Ciarametaro said, “is with payers that have constrained budgets or smaller risk pools.”

Small, self-insured employers will have difficulty predicting whether they will have a member with a need for a gene therapy, and such a need cannot be easily priced into a premium. Constrained budgets, like Medicaid’s, will also have issues paying for gene therapies. As Ciarametaro and his coauthors recently wrote in Health Affairs, nearly one-third of small-employer third-party administrators and managed Medicaid plans expect to exclude coverage for gene therapies.²

A mixture of solutions may be implemented, including milestone payments similar to annuities that extend over a 5-year or shorter period, milestone rebates that are outcomes-based contracts linked with relevant clinical benchmarks, reinsurance and stop loss approaches, and the use of orphan reinsurance benefit managers that can manage financial risk and provide network and patient management.

However, he explained, the next key step to developing the most appropriate financial mechanism for paying for these drugs involves addressing regulatory hurdles. Ciarametaro sees a need to address barriers related to Medicaid’s best-price regulation and state-level accounting rules related to the tracking of liabilities that are not well adapted to payment solutions like annuities.

“What we need at this point is pilots” from the Center for Medicare and Medicaid Innovation, said Ciarametaro, “to start to really test solutions to these issues. At this point, we’re not going to see movement in the way that risk is structured in the market until that’s addressed.”

1. Kaltenboeck A, Bach PB. Value-based pricing for drugs: theme and variations. JAMA. 2018;319(21):2165-2166. doi: 10.1001/jama.2018.4871.

2. Ciarametaro M, Long G, Johnson M, Kirson N, Debois RW. Are payers ready to address the financial challenges associated with gene therapy? [published online June 28, 2018.] Health Aff (Millwood). doi:10.1377/hblog20180626.330036.

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