An overview of the evolving US cell- and gene-therapy landscape
Post by Rachel Galloway, Senior Consultant
There are over 10 FDA-approved cell and gene therapies (CGTs) approved in the US, and the FDA anticipates that by 2025 they will evaluate between 10-20 new CGTs each year. A key question on many minds is how are US payers going to cover and manage an influx of high-cost CGTs over the coming years?
The US healthcare landscape is arguably the most heterogeneous of all so, unsurprisingly, different payers are approaching and managing the challenges associated with CGTs differently. For example, affordability and long-term efficacy concerns are prompting many payers to write policies that exclude coverage for CGTs. On the other hand, some US payers have already developed new insurance products specifically for CGTs.
Let’s take a deeper look at what some US payers are doing and some of the challenges they face.
The Status Quo
The current pricing and access landscape in the US requires a health insurance plan or employer (“payer”) to cover the full cost of treatment at the time of treatment (minus any patient OOP costs, which will be such a small proportion of the total CGT cost for insured lives that we won’t focus on them in this article). Despite their plan/employer having paid for a high-cost drug with clinical benefits that potentially extend for multiple years, the patient is under no obligation to stay with the same plan/employer so the “payer” may not realise the cost savings of a potentially curative therapy. Unsurprisingly, this can leave some payers reluctant to cover CGTs especially given that 20–30% of people in the US change insurance carrier or plan each year. However, perhaps this problem is not as bad as it sounds; on average for every CGT-treated patient an insurer loses they could gain another. A key factor that will influence future patient movement between healthcare plans will be the protection of pre-existing conditions in coverage requirements and whether a CGT is considered the standard of care (SoC).
In scenarios where payers are willing to cover CGTs, more often than not they are applying restrictions. For instance, a study that analysed 17 US commercial payers found US health plans applied restrictions in about 67% of their CGT coverage policies and some plans were more restrictive than others. Interestingly no plans applied step therapy protocols in their decisions but there was variability in prescriber requirements and patient subgroup restrictions with little detail about the specific rationale for clinical restrictions.
Although CGTs can result in a one-off, high financial burden to payers they can reduce the total cost of treatment if they remove the need for a patient to remain on expensive, ongoing treatment. This may increase payer willingness to cover CGTs, particularly if the current SoC is expensive. Additionally, payers may be more willing to cover CGTs for rare diseases due to their lower prevalence and the fact that rare disease patients tend to move health care plan less frequently (on average every ~7 years).
As an example, imagine the annual cost of treatment for a patient is $250,000 and a CGT launches with a price tag of $1 million. If the CGT can remove the need for the patient to remain on their current treatment, the cost of the CGT is offset after 4 years. Of course, the final costs will be dependent on patient responsiveness to the CGT and the durability of effect, but there is potential for long-term costs to be reduced and savings made.
However, CGTs still pose challenges for payers who seek to provide patient access to innovative treatments while managing healthcare budgets and high levels of clinical uncertainty. Traditional reimbursement models tie payments over time to outcomes only if a patient continues on treatment, whereas CGTs can require a high-cost treatment to be paid up-front, in full, regardless of clinical outcomes. This is prompting many in the US healthcare space to explore new financial models for CGTs.
Potential Funding Solutions
An article in the Actuary Magazine1 outlined nine potential solutions that may address the need for alternate funding mechanisms for CGTs:
Multiyear insurance. The minimum duration of an insurance plan or product is extended over several years to spread the cost of treatment (and risk).
Pooling or carve-outs. Members make consistent payments to an entity to spread the cost of treatment across an entire group to reduce the financial burden. Pools may be established at the CGT, industry, state, or plan level.
Warranty model. A warranty model would involve certain therapeutic benefits (e.g. level of efficacy or durability) being guaranteed to the payer over a specified time period. An agreement between the manufacturer and payer would outline which health care costs should not be incurred by a patient who has responded to CGT treatment. If any of these costs are incurred, the payer is reimbursed by the manufacturer. The Centers for Medicare and Medicaid Services’ (CMS) latest final rule supports certain warranty structures.
Annuity payments. Total treatment costs are paid for over multiple payments spread over a specified time period and may be contingent on the attainment of certain clinical outcomes.
Health currency. Health currency funding arrangements help address payer concerns about beneficiary turnover. When the patient who receives a CGT changes insurers or payers, the initial payer receives a portion of the expected savings to be realized by the treatment from the subsequent payer. The claw-back period depends on the expected therapy value at the time the patient is transferred to the new insurer. These payment responsibilities would apply each time the patient migrates to a new insurer.
Financial bonds. Payers pay for CGTs at the end of treatment effect to address durability concerns. In the meantime, the payer makes interest payments until the agreed treatment end date. Again, contract language must address what happens if a patient dies or moves insurer/employer. A third-party administrator can coordinate interest payments until bond expiration allowing the manufacturer to be paid upfront but how this model could meet Medicaid best price reporting requirements is unclear.
Value-based contracting. An agreed amount of the treatment cost is refunded to the payer if the patient does not demonstrate clinical improvement or response. Patients must be tracked over the long term and contractual language must address what happens when the patient transfers to a new payer or dies. Medicaid “best price” reporting requirements were amended to facilitate risk-sharing agreements between manufacturers and payers.
CGT Centres of Excellence (CoE). Many US healthcare insurers have excellence programmes for patients with complex diseases or management that help patients to receive treatments at top facilities with high performance on clinical experience, quality of outcomes, and economic factors.
Funding administration through third parties. Third parties, such as pharmacy benefit managers (PBMs), can facilitate innovative financial payment models while reducing the administrative burden on the payer. Many smaller US payers are unlikely to have sufficient experience or expertise to negotiate CGT contracts directly with manufacturers and may outsource this role to PBMs.
