Michael N. Abrams

	Payers across the globe are becoming increasingly assertive regarding products whose costs aren’t in line with perceived performance-a trend that shows no signs of slowing down. In fact, Express Scripts, one on the largest pharmacy benefit managers (PBMs) in the United States, recently announced a plan that would link the price of some cancer drugs to their real-world performance (1). Express Scripts’ action is significant, considering that the US has been slower than many European markets to implement new pharmaceutical reimbursement schemes.

	Managed entry or risk-sharing agreements (RSAs) represent another mechanism that payers use to mitigate the cost of new drugs based on real-world performance. Financial and performance-based RSAs (PBRSAs) have been widely employed throughout Europe to reduce drug expenditures. While these agreements may not be universally applicable or without challenge, they are gaining momentum in certain markets where they will likely play a role in enhancing economic efficiency.

	This article explores some of the driving forces behind RSA implementation, provides an update on the status of RSAs in the European Union, and discusses some of the inherent challenges manufacturers will need to overcome to achieve success under these types of arrangements.

	In most realms of commerce, if a product fails to deliver what’s been promised, consumers are financially covered through refunds and warranties. Consumers of pharmaceutical products and other stakeholders, however, have no such protections. Rather, the pharmaceutical industry has had a longstanding model of selling products and getting paid regardless of product performance. Perhaps that explains estimates that 90% of conventional medicines are not efficacious in 50–70% of cases (2). In therapeutic areas such as oncology, which is often characterized by high-priced drugs, the efficacy rate with standard treatment has been reported to be as low as 25% across all cancer types (3, 4).

	Against this backdrop, global spending on medicines is expected to grow to nearly US$1.3 trillion by 2018 (5). Government and commercial payers in most developed markets face aging patient populations and shrinking budgets. Not surprisingly, they are increasingly calling for manufacturers to “put more skin in the game” in return for broader coverage. Contractual arrangements directly linking reimbursement to a product’s effectiveness or budget impact clearly represent one mechanism through which risk can be shared between payers and manufacturers.

	In efforts to contain spending, public and private payers are also shifting risk to healthcare providers through alternative payment models such as bundled payments and capitation. As these changes progress, manufacturers must realize that they face a future in which they will increasingly be required to assume greater risks related to the performance of their products.

	The benefits of RSAs for payers are quite apparent-cost containment, efficiency (i.e., improved value for money), and/or improved outcomes for the covered population. There are, however, potential benefits for drug manufacturers as well, including earlier market access, differentiation, and the opportunity for a premium price. Taken together, it’s not surprising that RSAs continue to gain attention from payers and manufacturers and are becoming a more integral part of leadership objectives for both parties.

	For years now, national health authorities in European markets have “hedged” their reimbursement decisions with pricing controls and negotiated price cuts and RSAs to control costs. To date, RSAs have been largely confined to Europe, where payers have been more restrictive in their coverage, particularly of cancer drugs, and have used value calculations based on comparators and quality adjusted life years. For instance, in addition to successfully negotiating the lowest price in Europe for Gilead’s Sovaldi, the French government secured a volume-based discount as well as a money-back guarantee if treatment doesn’t work (6).

	Financially based schemes (e.g., price-volume agreements, price-capping, volume capping, and rebates) have been more widely employed throughout Europe compared to PBRSAs because they are easier to implement and track (7). In contrast, the design and implementation of PBRSAs has historically been more complex due to the need for patient follow up, lack of reliable data generation/registration (e.g., lack of infrastructure to track drugs or non-responders), and increased administrative burden for payers and manufacturers alike. These were just some of the clinical and operational complexities that largely characterized the United Kingdom’s multiple sclerosis scheme in the early 2000s, which proved to be both costly and rather ineffective.

	Nevertheless, RSAs, including performance-based arrangements, continue to be explored and implemented in select EU markets (see Table I). A recent review of RSAs established between 1993 and 2013 identified 148 arrangements, the majority of which were initiated within in the past six years (8). Italy, the UK, the Netherlands, and Sweden accounted for approximately 71% of these arrangements. In contrast, the prevalence of RSAs in other major EU markets such as Germany, France, and Spain is markedly lower (2–3%).

	Of the 148 arrangements, approximately 36% included a component that linked product reimbursement to clinical outcomes observed in the real world. Not surprisingly, oncology was the most active area for RSAs, likely due to the number of new cancer drugs, the high disease-related costs, and the premium price tags typically associated with these products.

