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A ‘Netflix’ Model for Drug Pricing to Bring Treatments to More People

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Copyright © DrugPatentWatch. Originally published at A ‘Netflix’ Model for Drug Pricing to Bring Treatments to More People

According to the Louisiana Department of Health, an estimated 500 people per year are infected with hepatitis C (HCV) in Louisiana. By 2016, the number of identified HCV cases in that state was around 5,700. Additionally, there are an unknown number of undiagnosed HCV cases. 

Drugs for HCV are expensive, yet treating the disease on a population level makes the most sense.

Effective drug treatments for HCV have been available for five years or so, but these drugs are costly. At the same time, Louisiana’s Medicaid and prison treatment programs have tight budgets, so only a fraction of the people with HCV infection currently receive treatment.

Under the current per-prescription drug pricing model, Medicaid programs and prison medical systems limit access to expensive drugs like those for HCV. With this drug pricing model, the only alternatives for states with significant need for these medications are raising taxes or reallocating discretionary funds, neither of which have support. 

Louisiana Proposes Subscription Payment Model Similar to Netflix

The optimal method for treating HCV is at a population level, and as quickly as possible – a method that is at odds with current drug pricing models. Yet treating HCV at the population level would generate the most future savings due to improved health and decreased person-to-person transmission of HCV.

Therefore, Louisiana is exploring an alternative payment model, which has been compared to the Netflix model of unlimited video streaming for a flat rate. Under such a subscription-based payment program, a provider of HCV drugs would deliver HCV treatment for Louisiana residents for a flat fee. There are three components to this type of drug pricing model:

  1. Creation of a purchasing coalition among all Louisiana payers to provide scale, streamline HCV elimination efforts, and maximize recapture of long-term cost savings due to avoidable future medical costs 
  2. Provision by the drug provider of medications as well as patient and provider outreach efforts to maximize treatment rates, with milestone payments upon achieving pre-defined public health targets
  3. Determination of the subscription price based on a bid process. Potential competing drug manufacturers for HCV treatments include Gilead Pharmaceuticals, AbbVie, and Merck & Co.

Why Would Drug Manufacturers Want to Participate?

Long-term financial gains and bolstered public relations are two reasons drug manufacturers may consider participating in new drug pricing models like the one proposed in Louisiana.

So why wouldn’t a drug manufacturer simply wait it out and charge the maximum price for each Louisiana resident undergoing treatment? For one thing, the bidding process could lead to one of their competitors taking Louisiana’s entire market from them. For another, there’s a strong public relations benefit to helping a state achieve important public health gains. 

Other factors that affect profitability could also change under the “Netflix” model, such as savings from lower marketing, reimbursement, and sales activities. And though production costs would increase with anticipated increased treatment rates, marginal production costs for small molecule drugs like those used to treat HCV are relatively low.

Potential Regulatory Hurdles for New Payment Model

Could such a subscription-based drug pricing program be interpreted as a new Medicaid Best Price? Would granting preference to one drug manufacturer violate Medicaid Drug Rebate Program rules (which require coverage of all manufacturers’ products)? The answers are not yet known, but the potential benefits to public health, payers, and drug manufacturers over the long term make it worthwhile for stakeholders to work together to find out and, if necessary, overcome regulatory hurdles. 

The next step for the state of Louisiana is to flesh out the subscription drug pricing model in detail by working with the Centers for Medicaid and Medicare Services (CMS). Among potential providers, Gilead has shown interest in this drug pricing model, having voiced their support for its cost-effectiveness to Medicaid, Medicare, and other insurers. 

A Gilead spokesperson told FiercePharma that the model represents an “opportunity to increase access [to drugs] for patients that need them.” As more individual states tackle drug pricing issues after years of gridlock in Washington, DC, new pricing models like the one proposed in Louisiana offer hope for making high-cost treatments for devastating diseases like HCV more widely available.

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Copyright © DrugPatentWatch. Originally published at A ‘Netflix’ Model for Drug Pricing to Bring Treatments to More People
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