Out of Reach?

Orphan drugs present a particularly painful cost issue for employers and health insurers.

The drugs—which treat diseases afflicting, at a time, fewer than 200,000 Americans—are extraordinarily expensive. And though most insurers cover such treatments, experts say the current payment system is unsustainable.

Orphan drug therapies are often bought in a hyper-condensed time period and administered the same way—sometimes in just one dose. This can skew cost sharing for the patient or plan, as there is either a large upfront or short-term payment by the patient and/or plan to protect the insurer from patient out-migration from coverage (and premiums) soon after receiving the costly drug. Some insurers also impose substantial restrictions on overall coverage, including mandated step therapy, prescriber qualifications, requirements for combination therapies, and eligibility based on disease severity or other clinical criteria.

In response, some carriers, pharmacy folks and other healthcare stakeholders are working on innovative payment and care coordination models that seek to lessen these costs and bring better care to those suffering from rare diseases.

Smaller Payers Most Challenged

A 2019 study by America’s Health Insurance Plans found the average annual cost for orphan drugs is 25 times higher than for traditional drugs. Moreover, reimbursement varies widely based on the drug, the insurer, the plan and the use of the drug—whether for a rare disease or for a more common condition it also remedies, according to a study published last October in The American Journal of Managed Care.

The Focus consortium (Financing and Reimbursement of Cures in the US), a project of MIT’s New Drug Development Paradigms Initiative (or Newdigs), identifies three essential financial challenges for insuring orphan drugs, especially those with very short-term delivery modes:

1. Payment timing: the transformation from chronic drug payments over a long time frame to a larger, single-period payment
2. Performance uncertainty: regarding the efficacy level and durability of the therapeutic benefit
3. Actuarial uncertainty: concerning the unpredictable number of patients to receive the treatment.

Those challenges affect all players, but Matt Smith, executive vice president at Risk Strategies, notes they potentially have an outsized impact on smaller payers, including small and regional insurers and self-insured enterprises.

“We are looking at what the drivers are of high-severity, low-frequency claims,” Smith says. “The drugs have the potential to do something good for the member. So there’s this great personal need, but we have to look at the financial impact. The smaller the payer is, the greater the impact.”

Debbie Hoffer, a registered nurse and a vice president and managed care consultant at Summit Reinsurance Services in Fort Wayne, Indiana, echoes those sentiments. “Smaller employers have a greater challenge in paying for orphan drugs or any high-cost therapy, as they have less of a pool to spread the risk and specific deductibles are generally lower,” Hoffer says. “Reinsurance and stop-loss coverage is for the unknown. High-cost cases known at the time of disclosure are often lasered”—assigned a high, specific deductible—”thus reducing the risk protection for the payer.”

ORBMs: A Multi-Pronged Response

The cost of orphan drugs has gotten the attention of many stakeholders across the healthcare industry, who are exploring multiple approaches to contain costs. One model introduced by MIT’s Newdigs program is a health management entity called an orphan reinsurance and benefits manager. ORBMs would contract with drug companies and other treatment manufacturers, adjudicate and pay claims, and coordinate patient care. Employers working with ORBMs would pay an agreed-upon fee to the ORBM for every plan member to guarantee an employee’s access to treatment if needed. The fee would be negotiated between the employer and ORBM based on the number of cases the ORBM expects to see. People with these rare diseases would be pooled out of the primary payer’s plan into a group whose care for that disease would be expertly handled and paid for by the ORBM. The ORBM might be backed by an insurer or some consortium of capital investors in addition to the participation fees it receives.

“Some gene therapies, like long-term treatments such as RNA interference drugs that are administered quarterly or so, are not part of the ORBM model,” says Mark Trusheim, strategic director of MIT’s Newdigs. “We are looking at more of the one-and-done therapies. They have outrageously high price tags because you pay for the dose in one shot instead of over a longer period of administration. These have particularly unique financial challenges.”

Trusheim points to the bad fit of these therapies for traditional annual insurance and reinsurance contracts, which are priced to pay for drugs with lengthier treatment durations.

“An ORBM would have a longer-term contract with a fairly consistent premium,” he says about the so-far mostly theoretical model. That ORBM agreement could be added to a traditional health plan contract, depending on the current carrier’s offerings, or secured as a stand-alone product from another entity. The ORBM expects it would take on the full medical cost of the therapy, including follow-ups, but limited to the rare-disease treatment.

In the end, Trusheim says, “It would all depend on the contract.”

The model itself is a mixture of multiple pieces of healthcare payment and service. “We’re talking about changing the nature of insurance and the model that already exists,” says Casey Quinn, a research advisor with MIT’s Focus project. “It was realized that here is the potential for an intermediate organization that might pick up different roles and responsibilities, only one of which is reinsurance.”

Those roles, Quinn says, “include everything from carving out and pooling risk to contracting and handling payment. It could also handle the collection of data. Other aspects are not like reinsurance at all but are involved with care coordination and disease management.”

MIT originally envisioned that ORBMs would emerge from three sources: traditional, large, health insurers; pharmacy benefit managers; and stop-loss or reinsurance companies.