	A closer look at some of these markets reveals certain nuances that are important to call out. In the UK, there has been a trend away from more complex arrangements toward increasing adoption of financial-based arrangements. In fact, the majority of recent arrangements were implemented as simple confidential discounts (9). In Italy, RSAs have often consisted of both financial-based and performance-based components; however, more recent arrangements have included one or the other, not both.

Table I: Examples of performance-based risk-sharing agreements (PBRSAs) from Italy and the United Kingdom.

					Myelodysplastic syndromes/chronic myelomonocytic leukemia/acute myeloid leukemia

					Manufacturer provides an 11% rebate for patients not responding to three cycles of the treatment

					Manufacturer pays for patients not responding after 24 weeks of treatment

					Manufacturer pays for patients not responding after 26 cycles of treatment

					Manufacturer provides an initial 12.5% rebate with the possibility of future rebates based upon the results of a head-to-head trial against Sutent*

					Manufacturer refunds the full cost of the drug for patients who experience less than a partial response after  four cycles

	*Note: The National Institute for Health and Clinical Excellence (NICE) revised this agreement in 2013, removing the head-to-head trial component.
	Source: Ernst & Young Biotechnology Industry Report 2013 and “List of Technologies with Approved Patient Access Schemes” from the official site of NICE (9–10).

	In France, the aforementioned Sovaldi example is just one sign that the government is willing to expand the use of performance-based arrangements. In fact, Celgene committed to the French government on the effectiveness of their multiple myeloma drug Imnovid in exchange for a higher price (11). The agreement required Celgene to build a registry for collecting real-world efficacy and safety data.

	Payers’ concerns with pharmaceuticals in the current healthcare environment include rising budget impact, differential value, large patient populations with difficulty in identifying responders, and the uncertainty regarding duration of treatment. At the same time, manufacturers are concerned with delayed market access due to prolonged price and reimbursement negotiations, demonstrating differentiated value in crowded therapeutic areas, and earning a premium price that is in-line with the value their products create.

	RSAs represent an appealing option for both parties if designed appropriately and implemented in a collaborative manner. It’s true that these arrangements are likely to increase administrative burden for both payers and providers, particularly PBRSAs that require patient-level data tracking. It should also be noted that PBRSAs bring inherent risks outside the manufacturer’s direct control, including inefficient healthcare delivery and poor patient compliance. For these reasons, RSAs do not represent a “one-size-fits-all” solution.

	Before entering into an RSA, pharmaceutical companies should always ensure that the potential benefits are significant enough to justify the effort and risks associated with these types of agreements. In addition, manufacturers must understand how their products deliver value to ensure that the particular measures agreed upon align with that value story. Implementing RSAs requires not only lengthy negotiations and potentially costly administration, but also the ability to efficiently capture real-world evidence. As a result, pharmaceutical companies must develop the appropriate IT and data analytics capabilities to successfully implement these types of agreements.

		P. Loftus, “New Push Ties Cost of Drugs to How Well They Work,” 

, 26 May 2015, www.wsj.com/
		articles/new-push-ties-cost-of-drugs-to-
		how-well-they-work-1432684755, accessed 28 Sept. 2015.	

		Cowen & Co: Therapeutic Categories Outlook, 2008–2012 estimate, Cowen Group, NY, USA (2008).	

		C. Womack, The Pathologist in Drug Development, presentation at the Edinburgh Pathology 2013 conference (Edinburgh,
		June 2013).	

		IMS Institute for Healthcare Informatics, 

Global Outlook for Medicines Through 2018

		T. Staton, “France Strikes Big Hep C Treatment Deal for Gilead’s Sovaldi,” 

 20 Nov. 2014, www.fiercepharma.com/story/france-strikes-big-hep-c-treatment-deal-gileads-sovaldi/2014-11-20, accessed 28 Sept. 2015.	

		J. Espín, J. Rovira, L. García, Experiences and Impact of European Risk-Sharing Schemes Focusing on Oncology Medicines. Granada, Spain: European Medicines Information Network (EMINET), Andalusian School of Public Health, 2011.	

		Ernst & Young, Biotechnology Industry Report 2013.	

		NICE, List of Technologies with Approved Patient Access Schemes, retrieved December 2014 from NICE, www.nice.org.uk/about/what-we-do/patient-access-schemes-liaison-unit/list-of-technologies-with-approved-patient-access-schemes, accessed 28 Sept. 2015.	

