- Refunds for ineffective drugs total 200 million euros a year
- Health systems worldwide are watching the pricing strategy
When trying new cancer treatments, Italy’s state-run health service is demanding a money-back guarantee. The experiment is being monitored in the U.S. and across Europe, making a country better known for its fashion and fettuccine a leader in innovative strategies to rein in drug spending.
The Italian Medicines Agency has devised deals with pharma companies that set payment based on how well a patient responds to treatment, and in some cases where the medication fails to help, the drugmaker gives a full refund. Italy is signing more such contracts as growing numbers of medications receive regulatory approval after mid-stage trials of fewer than 100 patients rather than awaiting final-stage assessments involving thousands.
“It is problematic to reimburse a high-cost treatment with evidence that is very preliminary,” said Pierluigi Russo, head of the agency’s pricing and reimbursement office.
A single cancer drug can also be assigned multiple contracts that differ by tumor type, especially when the risk of failure is higher for a certain type of cancer. So a company might have to agree to a money-back guarantee if the drug treats ovarian cancer, while it may simply offer a discount in the case of breast cancer.
As a result, Italy secured about 200 million euros ($220 million) in refunded payments due to ineffective treatments or flat-pricing agreements in 2015, Russo said, or about 1 percent of total pharmaceutical spending.
Italy has become a model for other countries and manufacturers negotiating drug prices based on how well they work. In the U.S., Express Scripts Holding Co., the largest prescription drug benefits manager, has been studying the Italian experiment and will roll out a program next year that sets varying prices for drugs used to treat multiple types of cancer. And Roche Holding AG is trying to determine whether the Italian model could work in France.
“The Italians are quite advanced in terms of the types of innovative contracting,” said Robert Dumitrescu, a consultant to drugmakers at Simon-Kucher & Partners in Paris. “In oncology, you would be foolish as a manufacturer to go into Italy without one of these schemes.”
Global spending on oncology medicines is expected to reach $100 billion in 2018, up from $65 billion in 2013, according to the IMS Institute for Healthcare Informatics. So-called “pay-for-performance” or outcomes-based pricing schemes have also been proposed by companies developing million-dollar gene therapies.
“It makes a lot of sense to align the price” with different types of cancers, said Severin Schwan, chief executive officer of Roche, the world’s biggest maker of cancer drugs. “We have some first countries where this is happening, such as Italy, and I’m glad to see that some of the providers in the U.S. are thinking about these models.”
The medicines agency -- responsible for drug regulation in Italy -- established national registries in 2005 that track all patients’ treatments and their outcomes, which provide the basis for the assessments and allow the agency to renegotiate contracts based on new data every two years or so. Italy’s system is more sophisticated than that in other European countries in tracking whether treatments work, according to Olivier Wouters, a researcher on health issues at the London School of Economics.
“There are a lot of moving pieces,” Wouters said, noting that the administrative costs of creating such a registry can be enormous. “You want the price to reflect the value of the drug, but there are all these other issues that potentially might arise.”
In France, where no national registry exists, Roche started a pilot program in 24 hospitals in the past two years to understand the difficulties of tracking patients and their treatment outcomes. While the U.K. has tested outcomes-based pricing, its last such contract was in 2007, when Johnson and Johnson agreed to a full refund if its Velcade blood cancer drug didn’t help prolong the life of patients.
For the pharmaceutical industry, smaller European countries may be best place for trying out new pricing schemes, according to Morris Hosseini, a partner at consultancy Roland Berger in Berlin.
“You can pilot something in one not-too-big market and then if it works you can roll it out to other markets,” Hosseini said. “Europe serves a bit as a test-tube for certain models.”