“We’ve already been proven wrong on part of that: the insurers bought all of the PBMs,” Trusheim jokes.

It would take substantial financial wherewithal to fund an ORBM, so the model in its pure form would likely need scale and industry expertise already built in. The ORBMs already in development have sprouted from large health insurance conglomerates, which believe that the set fee per plan member will, over time, adequately finance the coverage.

“We know of a few venture-capital and private-equity backed ORBM groups getting going as well,” Trusheim says. All of those are on the down low, so he wouldn’t reveal specific names or plans.

“I think what MIT is suggesting is very interesting,” Smith says. “It still seems pretty theoretical, but in theory the model offers savings. It could be complementary to traditional reinsurance, carving out some of the cost, then making the remaining risk pool more predictable. It sounds like it would limit the high exposure to tail-end risk. It also could be an opportunity for an insurer or reinsurer to develop something similar—a carve-out, a pooling mechanism. States used to offer these kind of carve-outs: ‘We will take these high-dollar cases because we think it’s better for the state to take this societal risk.’”

Greg Demars, president of brokerage Summit Re, says he can envision reinsurers stepping up with their own solutions. “The risk of incurring one of these drugs is very small, by definition of orphan drugs, but is very financially impactful when it occurs. The ability to pool this risk across large blocks of members is the way to make this risk manageable to smaller risk takers. This can be done through avenues like what MIT has proposed or through independent reinsurers offering protection to segments of the market. Reinsurers themselves may pool some of that risk with other reinsurers in a way of protecting themselves, as well, in offering this protection. They will also likely put together best practice support tools for clients to manage this risk as efficiently as possible, either through internally developed technical support or partnering with outside vendors that specialize in these exposures.”

For its part, Cigna last fall pulled together its resources to develop an ORBM focused on gene therapies. The company said the initiative, branded “Embarc Benefit Protection,” brings together the health services, medical benefit management and specialty pharmacy expertise of pharmacy benefit manager Express Scripts (which Cigna purchased in 2018), specialty medical benefits management company eviCore, specialty pharmacy Accredo and CuraScriptSD, a distributor of specialty products.

Under Embarc, an employer health plan would pay per member, per month to belong to a gene therapy network. Physicians would submit a prior authorization for treatment. Patients would receive drugs with no out-of-pocket expense for them, though there may be a co-pay for the service provider, and the patient will receive “personalized and expert care to assist them” through treatment, the product literature says. Pharmacies and sites of care would be paid for the medications through Embarc. And Cigna’s subsidiary units will support Embarc in providing related services to health insurers, HMOs, third-party administrators, pharmacy benefit managers, employers and other organizations sponsoring self-funded group health plans.

“Other companies have stop-loss reinsurance products, but in general they don’t always include these high-priced drugs,” says Jennifer Luddy, director of media relations for Cigna. “That’s why we decided to create Embarc. We’re protecting not only the payer but also the patient.”

Embarc Benefit Protection is set to initially offer reimbursement for two gene therapies: Luxturna, which treats inherited retinal disease, and Zolgensma, which treats spinal muscular atrophy in babies.

The program is “finalizing details and bringing Embarc to plans’ attention,” Luddy says. “We’ve been in conversations with plans, and they’re making decisions about their interest in enrollment.”

Embarc expects to begin operations in 2020. Cigna aims to charge less than one dollar per employer plan member per month to cover the two gene therapies, although the price could go up later if the company decides to expand coverage to other treatments. In terms of a commitment to the consumer, Luddy says, Cigna will not raise rates for clients of the Embarc program even if they have multiple claims.

“They could pay and not have any claims, or they could have several,” she says. “They’re protected, even if they have multiple lightning strikes. That’s the beauty of the program, to protect the client. Smaller plans would benefit tremendously. We’re making this available to clients of Cigna and Express Scripts but also to plans that don’t currently have a relationship with them. It’s available to every plan, no matter their size.”

Regarding pre-existing conditions, Luddy says, “If they know they have a patient who needs Luxturna, they can still enroll.” For Zolgensma, however, coverage will be for cases that arise after enrollment. “There really is no pretest for the drug,” Luddy says. “Beneficiaries don’t know they need it until their child is born, and you have to administer the drug in the first three months.

“When patients in Embarc need one of the therapies, they’re able to get the therapy without any co-pay. They may have cost for the administration, but they won’t pay anything out of pocket for the drug. That’s how it’s different from reinsurance.”

CVS is another insurer developing a pooled-risk mechanism for employers that choose not to purchase a traditional stop-loss policy. It is focused on gene therapies and spreads the actuarial risk across a pool of enrolled members. Theoretically, it will minimize the risk of insolvency for relatively small employers arising from treatment for a single member needing ultra-high-cost therapy. “If adopted broadly by a large number of clients, it would have a predictable, reasonable fixed cost, making it possible for payers to continue offering coverage for gene therapies while ensuring the financial viability of their benefit plan,” CVS says.