		C. Ducruet, “Médicaments: quand les la boratoires sont rémunérés à la performance,” 

 is managing partner, both at Numerof & Associates,

 When referring to this article, please cite it as M. Kuchenreuther and M. Abrams, “Risk-Sharing Agreements in the EU and Considerations for Moving Forward,” 

Articles

The authors look at key factors driving the risk-sharing agreements that have been implemented to reduce drug expenditures across Europe.

Risk-Sharing Agreements in the EU and Considerations for Moving Forward

The Affordable Care Act (ACA) has elicited intense national debate and sent biopharmaceutical companies scrambling to understand how their business model, including its ability to innovate, will change as healthcare reform moves forward. Within this uncertain market, what is obvious is that the industry is in the midst of significant transition. Critical drivers of this change are largely macroeconomic; policy is simply accelerating change. Understanding this backdrop is crucial as the biopharmaceutical industry contemplates product innovation within the changing landscape of healthcare in the United States.


  Costs associated with healthcare in the US account for a significant piece of the economic pie. A few key facts:  In 2010, the US spent $2.6 trillion on healthcare or an average of $8402 per person; the share of gross domestic product (GDP) devoted to healthcare has increased from 7.2% in 1970 to 17.9% in 2009 and 2010; and healthcare costs per capita have grown on average 2.4 percentage points faster than the GDP since 1970 (1). Despite this spending increase, Americans’ average life expectancy and the efficiency of the US healthcare system are ranked near the bottom of countries with advanced economies (2). These cost increases have a significant effect on individuals, households, and businesses.

The problem is not entirely a healthcare one; it’s a much bigger economic problem. According to a Rand study, increased family contributions to healthcare absorbed almost half of the growth in US before-tax income from 1999 to 2009 (3). Howard Shultz, Starbucks CEO, has been quoted as saying that his company spends more on healthcare than it does on coffee beans.  The problem is clear: healthcare spending is affecting the economy of the US and there must be a solution.

The Patient Protection and Affordable Care Act (PPACA), also known as the Affordable Care Act (ACA) or “Obamacare”, has a number of provisions baked in that propose to address cost and efficiency in healthcare. The ACA, for example, includes demonstration and implementation of new payment and care delivery models for Medicare patients (e.g., accountable care organizations [ACOs]), provisions to better coordinate care for people dually eligible for Medicare and Medicaid, reductions in Medicare payments, and new rules (e.g., disclosure and transparency) and new institutions (i.e., exchanges). Despite these attempts at cost-reduction, healthcare expenditure in the US is still projected to increase faster than national income for the foreseeable future (1).

In the pre-healthcare reform environment, drugs and devices were generally priced at a premium based on modest, incremental improvement in features and benefits (i.e., length of drug action). A fundamental belief within the industry has been that premium pricing equals healthcare innovation. Ultimately in today’s cost constrained world, a premium price without demonstrated economic and clinical value is just a cost driver, and cost drivers are being targeted with increasing intensity by payers, providers, and patients. As risk is shifted from payers to provider systems and consumers (patients), the need to show cost-effectiveness of products becomes a core requirement for market access today and in the future. 


  With the ACA’s endorsement of ACOs, there is a clear emphasis on shifting risk associated with the quality and costs of healthcare to the provider. The focus on the ACO model of coordinated and accountable care is largely based on the belief that rising healthcare costs are, to a large degree, driven by uncoordinated care focused on treating disease rather than on maintaining health. The goals of ACOs are laudable—reduce costs and improve quality of care through coordination among providers. In the current environment, and especially in locations where hospital systems already control significant market share, moving quickly will enable them to lead in creating and controlling ACOs. The result will be that more physicians will likely become employees of systems and have less influence and control over how healthcare is provided.  

Another equally significant trend is healthcare consolidation. There has been a spike in the formation and growth of hospital systems and the employment of physicians. In addition, payers are also becoming more involved by creating partnerships with hospitals.  Data suggests that the percentage of physicians working in practices owned by a hospital or integrated delivery system increased from 24% in 2004 to 49% in 2011 (4). It’s no surprise that consolidation brings greater purchasing power. The consolidation of hospitals into fewer, larger systems increases the leverage of buyers with all suppliers, including pharmaceutical companies. Beyond that, the integration of insurers with delivery organizations potentially increases the power of administrative perspectives in purchasing decisions relative to clinical perspectives. The likely consequence is accelerated pricing pressure. 

