Pay-for-Performance Model Being Applied To Drug Makers In Europe, U.S.

Main Category: Pharma Industry / Biotech Industry
Article Date: 15 Oct 2007 - 0:00 PDT

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Prescription drug makers are creating pay-for-performance contracts with European state-run health care systems in an effort to "overcome" the systems' "increasing stinginess about paying for new drugs," the Wall Street Journal reports. According to the Journal, a rapid increase in drug prices over the past decade has increased the demand on drug companies to be held accountable for the claims they make.

In Europe, some government-run health systems have established strict criteria for including drugs on their formularies, including reviews of cost effectiveness. If a health system decides not to pay for a treatment, the drug can effectively be locked out of the market. The Journal reports, "That frugality has led to flat or declining sales in Europe for many drug companies." Drug companies are offering such pay-for-performance deals rather than lowering drug prices "in part because they are fearful of setting precedents that would cause insurance payers worldwide to demand price cuts," according to the Journal.

For example, British officials last year declined to pay for the Johnson & Johnson blood cancer drug Velcade because it was not determined to be cost effective. In response, J&J offered to reimburse the country's national health service for treatments that were ineffective with cash or replacement doses. The deal is expected to begin later this month. France also has developed a pay-for-performance agreement with J&J and the country's health care service said it has discussed such an agreement with GlaxoSmithKline.

However, such agreements have raised questions about how to determine whether a drug is ineffective in a patient and merits reimbursement. In the U.S., Cigna and Aetna are pursuing pay-for-performance programs with drug makers.

Ed Pezalla, national medical director for Aetna Pharmacy Management, said, "I think there is definitely potential for (pay for performance) in the U.S. as pharmaceutical companies recognize they may want to take some responsibility for the claims they make on their medications."

However, the Journal reports that it would be difficult to change U.S. pricing policies because many drug companies already offer discounts and rebates based on sales volume. Thom Stambaugh, chief pharmacy officer for Cigna, said the company has been asking cholesterol drug manufacturers to reimburse the insurer if a patient taking the drugs correctly still has a heart attack. No drug maker has agreed to such a proposal. Stambaugh said, "We want them to put their money where their mouth is" (Whalen, Wall Street Journal, 10/11).

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