“We’re in discussion with our employer clients regarding this product and are running analyses on a case-by-case basis,” says Christina Beckerman, CVS Health’s director for corporate communications. “For clients who choose to opt in, the product will be implemented on Jan. 1, 2021.”

CVS’s pooled-risk model would be complemented by an expansion of Aetna’s National Medical Excellence (NME) Program so that it includes gene therapies and other complex medical treatments for rare diseases. Aetna’s NME Program is a centers-of-excellence framework, in which provider institutions are vetted by Aetna for their experience, quality of care, and “mutually acceptable reimbursement” for treatments, CVS Health Payor Solutions says. The program also offers dedicated medical directors with expertise in complex case management, transplantation, and genetic disorders to work with these patients and their doctors.

Value-Based Pharma Deals

ORBMs are not the only effort at controlling prices for rare-disease therapies. One type of deal increasingly being used between insurers and drug manufacturers is outcomes-based (or value-based) reimbursement, in which an insurer pays one price up front for a relatively unproven drug but receives a rebate if it is less effective than expected.

Some payer agreements with manufacturers include a pay-over-time option that flattens spikes in claims outlays for orphan drugs.

AveXis, the manufacturer of Zolgensma, has adopted this strategy in part. “AveXis partnered with a third party to offer a pay-over-time option of up to five years to help ease possible short-term budget constraints, especially for states, small payers and self-insured employers,” says a company spokesperson. “We have had numerous payers inquire about this option, and nearly every commercial and Medicaid contract currently in place includes pay-over-time as an option.”

Citing the company’s belief in the long-term value of the drug, the spokesperson says AveXis is building outcomes-based agreements into nearly all of its commercial and Medicaid contracts.

Value-based payment arrangements have the additional benefit of generating efficacy data that could be used for evaluation of products and outcomes where clinical patient trials are difficult or impossible due to the rarity of the conditions treated. Typically, patients falling under value-based reimbursement agreements are followed over years, and that requires patient-provider-payer engagement for the duration. If a patient switches insurers, how will the financial and contractual mechanism for monitoring be executed? CVS has suggested some kind of rider to insurance policies that gives insurers the right to continue a relationship with the patient, which would likely include some kind of ongoing payment by what could be a former employer. Patients would also need to explicitly agree to allow the use of their data.

For value-based payment contracts to succeed widely in gene therapy and orphan drug treatments, Medicaid’s best-price rule needs to be tweaked. The rule requires manufacturers to charge Medicaid the lowest marketed price for a drug. If an orphan drug covered under a value-based contract failed to deliver even once and was, therefore, subject to substantial discount, the price the producer could charge for all Medicaid patients would be undercut simply because the therapy failed in a single case. That could deter use of value-based contracts or raise prices to cover the potential losses.

Legislative Fix? Likely Not.

As far as legislating or regulating lower drug prices, the story is a mixed bag. Efforts by the U.S. Department of Health and Human Services to bring price transparency into drug advertising and hospital pricing have been derailed, at least momentarily, with lawsuits. And HR 3, the 2019-2020 bill designed to legally suppress prices, sits in limbo in the Senate. At an estimated cost to taxpayers of $40.3 billion through 2029, the bill would set pricing caps for some drugs under Medicare and Medicaid and allow federal agencies to negotiate drug pricing with manufacturers. Its effects on the commercial side of pharmaceutical prices, as currently written, rely on voluntary compliance by manufacturers and distributors.

That said, the bill, S 2543—Prescription Drug Pricing Reduction Act of 2019—received a positive report from the Senate Committee on Finance. It would amend the Social Security Act to permit states to enter value-based agreements with drug manufacturers beginning Jan. 1, 2022, even for gene therapy and other ultra-rare treatments, under their Medicaid contracts. The bill states, “The manufacturer of a covered outpatient drug approved under Section 505 of the Federal Food, Drug, and Cosmetic Act or licensed under Section 351 of the Public Health Service Act would be required to notify the HHS Secretary that the manufacturer is interested in entering into [a value-based] agreement not more than 90 days after meeting with the FDA following the phase II clinical trials for such drug.”

The bill makes no mention of changing the best-price rule to protect manufacturers from bottomed-out prices due to a single failure of treatment. It had received no further action as of press time.

A related bill, HR 5882—GENE Therapy Payment Act—was introduced in the House in February and currently sits in the House Committee on Energy and Commerce.

So while cost containment is on everyone’s radars, it doesn’t look like the states or feds are going to provide the answer, at least not soon. Full cost-shifting for employers—something like a nationwide or state-sponsored pool for those with ultra-rare diseases—also doesn’t have much traction at this point. That leaves the insurance industry as the most likely source of a solution.

“The ORBM model is about managing costs in a way that’s fair and sustainable and about taking the risk out of it to provide a fair and consistent price,” Trusheim says. “Depending on what the marketplace allows, brokers will have to play a sophisticated role in negotiating agreements. For example, you wouldn’t want to have a client with both stop-loss and an ORBM. Who’s paying for what? Your client could end up double paying or having carve-outs that eliminate coverage where it’s most needed.”

As the variety of solutions are developed and come to market, Trusheim says, “It’s all on the broker.”