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Novartis, Roche find "outcome-based" drug pricing an elusive dream

November 12, 2015
Life sciences

(Reuters) – News that Novartis’s heart drug Entresto cuts the risk of re-hospitalisation might have helped Chief Executive Joe Jimenez realise his ambition of getting insurers to pay more for treatments when they cut overall medical costs.

Instead Jimenez and Severin Schwan, CEO of cross-town rival Roche, have been forced to concede that insurance companies, especially in the United States, are not yet ready for such “outcome-based” pricing models.

A key hurdle, Jimenez and Schwan said in recent interviews, is that electronic medical record systems aren’t capable of accurately tracking a drug’s role in reducing hospital stays or preventing further trips to the emergency room.

This gap has largely stymied a push to change how drugs are priced and reimbursed by insurers and governments, even though both CEOs contend today’s pay-per-pill approach can’t be sustained.

“I wouldn’t call it resistance, I would call it practical hurdles that need to be overcome,” Schwan said, on why change has been slow. “This is a complex road.”

Both companies have sought to implement new pricing on a limited scale, with Novartis experimenting with one customer on its Gilenya multiple sclerosis drug and Roche with its cancer drugs in Italy.

Barriers to broader rollout, however, include medical privacy concerns, resistance by doctors who fear more bureaucracy and the sheer scale of IT infrastructure needed for outcome-based pricing to work, Schwan said.

Drugs account for only around 10 percent of U.S. healthcare costs, Jimenez said, with hospital stays, medical personnel and other costs making up the rest. But existing records systems aren’t up to the task of putting this data into perspective.

“The basic infrastructure of electronic medical records, let’s call it ‘real-world data’, is going to have to increase so that we can easily track and monitor outcomes,” Jimenez said. “If you move to that kind of pricing system over a period of years, you will be able to take out a lot of waste.”

With Entresto, approved in the United States in July, Jimenez figured he had the perfect drug to get insurers to warm to a new “risk-sharing” approach. Entresto would come at a discount, he proposed, with insurers paying Novartis more if it cut the need for further costly hospital visits, compared with cheaper, older medicines.

Abandoning the pay-per-pill model might push up immediate drug costs but reduce overall medical bills, he argued.

A new analysis this week showing 44 percent fewer heart patients taking Entresto were re-admitted to hospital within a month of discharge when compared with patients on other drugs, would have played into his hands.

Instead, insurers told Jimenez his plan was too complicated, leaving Novartis to battle on with a traditional pricing model.

A lot is at stake, since annual sales of the drug are expected to reach $5.4 billion in 2020, according to analysts’ forecasts compiled by Thomson Reuters Cortellis.

Entresto is cheaper than some new drugs but at $4,560 annually it is nearly 50 percent more expensive than many analysts expected. One group, the Boston-based Institute for Clinical and Economic Review, has said the price should be cut by 17 percent to reflect its true economic value.

But Schwan figures cost concerns will eventually prompt change.

“When the pressure is high enough in health care systems we’ll more and more move toward aligning value with price,” he said.

For now, however, he and Jimenez will have to wait.

“It’s not going to happen any time soon, but that’s part of the solution,” Jimenez said. “With an ageing population there’s going to be additional pressure on pricing and total drug utilisation, particularly in the U.S.”

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