Indication-based pricing – what are the opportunities and challenges?
The issues with “one-drug, one price”
The past decade has seen growth in multi-indication drugs, especially in oncology and autoimmune therapeutic areas. For instance, over 50% of major cancer medicines marketed in 2014 were for multiple indications; by 2020 this is expected to rise to 75%. These products may demonstrate high value in one indication but only marginal improvement in another, yet under the current “one drug, one price” model will be given a uniform price across indications. In the current climate of tighter budgetary controls and greater pricing scrutiny, this uniform pricing system provides challenges for manufacturers, payers and patients.
Drugs expanding into higher value indications may be forced to retain the price of the original lower value indication. In addition, if expansion is into a lower value indication, payers will be unwilling to retain the original price agreed for the high value indication, due to an increase in patient number across both indications. As a result, a significant price reduction across all indications is likely to be required. This leaves manufacturers with a dilemma; if they choose not to agree with a price reduction, reimbursement in the lower value indication is unlikely to be achieved, significantly restricting patient access.
The Novartis dilemma
This is the scenario Novartis may soon be facing. Illaris (canakinumab) is currently approved in several orphan diseases, with a price estimated to be ~$200,000/patient/year. Novartis is now aiming to gain regulatory approval for a cardiovascular indication. Due to differences in dosing schedules, at the current price per drug unit, canakinumab is likely to cost around ~$60,000/patient/year for cardiovascular patients. Whilst this is significantly lower than the yearly cost in its rare disease indications, it is highly unlikely to be accepted by payers for the cardiovascular indication. Indeed, to gain uptake in cardiovascular patients, Novartis is likely to price competitively to the lower priced PCSK9-inhibitors (list prices ~$14,000/patient/year).
Potential solutions and challenges
Launching in a new indication with a different brand can sometimes offer an opportunity for indication-based pricing. This is especially true if use in the new indication is associated with a new formulation, method of administration or dose. This strategy has been used by a few manufacturers to achieve differential pricing across indications, and it is the likely strategy Novartis will use for canakinumabs’ cardiovascular expansion. However, differential branding is generally not viewed favourably by payers and is not legal in all markets. In addition, defending significant price differences between brands and preventing physicians from prescribing the cheaper option can be challenging.
The case of Avastin (bevacizumab; oncology) and Lucentis (ranibizumab; wet age-related macular degeneration (AMD)) highlights these challenges. Both drugs are initially developed by Genentech (now part of Roche), are closely related and have similar efficacy. However, where Avastin is priced at less than $150 per treatment, Lucentis costs more than $2,000. Despite achieving this difference in price, Roche and Novartis (marketing holder for Lucentis outside the US), have faced significant resistance from physicians and payers. For instance, in the UK, NICE guidelines for wet AMD concluded that there are “no clinical significant differences in effectiveness and safety” between Avastin and Lucentis and noted that Avastin is the more cost-effective option. In addition, in France, off-label use of Avastin for wet AMD is authorised by the Ministry of Health. It is likely that physicians in a number of markets (including the US) utilise Avastin off-label as a means of cost-savings.
Alternative options for indication-based pricing include the use of “blended” pricing, where a single, weighted average price is developed based on patient populations and relative value per indication. This is an approach taken in Germany, however is only used during the initial price setting process and not upon indication expansion. One issue with blended pricing is that, at a local payer level, the product may seem high priced relative to comparators for a particular indication, resulting in low uptake in this indication, despite the blended average price.
Another proposed approach is the use of uniform list prices with separate discounts resulting in differential net prices. This is a strategy which has been implemented in Italy, whereby risk-sharing agreements are applied on an indication specific basis. However, whilst in theory this is a relatively simple strategy, implementation requires robust data systems which are currently unavailable in most markets.
