Trying To Make Biotech Attractive to Payers

A Conversation with Jayson Slotnik, MPH, JD

This biologics industry spokesman knows that health plans can only be won over by the financial argument.

In 2003 for the first time, biologics accounted for a majority of FDA approvals. Biotech’s focus is expanding from products that treat relatively rare diseases to treatments for conditions that affect much larger populations, including various cancers, diabetes, rheumatoid arthritis, and asthma. Payers are developing strategies for covering new treatments that often carry price tags in the tens of thousands of dollars per patient. Some plans are creating a new tier of copayment for biologics or attempting to cover high-cost specialty injectables as part of the pharmacy, rather than medical, benefit.

BIO, the Biotechnology Industry Organization, is in the thick of the ongoing debate about how to pay for new biotech products and how to ensure that the widest possible population has access to them. BIO boasts that its 1,000 members, which include academic institutions and scientific entrepreneurs as well as manufacturers, have already brought more than 200 new biotech drugs and vaccines to market that have helped over 325 million people worldwide. More than 300 biotech drugs are in clinical development. While Medicare rolls out the new Part D prescription drug benefit, changes are also in the offing for Part B.

Representing biotech’s interests in this changing payment landscape is Jayson Slotnik, a lawyer who holds a master’s degree in public health. As BIO’s director of Medicare reimbursement and economic policy and chairman of the group’s Health Care Reform and Reimbursement Committee, he focuses on federal legislative and regulatory proposals regarding existing and future drug coverage, as well as reimbursement within Medicare. Slotnik spoke recently with Senior Contributing Editor Patrick Mullen.

MC: Health plans look at biologics and see a possibly open-ended new cost area, the benefits of which are not yet proven. How do you win them over?

SLOTNIK: The fact that they’re not talking about it may not necessarily mean that they’re not doing anything about biologics. An article in the Pink Sheet last month talked about WellPoint’s decision to have outside experts evaluate the potential functional equivalence of biologics in four therapeutic classes: rheumatoid arthritis, growth hormone, hepatitis C, and multiple sclerosis. Those experts found that the science supports a finding of functional equivalence in all but MS, which remains under review. The point is that this is a prime example of a very recent, very controversial policy drifting from Medicare into the private sector. This is one example of how the private sector may wind up dealing with expensive biologic products by trying to create competition and using nontraditional clinical tools to manage costs.

MC: Will plans create a separate payment tier for high-cost biotech drugs?

SLOTNIK: We absolutely could see private plans create a specialty tier for biological products that increases cost sharing. We might also see tighter step therapy and prior authorization programs to limit or hamper access to covered biological products. I don’t think that Part D will impact Part B in terms of cost sharing. Obviously, we believe that patients should have access to our products.

MC: What categories of biotech drugs will have the earliest impact on patient care for large numbers of patients?

SLOTNIK: The two areas where I think we’ll see major changes in the near future are diabetes and cancer, due to the simple fact that those two diseases have a huge financial impact. In the case of diabetes, inhaled insulin is ready to come onto the market. There will also be all sorts of different ways to administer insulin in general, different monitoring mechanisms of patient’s insulin. There is the possibility of all kinds of treatments to possibly prevent diabetes. There’s a lot of money going into diabetes because of the enormous prevalence, incidence, and downstream costs of the disease. From our perspective, there is very little price sensitivity in purchasing a product if the clinical evidence is there because of the tremendous savings downstream. You don’t need to be a rocket scientist to figure out that money is going to be invested in a product because that product will produce a good return on investment.

MC: Where does the effort to develop biologics to treat various cancers stand?

SLOTNIK: Our understanding of cancer is taking an interesting and fortunate turn. Cancer is becoming a chronic disease as opposed to a death sentence. Historically, a patient who got cancer died. Patients are now living longer with the disease or are being cured. That means that there is a market for cancer treatments that didn’t previously exist. As the science gets better, as biomarkers are identified and as the causes of cancer at the molecular level are better understood, we drift into the area of personalized medicine. Once you get into personalized medicine, the market size of a potential patient population for a given treatment shrinks. I can make an argument that at some point, if the science goes the right way, all cancers will be orphan cancers. Once it’s possible to determine that a given cancer is specifically caused by a mutation in this gene or in this protein, there may only be 200,000 people who have it. Given our understanding today, our most precise diagnosis may be breast cancer, which obviously is not an orphan disease. Ten years from now, that same patient may have breast cancer in general, but also be identified as a subset of a subset of a subset that has a particular defect in one protein. We may be able to get that specific. BIO’s position is that we support the doctor/patient relationship. We believe that each patient is different and that each patient has a unique set of characteristics that may require a different treatment. Obviously, we urge physicians to understand that, to take time to search the literature for clinical trials and patient assistance programs that we may have. Due to the unique nature of our products, they may discover unique opportunities to treat a patient when everything else has failed.

MC: Before we talk about the implications of Medicare Part D, is there anything to the talk that Congress could delay implementing the new prescription drug benefit by a year because of the cost of Hurricane Katrina and the size of the federal budget deficit?

SLOTNIK: I have heard that talk, and it’s absolutely not going to happen. Take your pick of transportation metaphors: the boat has left the dock; the train has left the station.

MC: As Medicare Part D approaches, what part is the biotechnology industry playing in its roll-out?