With the consolidation of provider organizations and the employment of physicians has come a profound shift in power. Treatment decisions that historically were made at the physician level are being institutionalized, with management’s role growing at the expense of clinicians. Enterprise-level senior executives and hospital administrators increasingly are making decisions about what drugs will be on the formulary, and which will not. Not only have clinicians been forced to share decision making power with management, but administrators are increasingly restricting the access of sales reps to individual physicians. The upside is that biopharmaceutical companies will no longer need as many sales representatives to promote their products. The downside is if they want to educate physicians about the value of their products, manufacturers will need to explore new avenues for doing so.  

Even more important is that influencing decisions like what choices go on the formulary will require an entirely new approach to business development that doesn’t begin to resemble physician detailing. Finally, as healthcare systems continue to develop standardized, evidence-based care paths as a means of controlling clinical quality and costs, biopharmaceutical companies must understand the clinical and economic data these decision makers value and how this information can be communicated to them in an effective manner. In a world of new payment models and changing reimbursement values, demonstrated economic and clinical value is becoming paramount.


  Payers are already demanding data from manufacturers that demonstrates a product’s economic and clinical value in directing reimbursement decisions. Moving forward, hospital administrators with decision-making power will rely on published evidence as well as the experience of their clinical teams to determine a product’s value.  To this end, clinical studies must continue to become more comparative by design, not just to the “gold standard” treatment, but also to non-pharmaceutical comparators and watchful waiting.

 Similarly, while randomized controlled trials (RCTs) are still essential for regulatory approval and market entry, payers and healthcare administrators are becoming more focused on measuring outcomes in the broader population. Biopharmaceutical manufacturers will need to place greater emphasis on post-market surveillance studies and real world data to ensure their product’s claims of effectiveness are being met. If biopharmaceutical manufacturers fail to plan for and conduct this research, be assured that decision-makers will gather the evidence to determine how competitive products at different price points actually compare. Today, true innovation (things that make healthcare better and cheaper) that addresses broader stakeholder requirements is able to command premium pricing, but marginal improvements focused on incremental features and benefits are suffering.

As healthcare consolidation continues, payers and delivery institution management increasingly share the physician’s once exclusive role in treatment decisions. With cost as a significant driver, for example, payers and provider systems already place pressure on physicians to use generics. In fact, this pressure is built into computerized physician order entry (CPOE) systems, making branded drugs an exception requiring additional justification. Clear differentiation in terms of clinical outcomes and economic value will be a primary way for manufacturers to take on this issue. 

Within this context, the concept of bundled pricing is gaining momentum as a reimbursement model designed to address demands for better health outcomes at lower cost. Promising to deliver a standardized set of services for a fixed price with specific quality commitments will create incentives—lacking in the current fee-for-service payment system—for providers to align their efforts to contain underlying costs. Providers adopting bundled pricing must focus on evidence-based care paths that allow them to define the crucial actions, decision points, and products used in treatment. When optimally formulated, such care paths will provide the much-needed link between clinical activities and associated costs. They offer a tool that hospitals can use to gain control of their core production process, using data to collaboratively lower costs and improve outcomes. Being unable to produce a compelling economic and clinical value narrative may set the stage for a product being left out of a provider’s care path, and that will have a significant impact on market access.


  There is still an urgent need to innovate. With the decision maker (stakeholder) set expanding and the criteria for purchasing and defining innovation changing, business model change is required for success. The reality of the new world is that resistance to new products by decision makers is increasing while access and physician influence decline. Healthcare providers (and payers) are focused on the cost and quality of the care they provide and are increasingly risk-averse about new technology and products. Overall, this scenario does not augur well for innovation and, in fact, suggests the need for change in what products are developed and how they are commercialized.

