Research

Contracts to Mitigate Risks from Ultra High-Cost Drugs

    Overview

    The idea
    Ultra-high-cost drugs, like gene and cell therapies, offer the promise of durable effects (at least 15 years) with only a single application. These novel therapies can cost hundreds of thousands to millions of dollars per dose. To mitigate against the financial risk for unproven therapies, purchasers of these products are exploring new financing models with manufacturers—with performance-based agreements and orphan reinsurance benefit managers gaining traction.

    The promise
    Innovative, risk-mitigating contracts for ultra-high-cost drugs offer stakeholders a chance to limit financial exposure without steering patients away from life-changing therapies. No single contract can remove the risks inherent to such cutting edge, expensive products. But performance-based agreements and orphan reinsurance benefit managers may offer the framework for manufacturers and purchasers to get these transformative therapies to patients.

    Why now
    Several biomedical and policy shifts have made ultra-high-cost drugs relevant over the past five years—leaving payers scrambling to meet the risks associated with these promising new therapies. Federal drug pricing regulations have limited the ability of payers and manufacturers to create new pricing models, but recent changes by CMS around Medicaid Best Price have made these models more feasible for manufacturers.

    Reality check
    While ultra-high-cost drugs pose a financial danger for payers, these contracts are extremely difficult to execute properly. A myriad of logistical, regulatory, and market factors prevent these contract models from gaining traction. That said, these contracts offer payers some protection against both the actuarial risk of increasing numbers of their members being prescribed these kinds of drugs and performance risk from unproven, but promising, treatments.

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