BioNJ white paper illustrates imbalance of costs for smaller, innovative companies

As conversations around how to reduce health care costs, and specifically drug costs, continue around the country, a new white paper produced by BioNJ highlights the imbalance of cost borne by smaller, innovative companies and analyzes the ongoing siloed approach to health care in the drug, care and insurance industries.

The paper, released Wednesday at the annual BIO convention in Philadelphia, was authored by Shailja Dixit, founder and president of ApexBio, and Robert Goldberg, founder and vice president of the Center for Medicine in the Public Interest.

They said the current imbalance is based on a “one size fits all” approach of paying for drugs, which is increasingly being replaced by more targeted approaches to medicine.

As more drugs are developed for smaller volumes of patients — rather than pursuing high-volume, blockbuster drugs — the insurance industry will have to shift its assessment of a drug’s effectiveness.

“(In the) current benefit design, higher cost-sharing levels and step therapy do not reflect the variations in clinical conditions and patient response,” they said in the paper.

“Such policies may increase spending on low-value care and discourage and reduce the use of more innovative and effective medicines. In addition, there is a lot of waste in the system, since innovator companies must pay at least 15-20 percent of the price of a product directly to wholesalers, specialty pharmacies and other intermediaries; as well as subsidize the out-of-pocket costs of many consumers while maintaining programs to negotiate with Pharmacy Benefits Managers (PBMs) and insurance companies to allow and approve the use of new medicines.

“Even if rebates and prior authorization are eliminated altogether, innovator companies will still struggle to differentiate their products and demonstrate effectiveness due to lack of data and the right analytical framework.”

In the past few years, the idea of removing PBMs from the equation, as well as changing insurance or eliminating it have all been proposed as ideas at the federal level.

The changing method of reimbursement, which relies on patients staying well after a visit to a health care facility, is placing even more pressure on the system, according to the paper.

“Biotechnology and pharmaceutical companies, including those developing medicines for rare diseases, can no longer depend on insurers covering their products without conditions,” the authors said.

“Increasingly, patient access to new medicines will be limited through step therapy, prior authorization, quantity limits, non-therapeutic drug switching and cost sharing.”

In order to help be part of this new approach, smaller drug companies can do their part.

“To be successful under the current reimbursement model, innovators must begin to evaluate the relative value of their new innovation early in the drug development process,” the authors said.

“In particular, they must invest more time and effort into demonstrating that their treatments improve health compared to existing treatments and tailor the delivery and price of products to allow patients, physicians and health systems to capture the full value of these innovations. Such an approach can help bring much needed innovation to patients and contribute to the sustainability of individual innovator companies.”

The authors suggest a four-pronged approach that puts emphasis on real-world data and information interacting with clinical environments.

The four steps include:

  • Demonstrate differential value;
  • Engage stakeholders;
  • Adopt a “Beyond the Pill” approach; and
  • Utilize real-world data.

In looking at real-world data, the authors suggest including things like social media and relying on increased consumerism and technology in health care and leveraging that in product development and marketing. The Beyond the Pill approach also similarly focuses on new technology, incorporating wearables and apps into overall health care for a patient.

The paper also focuses on forging atypical relationships to improve health care and lower the cost of providing it.

Larger pharmaceutical companies have already been seen partnering on drugs or acquiring smaller companies who develop innovative new drugs.

The authors suggest smaller companies pursue different relationships that can help lower the cost of their products.

“Innovators will have to forge new relationships with third parties that measurably add value or share the risk of value-based arrangements. Innovators should shift the money — currently distributed to companies that are part of the supply chain, such as PBMs — to reduce a patient’s out-of-pocket costs and improving their well-being,” they said.

“Instead of step therapy or prior authorization, innovator companies will be able to combine lower net pricing with performance guarantees to market precision or orphan products directly to physicians and patients. This approach can help innovator companies provide better access to their medicines at optimal pricing by reinvesting money previously used to pay for rebates and patient assistance programs to support Beyond the Pill strategies.”

This is an important approach for pharmaceutical companies in New Jersey, since the current administration has placed a heavy focus on startups and innovation.

In addition, New Jersey continues to lead in Food & Drug Administration drug approvals, according to BioNJ CEO and President Debbie Hart.

“With nearly 3,300 life sciences establishments, including 12 of the world’s largest biopharmaceutical companies, having a headquarters or significant presence in the Garden State, New Jersey’s life sciences ecosystem was responsible for more than 40% of all new novel FDA drug approvals over the last two years — more than anyplace else in the world,” she said.

To read the white paper, click here.