The situation in the US
Indication-based pricing faces unique challenges in the US. For instance, under the current structure, Medicaid programs are guaranteed the lowest price of the drug. As such, even if a drug did have differential pricing per indication, Medicaid would always receive the lowest price. This may make manufacturers reluctant to implement indication-based pricing. Another issue is that drug formularies generally utilise a tier structure based on drugs rather than on indication. With indication-based pricing, cost-sharing should be different for patients prescribed drugs for a higher value indication and patients prescribed drugs for lower value indications. However, implementing this in the current tier structure is difficult.
Despite these challenges, two pharmacy benefit managers (PBMs; CV Health Corp and Express Scripts) have taken steps to implement indication-based pricing into their systems. Express Scripts now has separate formulary categories for each individual inflammatory disease. The PBM says this more precise formulary approach will allow greater competition and lead to more affordable healthcare plans. Similarly, CVS Health Corp is implementing indication-based formulary management for hepatitis C and autoimmune diseases. CVS has also suggested that future mechanisms of implementing indication-based pricing could involve manufacturers being required to pay higher rebates for formulary inclusion in indications in which they are less effective.
Benefits and concerns surrounding indication-based pricing
The steps taken by CVS Health and Express Scripts demonstrate the increased awareness of indication-based pricing. Wider implementation of this strategy has the potential to balance payers’ needs for affordable pricing and manufacturers’ needs for sustainable pricing, leading to increased patient access. In addition, through preventing higher prices for lower value indications, there is an opportunity to achieve healthcare savings. Moreover, indication-based pricing aligns with and forms a key part of value-based pricing models, allowing price and clinical value to be aligned.
Nevertheless, it should be noted that there have been criticisms of indication-based pricing. A recent article published in the New England Journal of Medicine, suggested that whilst indication-based pricing would reduce prices in low value indications, it also offered manufacturers the opportunity to increase prices in high value indications. As a result, whilst patient access in low value indications has the potential to increase, there is also the potential of reduced affordability and greater budget impact in high value indications. Others have responded to these concerns by arguing that control measures could be put in place to ensure prices were not inflated in high value indications.
What is the future for indication-based pricing?
It is likely that these discussions around the benefits and issues surrounding indication-based pricing will increase in coming years, particularly in relation to the launch and expansion of high cost CAR-T therapies. The first of these CAR-Ts (Kymriah; Novartis) launched with a price tag of $475,000 for use in young adult and paediatric patients with acute lymphoblastic leukaemia. Novartis is expected to expand the Kymriah indication in coming years and has already suggested that the new indication will be priced differently to the current $475,000. In fact, Novartis has already included indication-based pricing within the value base outcomes agreement it has in place with the CMS for Kymriah. Overall, although it is yet unclear exactly how indication-based pricing will be implemented in different markets, it seems likely that there will be an increased push towards development of indication-based pricing mechanisms in the near future.
 Multi-indication pricing: do we want it? Can we operationalize it? Office of Health Economics, June 2017
 Novartis’ CANTOS heart trial results could lead to drastic drop in arthritis drug price. Available at: https://www.forbes.com/sites/johnlamattina/2017/06/22/novartis-cantos-heart-trial-results-could-lead-to-drastic-drop-in-arthritis-drug-price/#284224126bf3
 Lucentis Vs. Avastin: a macular degeneration treatment controversy. Available at: http://www.allaboutvision.com/conditions/lucentis-vs-avastin.htm
 Age-related macular degeneration, NICE. Available at: https://www.nice.org.uk/guidance/NG82
 Recent ruling in France and EU study highlight tensions around “off-label” use of drugs, says expert. Available at: https://www.out-law.com/en/articles/2017/march/recent-ruling-in-france-and-eu-study-highlight-tensions-around-off-label-use-of-drugs-says-expert/
 Aligning Drug Prices with Value, CVS. Available from: https://payorsolutions.cvshealth.com/insights/aligning-drug-prices-with-value
 Economics of indication-based pricing. Available at: https://catalyst.nejm.org/economics-of-indication-based-drug-pricing/
 The Benefits and Misconceptions of Indication-Based Pricing. Available at: http://info.zs.com/priceofglobalhealth/the-benefits-and-misconceptions-of-indication-based-pricing