SLOTNIK: First, BIO fully supported the Medicare Modernization Act and the voluntary prescription drug benefit. We’re going to do whatever we possibly can to make sure that implementation is successful, and we’re helping the administration with the publicity around the benefit. We are a member of the Rx Education Network, an effort to provide information and assistance with outreach and enrollment for the new Medicare Part D prescription drug benefit to Medicare beneficiaries chaired by former Sen. John Breaux. We’re promoting the benefit in some of our publications, on the Web, and we talk about it regularly at our public meetings. Every opportunity we can, we mention that this benefit is going live January 1 and people can start enrolling November 15. Of course, each individual BIO member company has its own individual strategy, which it doesn’t run by us. I know that a lot of the bigger ones are doing a lot either individually or through PhRMA to promote the benefit and help make sure that implementation goes well.

MC: What impact will Medicare Part D have on Part B?

SLOTNIK: There are a lot of ways that Part D will affect patient access to drugs. Part D has a formulary structure, and formulary placement decisions are supposed to be based to some extent upon clinical evidence and other factors, including financial arrangements. We may start seeing tools that are used on the clinical side for formulary placement in Part D also used on Part B. The tools are very general in terms of measuring outcomes and using clinical evidence to define effective treatment.

MC: And they’re general because more specific tools are not yet available?

SLOTNIK: To some extent it’s different because Part D covers pills, and there’s more competition in the pill space for treatment. Biotech products are most of the time the only therapy available, so comparison tools are not necessarily there yet. Instead, questions about biologicals will tend to be more along the lines of whether someone wants to spend $50,000 for two months of extended life. While those conversations are already occurring, making those choices is not a role I think the government wants. The questions are being asked and the way to answer them is to look at clinical effectiveness. What sources of literature do you look at, and what role does the manufacturer have?

MC: This gets us back to the question of how biotech companies can persuade private payers of the value of products that are so expensive. Can a clinical argument win the day or does it have to be a financial argument?

SLOTNIK: Number one is the financial argument. From a Medicare perspective — and this is a little nutty but I think it works — if you reduce hospitalization costs, you’re saving money right there. On the private-pay side, if you make the patient more productive, you generate more tax revenue and put more money back into the system. That helps. There often is a quality-of-life argument and, depending on the product, a compliance argument, and a convenience argument.

MC: Although, don’t injectable biotech products lose the convenience argument?

SLOTNIK: Not necessarily. Take for example a product that is a self-injectable and is administered once a month. Compliance may go up in that situation, if the alternative is going to a clinic and getting an infusion. Even if a product is infused, if infusion is once a month versus once a week, compliance could go up, because getting patients in once a month is often easier than getting them in once a week.

MC: How effective can the FDA be given the turnover in its leadership?

SLOTNIK: It would be great if they had a permanent leader and could move on with a vision and implement it. Right now they can’t, so what’s going on over there is not a good thing. Clearly, [Acting Commissioner] Andrew von Eschenbach is qualified to run the FDA. He’s a cancer doc, he knows the regulatory aspects, understands politics, and how to run an agency. Should he be running both FDA and the National Cancer Institute? I don’t know. Does the fact that he’s doing both jobs look bad? Yes, though I doubt it will have much impact on the day-to-day FDA drug approval process. It does impact broader policy issues for the FDA, in that it slows the process down. So turnover at the FDA is not good. We’ll just have to see what happens.

MC: What are BIO’s priorities in working with private payers?

SLOTNIK: We want to work closely with private payers on what they’ll do with all the data they collect, either for their own decision making or by sharing information with CMS. How are they using data to do things like improve cost-effectiveness and develop quality guidelines? To date, it’s all over the place. Oxford Health Plans has a very robust program. CMS is reaching out to plans and trying to create some sort of large data network to better understand outcomes. We want to be part of that conversation and the decisions that flow from it. Our manufacturers live on data, especially outcomes data. It drives the entire market and we believe we have tremendous nonbiased value to add and good clinical contributions to make. Our products will not get sold unless they have good clinical outcomes so we want to be part of the conversation.

MC: I understand that BIO has done some research that hasn’t yet been published that estimates that health insurers could cover all of the biologics expected to reach market over the next five years for about $8.50 per member per month. Is that a price that plans will pay at a time when organizations are looking to shift costs, not to absorb them?

SLOTNIK: First, that figure is from work we did in 2004, and could be 18 months old by the time it comes out. The question is whether payers are willing to absorb another $8.50. Remember that over the years premiums went up to reflect the cost of treating diabetics, of heart and kidney transplants, of all kinds of expensive treatments. That’s what the actuaries get paid for. I also should point out that our study doesn’t quantify how much of that $8.50 would be offset by downstream savings. Yes, it may cost $8.50 to cover the biologics, but how much money are payers saving on the back end?

MC: What else are you working with payers on?

SLOTNIK: Our other priority is more forward looking and has to deal with payers adopting electronic health care records. What will be in that electronic health care record? Will electronic prescribing be part of it and how will that work? How are they using technology like radio frequency identification? Where will the incentives lie? These are the kinds of questions we’re asking. This is a new initiative for BIO in 2006. The most important issue for us is maintaining patient access to our members’ products. Part of that is maintaining the physician/patient relationship and making sure the physician has the autonomy to make the right treatment decisions that are in the best interest of the patient based upon clinical guidance and their experience.

MC: Thank you.

The interviewer, Patrick Mullen, is a former managing editor and editor of Managed Care.