 To be successful in this new environment, biopharmaceutical companies must adopt business strategies that consider the interests of all key stakeholders who can influence medical plan design, treatment, and other related decisions. This includes physicians, patients, payers, and policymakers. Every functional team within an organization, from business development and R&D to market access, pricing and reimbursement, has a role to play in making sure the company is set for success in this evolving environment:
  
  • The business development department will need to broaden the competitive set as they look at potential opportunities. More than ever, they will need to make sure that prospective assets address unmet needs, and offer meaningful differentiation that is sustainable over the product’s lifecycle.
  • R&D will need to determine the requirements for clinical differentiation and build studies to incorporate these data points, based on identification of what’s really important to stakeholders.
  • Sales and marketing departments will have to develop messages, including economic messages, targeted to the specific needs of stakeholders. They’ll also need a broader group of strategic marketing capabilities as they interface in new ways with a broader group of internal and external constituents.
  • Quality and regulatory functions will need to be prepared to meet new hurdles both before products get approved and once they’re in the market. With an increasing emphasis on post-market safety surveillance and real-world evidence, companies must have the appropriate measures put in place to capture this information. 
  • Clinical groups will need to broaden their approach to collecting data and how they look at research design. They’ll need to work closely with health economics, market access, and managed market teams. As observational and non-traditional studies play a more prominent role in defining what the specific comparators should be, companies will need to look at how they use in-market data to influence new study design and provide insights to guide future product development.
  • Market access teams will become increasingly important as they’re called upon to translate the implications of what’s happening in the external environment for their internal partners. They’ll need to take on a more strategic role as they interpret market dynamics and sort out where new thinking needs to be integrated within their current structure.
  • 	Pricing and reimbursement teams will need to clearly demonstrate how they established their price, specifically the comparators used, the data that supports it, and the particular patient population that will benefit from their product.  

Specific strategies that may be used include:
  
  • Develop “service wraps” around products/portfolios that provide more complete solutions across the continuum of care.
  • Create strategic sales teams directed at evolving healthcare delivery models (ACOs, bundled pricing, population health) and payers. Ensure this new sales team is capable of strategic conversations and joint problem solving (versus feature and benefit discussions).
  • Consider developing at-risk payment models with employers and payers based on achieving a certain outcome.
  • Ensure the early development of a strong economic and clinical value message relevant to all stakeholders for all new products. 
  • 	Ensure that the comparative value proposition for a new product is as clear as possible.
  • Consider alternative clinical data sources in addition to RCTs such as post-market longitudinal studies, patient reported outcomes, and other sources of real world evidence. 
  • Generate evidence that delivers the net benefit of biopharmaceuticals in the broadest “real world” context (i.e., clinical, economic, quality of life, and productivity measures) in addition to generating evidence that satisfies the needs of regulatory agencies.
  • 	Invest in targeted therapeutics/personalized medicine based on biomarkers with the goal of drug-diagnostic companions with the ability to demonstrate high value in small subsets of the population. 
  
   

The implications for the industry are clear: incremental innovations will be closely scrutinized. Unless there is clearly demonstrated value, new products are unlikely to command premium pricing. As “generics as standard-of-care” firmly settles in, biopharmaceutical companies will need a higher degree of clinical and economic differentiation to be successful. In today’s market, differentiation is more important than ever. Key stakeholders include payers, large employers, and increasingly, patients who care about health outcomes and affordability. In addition, it’s wise to remember that it’s a much more transparent marketplace. Government agencies are funding cost-effectiveness studies; payers and large providers are investing in health technology assessments and forming alliances to analyze real world data; and most information is available on the Internet.  

This new reality has a number of implications for innovation in biopharma companies, most of which point to the need to produce cost-effective, tangible health improvements. The business reality is that close to 11% of the US healthcare spend is on branded pharmaceuticals (5). However, the perception is that it’s drug prices that are driving healthcare costs. If generics were good before, they are even better now with multiple players in the decision-making process, including patients facing escalating co-pays and deductibles. The incentive is to select a generic over branded unless there is clear and compelling economic and clinical value.  

Despite these challenges, manufacturers must continue to innovate; significant unmet medical needs remain. Changes already taking place in healthcare are resulting in market access challenges for new technologies that, in turn, can be expected to impact innovation investment decisions. The exact magnitude of the impact remains hard to predict. 

The U.S. Health System in Perspective: A Comparison of Twelve Industrialized Nations

 (Commonwealth Fund, July 2011).
    3.	D.I. Auerbach and A.L. Kellermann, 

, 30 (9) (September 2011).
    4.	MGMA 2012 report based on 2011 data. Englewood, CO Medical Group Management Association (2012).
    5. 	R.E. Numerof, 

, is president ofNumerof & Associates, Inc. (NAI).   

The biopharmaceutical industry contemplates product innovation within the changing landscape of healthcare.