Given the cost of prescription drugs, patients are rightly concerned about whether the medication is effective. After all, no one wants to spend a few hundred dollars on medication only to find that it doesn’t work. Now, imagine a situation where you could receive some of the money back in the event the drugs don’t work.
This hypothetical scenario is no longer a fantasy and could become a reality if the administration has its way. The President has issued a draft designed to offer patients a “money-back guarantee” if their medication is ineffective. Cynical readers might suggest that the guarantee is akin to a catchy marketing slogan: “If you get a heart attack, you get your money back, no questions asked.”
It is potentially as simple as that. The concept, known as “value-based pricing,” works as follows: A drug maker will refund a portion of the cost of the medication if it doesn’t improve your health or prevent a major incident such as a heart attack. The idea is to help the government reduce expenditures on medication that fails to deliver. In theory, it is a good idea since total spending on medicines in the United States was $450 billion in 2016, a figure that continues to rise. In practice, however, the money-back guarantee is possibly unworkable.
The Birth of Outcome-based Contracts
The notion of a money-back guarantee for drugs is not a new concept. The Italian Government launched its version of the scheme a decade ago, and in 2015, it collected €220 million in refunds from a total expenditure of almost €4 billion. It is still too early to tell whether the scheme is destined for success, and perhaps that is one of the issues faced in the United States.
In some instances, it will take years to determine if the drug is effective for patients. This is too long of a timeframe for someone with a life-threatening condition. Worse still, there is little evidence to suggest the money will end up in the pockets of consumers. Sure, the government will receive the cash; but, are Americans likely to get the benefits?
According to Dr. Walid Gellad of the University of Pittsburgh, the concept will not lower drug costs in the short term, and there is no evidence to suggest it will do so in the medium to long term. He is critical of the idea and believes it is a convenient way for authorities to avoid addressing the more complex issues surrounding prescription drugs.
Pharmaceuticals as Deal Makers
The pharmaceutical industry believes it is a good idea because a number of high-profile companies have already struck deals that they refer to as “outcome-based contracts” or “value-based contracts.” Merck and Aetna have entered into one of these contracts for Januvia and Janumet, drugs used to treat Type 2 diabetes. Patients will receive their money back if their condition doesn’t meet goals for control.
Novartis signed a similar deal regarding Entresto, which is a heart failure drug. It will refund money if you take the drug but still suffer an issue related to your condition that causes you to go to the hospital. There are many other deals on the table, typically involving the drug makers paying rebates to insurers based on the volume of drugs sold.
Why would drug makers agree to these deals? The answer is obvious when you think about it. Manufacturers get a guarantee of their own with these contracts. For example, Novartis knows that offering a value-based contract means it will have access to an insurer’s customer base for Entresto. As well as locking in new business, the companies can outline the metrics that affect refunds in the first place.
The pharmaceutical industry is very excited about the prospect of value-based contracts and suggests they lead to “win-win” situations across the board. According to the vice president of research at the National Pharmaceutical Council, Mike Ciarametaro, the practice of paying for value is a step in the right direction. He believes the concept shifts the risk toward manufacturer.
Even insurers are getting on board with the idea. A 2017 survey by Avalere found that 70% of health plans are in favor of value-based contracts and 24% already had one in place.
What’s the Catch?
Evidence that value-based contracts will lower the price of drugs is scarce. After all, the pharmaceutical companies still set the list price and must agree on the criteria surrounding a refund. Critics of the plan suggest it is an ideal smokescreen to deflect attention away from more effective price control measures such as allowing Medicare to negotiate prices.
According to Dr. Steve Miller of Express Scripts, a firm responsible for managing the drug benefits of approximately 80 million people, most of these contracts have tremendous fanfare after their launch. However, they soon collapse, and you never hear about it. David Mitchell of Patients for Affordable Drugs points out, refunds will not reduce the price of the drug. More pertinently, Mitchell says that a money-back guarantee isn’t much good to a person who has passed away due to a heart attack.
As much as we would like to believe that value-based contracts could help control the price of prescription drugs, the available evidence points to the contrary. Certainly, the concept is a win for insurers and manufacturers as it is preferable to the idea of Medicare negotiating prices.
Consider a final point about the method of determining a drug’s efficacy. What if the patient takes the drug as instructed, but continues to live a poor lifestyle? What if the patient smokes and drinks too much alcohol or fails to exercise and eat as instructed? How deep will insurers probe into the lifestyles of patients?