Indication-specific pricing of drugs: a utopian idea,a pragmatic proposition or unrealistic in economically constrained settings?

Introduction

Healthcare experts have proposed various strategies for aligning drug prices with benefits. ¹ The prevailing existing global practice is ‘one drug, one price’, irrespective of its effectiveness in different conditions. Some believe this is a flawed model as it reflects market economics and does not properly align price with benefit.^2,3 As an example, Erlotinib, a receptor tyrosine kinase inhibitor, increases the median survival by 3.4 months in non-small cell cancer, but only 1.4 weeks for pancreatic cancer.

Other models of drug pricing have been proposed: value-based pricing; outcome-based contracts; mortgage pricing; and value-based insurance design. ³

Indication-specific pricing (ISP), or multi-indication pricing (MIP), sets different drug prices for different eligible indications or for distinct eligible patient subpopulations based upon effectiveness for a particular indication or population. ⁴ Thus, there are high-value and low-value indications.^4,5

Some health corporations have already announced plans to determine the price and accessibility of anticancer drugs based on value per indication.^6,7 Software tools have been developed to enable users to compare actual with calculated value-based price. ⁸

In a pioneering decision, the U.S. FDA has approved the drug Tisagenlecleucel marketed as Kymriah by Novartis to sell at two different prices for two different cancerous conditions, large B-cell lymphoma and paediatric leukaemia.^4,9

There is a cogent argument to set drug prices depending on the benefits conferred. Peter Bach, a physician and epidemiologist, a critic of current drug pricing in cancer treatment cited some examples: nab-paclitaxel improves the median survival in metastatic breast cancer by 0.18 years (a high value indication), but metastatic non-small cell lung cancer by only 0.08 years (a low value indication). The treatment cost incurred is nearly similar for each indication. ¹⁰ Another pertinent example is monoclonal antibody Humira, used for various conditions such as rheumatoid arthritis, ankylosing spondylitis, Crohn’s disease and plaque psoriasis. Its effectiveness for these indications is very varied. ¹¹

Supporters of ISP argue that one drug one price approach adversely impacts both drug manufacturers and payers. A pharmaceutical company will hesitate to add low-value indications to a drug label, and thus preclude many patients from benefitting. Payers and insurers like to reimburse costs based on value. Highly priced drugs may be much more affordable if ISP is introduced. A wider access would increase usage and probably improve profits for manufacturers.^1,5

The concept of ISP has aroused strong interest, but many are concerned by its many potential pitfalls. The sheer administrative, legal and regulatory hurdles associated with its implementation are immense. The Institute of Clinical and Economic Review (ICER) in 2015 mentioned the lack of obligation on clinicians in mentioning drug indications, insufficient data system capabilities and potential misalignments with provider reimbursements, quite apart for huge opportunities for fraud.

Any sudden increase in drug price, as occurred with pyrimethamine, is a reminder of the sensitivity of society thereto.^12,13 Even for high value indications, effectiveness is not guaranteed, and individual variability of response is frequent. Drug costing is unlikely to be adjusted according to the benefit conferred in each individual.

When multiple drugs available for a high-value indication, are equally effective, under the pure ISP model their prices ought to be uniform, but a uniform price is unlikely to be acceptable to manufacturers. Moreover, monopolies for drug manufacture may well emerge. Obviously, a patient purchasing a drug at a lower price may sell it to another having a high value indication. Therefore, the practicality of implementing an ISP system in most situations is debatable. ¹⁴

Literature on ISP is limited and is primarily from high-income countries. A recent systematic review reports that even in high-income countries, a pure ISP model does not exist. In addition, where a blended ISP models exists, owing to the confidential nature of risk sharing agreements between buyers and sellers, information regarding the scope, implementation and outcome of ISP is lacking. ¹⁴

In India, the pricing of drugs is governed by the drug price control order (DPCO) under the Essential Commodities Act, 1955, and is implemented by the National Pharmaceutical Pricing Authority (NPPA). The DPCO ensures abundant availability of essential, lifesaving and prophylactic medicines of good quality at reasonable price. Under the provision of this order, 74 of 500 commonly used bulk drugs are kept under statutory price control. However, the prices of other drugs can be regulated, if warranted, in the public interest. Moving away from the cost-based mechanism of 1995, a market-based pricing mechanism was introduced in 2013.This set a price ceiling based on the simple average of prices of all brands of a medicine with >1% market share. ¹⁵

A list of essential drugs known as the National List of Essential Medicine (NLEM) is prepared periodically by the Ministry of Health and Family Welfare. The NLEM 2015 lists 376 drugs and the most recent NPPA list has fixed the ceiling price for these and 475 other formulations. ¹⁶

In India, over three-quarters of all healthcare payments are paid out of pocket, with purchase of medicines accounting for the single largest component (63%). Even with price-control mechanisms in place, expenditure on medicines is a major cause of impoverishment at household level, pushing >38 million persons into poverty in the year 2011–2012. Of note, the monthly per capita payments for cancer care were significantly higher in outpatient as compared to inpatient care. ¹⁷

With this backdrop, the implementation of ISP would be impractical in India, and probably in other similar economic environments. With an estimated 2.5 million people living with cancer in the country, ISP for anticancer drugs would only make them unaffordable. Credible data regarding safety and efficacy of drugs in various indications is not available for the local population, nor does the drug regulating body have adequate resources. The recently launched public health insurance scheme, Pradhan Mantri Jan Arogya Yojana, which aims to cover 500 million Indians, would be ill-funded if ISP is implemented. ¹⁸

Conclusion

Though value-based pricing and ISP are novel concepts and are possibly pragmatic steps towards rationalising drug prices, there is, at present, a fair degree of scepticism concerning its feasibility. Many experts believe that the ISP model would be useful for drugs for oncologic and autoimmune conditions. However, determining the exact value of each indication is a very complex procedure. Thus, implementation poses many administrative and regulatory hurdles. It is also fraught with uncertainty and risk as it is not clear whether this strategy would eventually lower the overall drugs cost or increase it. There is also a concern in some quarters that adaptation of ISP would encourage drug companies to focus only on the high-value indications to maximise their profits. Health economists have also commented that the ISP model, by selling the same product at different prices to different patients, could represent unacceptable price discrimination. ¹⁹ Moreover, as ISP is a relatively new concept, the social and ethical dimensions of paying more for higher value indications have not yet been explored. We therefore conclude that the time for implementation of ISP, especially in low- and middle-income countries, has not yet arrived.