Reinsurance to the rescue?
While these funding mechanisms may be appropriate solutions for some payers, particularly larger healthcare plans who are able to cover the cost of CGTs, for small healthcare plans or self-insured employers covering the full cost of a CGT in any scenario could feel like a wrecking ball has been sent their way; there’s a real risk of bankruptcy with such a high financial burden to be covered by entities who simply don’t have sufficient funds or cash flow to cover the cost. Typically, these entities look to stop-loss policies or reinsurance plans to cover catastrophic costs in the event that individual or aggregate high-cost claim(s) exceed their budgets.
While reinsurance might sound like a simple solution, payers covering small populations (e.g., regional plans) will be particularly vulnerable to the impact of ultra-high-cost claims. If one occurs, then they may need to raise rates/premiums as a result, which can cause healthy individuals to move plan. Furthermore, some reinsurance plans have exclusionary clauses in their contracts for certain high-cost drugs and services, so plans/employers need to specifically check CGT coverage with their reinsurer.
For Medicare beneficiaries, the government is essentially a reinsurer as it pays for catastrophic coverage for Medicare Part D plans. This is not the case for Medicare Advantage, exposing these plans to a risk of high medical and pharmacy costs unless they obtain reinsurance.
What solutions have US payers been implementing?
1. CGT specific plans
Some health plans, such as Cigna, have already launched separate insurance plans or benefits to cover the cost of CGTs. For example, Cigna’s Embarc Benefit Protection platform will protect employers against high-cost claims. One advantage of this strategy is that it’s tried and tested; many employers in the US already buy separate insurance to cover high-cost medical services such as organ transplants.
2. Pay-for-performance contracts
Many CGT manufacturers are exploring pay-for-performance or value-based contracting. For example, Spark struck a deal with Harvard Pilgrim for Luxturna that included a rebate depending on the therapy’s effectiveness at 30 days, 90 days, and 30 months.
Such contracts can be burdensome to administer but are likely to be key in making CGTs more affordable and carry less risk over the long term. One advantage of the patient monitoring and data collection requirements that come with such contracts is that they produce real-world safety and efficacy data. This could be important for future coverage and pricing re-evaluations since clinical trials are likely to have enrolled a small patient population and there could be a high level of uncertainty around the clinical data at the time of launch.
Another challenge is that these contracts require patients to be followed over a long period of time and both insurers and physicians currently have no authority to do this after a patient moves plan or physician respectively. This may require insurers to develop new contractual riders that permit them to engage with patients and their physician(s) after they move to a new healthcare insurer or employer. This is important if the original insurer/employer is still making payments for the CGT on that patient’s behalf. Also, patients may be required to agree to participate in long-term outcomes data collection as a condition for ongoing payment of their CGT treatment. Digital technology is likely to be key here as it can facilitate ongoing patient engagement and support clinical data reporting.
3. Patient-level DRG negotiations
Drugs administered during inpatient visits are covered under DRGs. However, these currently do not cover the cost of new CGTs. To date, many hospitals treating children with leukaemia have negotiated Kymriah reimbursement with payers on a per-patient basis to avoid making huge losses. While this has been burdensome but possible for paediatric patients totaling somewhere in the hundreds, it won’t be a pragmatic solution for CGTs indicated for broader populations.
Some plans are carving-out CGT coverage (i.e., they are separating it from their plan, most likely with the aim to reduce costs). Carved-out services are often contracted to another payer, usually at a set fee per member per month. However, in the case of CGTs, it could be the case that payers ultimately pay a premium to shift the risk to others.
Government payers will have a key role in defining the future landscape
CMS will play a pivotal role in defining the future CGT landscape as both Medicare and Medicaid will be key payers:
Medicare: many diseases for which CGTs are being developed can cause a patient to experience disability and consequently qualify for Medicare coverage
Medicaid: many CGTs in development will be indicated for paediatric populations and Medicaid currently covers approximately 50% of children in the US. Since many genetic disorders manifest in childhood and involve an accumulation of irreversible damage, there will be pressure to provide access to ensure treatment can be started as early as possible.
Exactly how CMS will drive change in this space remains to be seen, but policy change is already happening:
Final rule amendments on the best price reporting requirements will facilitate value-based contracting. Manufacturers need no longer fear that a single non-responding patient would trigger a 100% rebate and set the official best price across all of Medicaid to zero because the proposed rule will allow multiple price points within one NDC-11 in a single rebate period.
The Senate Finance Committee drug bill (Grassley/Wyden), if passed, will permit Medicaid plans to amortise the cost of CGTs over time facilitating annuity payments. Currently, these aren’t possible due to States’ obligations to deliver balanced budgets.
It looks unlikely that a national committee would be established to directly control or have oversight on CGT pricing. For now, the latest Build Back Better Act (HR 5376) proposals look set to only allow HHS to directly negotiate prescription drug prices under certain Medicare categories (specifically drugs that are outside their initial exclusivity periods).
There’s no one size fits all solution
With over 700 CGTs in development for almost 200 different indications, combined with the different payer types in the US healthcare market, it’s clear that multiple solutions will need to be designed, piloted, and developed to address the CGT risk and cost impact to payers, providers, and patients.
While countries like Italy have embraced and pioneered innovative contracting models, the heterogeneity within and across the US healthcare market makes this incredibly challenging. US payers face challenges ranging from actuarial management to contractual difficulties monitoring outcome measures in the long term.
What is clear, is that this will be one of the most interesting spaces to monitor over the next decade.
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