Shutting the Door on Blunt Pricing Tools

With an array of breakthrough specialty drugs anticipated to enter the U.S. market in the next few years, the debate around specialty drug pricing and reimbursement is unlikely to die down anytime soon. Experts have thrown around all sorts of solutions – some old and some new – to revamp pricing mechanisms for these drugs. While many stakeholders have approached this complex and multi-faceted issue with the type of innovative and forward-thinking required to address cutting-edge questions, such as how to value a cure for a long-term, expensive disease, antiquated and one-dimensional tools developed decades ago continue to creep into the drug pricing discussion. The U.S. healthcare system cannot move forward to a future focused on value and quality until we close the door on blunt reimbursement tools of the past, such as the least costly alternative (LCA) and other price-referencing policies. These policies fail to take into account the needs of patients with complex, co-morbid health conditions and threaten to create a race to the bottom where only the cheapest medicines are covered by payers.

Specialty drugs treat serious and complex diseases and often require careful handling, administration, and monitoring. Biopharmaceutical manufacturer pipelines have focused in recent years on developing these specialty treatments for patients with rarer and more complex diseases. We are now seeing the fruits of manufacturers’ labor with breakthrough drugs that treat orphan diseases and cure serious, life-long illnesses.

While many experts, including drug manufacturers, have raised innovative pricing and reimbursement ideas, other stakeholders continue to ruminate on outdated concepts, such as the LCA and other price-referencing reimbursement policies. LCA bases the payment amount for a group of clinically comparable drugs – even where those drugs may not be therapeutic equivalents – on that of the least costly treatment. The Centers for Medicare and Medicaid Services (CMS) applied LCA to a narrow set of Part B drugs between 1995 and 2010. In 2008, a federal court ruling resulted in CMS discontinuing use of the policy on the grounds that the agency did not have the authority to institute the reimbursement scheme under Medicare law. Despite its rocky history, Medicare policy advisors to Congress recently raised LCA as a potential mechanism for saving money on Medicare specialty drugs.

Use of an LCA or other reference-based policies fails patients and providers for several reasons.  With reimbursement provided solely at the rate of the least costly drug under an LCA policy for a physician-administered specialty drug, providers lose money each time they chose to prescribe a more costly treatment for a patient. Unless explicitly permitted in an LCA policy, a Medicare patient may not even have the option to pay the difference to obtain the more expensive treatment. As a result, a patient may be left with only one option to treat their condition, even where a robust array of drugs are on the market.

LCA also requires a payer to make a determination about which products it should group together for application of an LCA. Drawing lines to classify certain products as clinical “alternatives” is fraught with difficulty and will become even more so as we move toward a future focused on more personalized medicine. Moreover, LCA policies by their nature do not take into account individual patients’ unique characteristics. The healthcare community has come a long way in recognizing patients’ individualized attributes, understanding that a treatment that may work for one patient may not work for another. Our drug payment policies should reflect this trend by giving providers flexibility to treat their patients in the way they know best – not by limiting treatment options for vulnerable patient populations solely on the basis of cost. It also creates a vast disincentive for manufacturers to innovate in a treatment area where improvements in outcomes may occur incrementally over time.

It is troubling that blunt, purely cost-based policies continue to re-appear in the lexicon of payer reimbursement no matter how far away the U.S. healthcare system moves from these one-dimensional concepts that fail to account for individualized patient needs. Let’s not return to the one-size-fits-all policies that have failed beneficiaries before.

Jeffrey J. Kimbell is the founder and President of Jeffrey J. Kimbell & Associates. 


Morning Consult