Could Netflix-style subscription models work for medicines?

Allie Nawrat 24 September 2019 (Last Updated September 25th, 2019 12:31)

Healthcare authorities around the world are seeking to find innovative ways to fund essential medicines; one of the ideas floated has been a Netflix-style subscription model where companies are paid an upfront fee rather than for individual medicines. Allie Nawrat explores two case studies of this model in action: Hepatitis C antivirals in two US states and the UK NHS’ incentivising of antibiotics R&D.

Could Netflix-style subscription models work for medicines?
Credit: Shutterstock.

Due to flaws in funding methods for essential medicines, which hinder research and development (R&D) and prevent these drugs being accessible to all, healthcare authorities are seeking innovative ways to rectify cost issues and prioritise the public health value of drugs.

One such solution is a Netflix-style subscription model where pharmaceutical companies receive upfront payment for their drugs, rather than being paid based on the volumes prescribed.

This approach offers potential value to all stakeholders in the pharma industry – healthcare providers, drug companies and ultimately patients. This is because it creates less risky investments and eases budgetary planning.

Two examples of this model are fixed, upfront payments for life-saving, already approved Hepatitis C drugs in the US states of Louisiana and Washington, and UK National Health Service (NHS) investment into new antibiotics.

NHS alters volume-based antibiotic payment model

As part of the UK Department of Health and Social Care (DHSC)’s five-year antimicrobial resistance (AMR) action plan, it has launched a trial of a new subscription payment model to incentivise pharma companies to develop new antibiotics against resistant bacteria.

The current volume-based payment model for antibiotics, as well as how: “[novel antibiotics] are only used in rare and specific cases to prevent resistance developing,” means that “little or no return on investment is available for pharma companies in the standard reimbursement model,” explains GlobalData senior analyst James Mather.

This situation has led big pharma to move away from antibiotics. For example, Swiss pharma giant Novartis announced it was reducing its antibiotics R&D capabilities in late 2018 – and no new classes of antibiotics have been discovered since the 1980s. Writing in a World Health Organization information brief, GSK AMR advocacy lead James Anderson described this situation as a “market failure”.

However, the NHS believes its new approach, which disconnects payment for antibiotics from volumes sold and focuses on public health needs, will help to reverse this trend.

Although the exact payment approach is yet to be finalised by DHSC and may not be a one-size-fits-all approach, the general model will be for pharma companies to be paid upfront for NHS access to particularly useful drugs, even if they are stored in reserve to respond to future AMR crises.

Anderson argued: “A model that de-links the volume of sales from the reward paid for a new antibiotic could encourage investment, while reducing pressure to pursue higher volumes;” overuse of antibiotics is a key cause of rising levels of AMR globally. He also supports a model that reflects the “societal ‘insurance’ value of a new antibiotic.”

“A ‘Netflix-style’ subscription model for antibiotic reimbursement changes the financial incentives for pharma companies; making the development of novel antibiotics that meet clinical unmet need more attractive,” Mather states.

Progress of the NHS trial and plans for the future

As well as discussing specific practicalities of upfront payments, the NHS and its pricing regulator the National Institute for Health and Care Excellence (NICE) are currently seeking to select two products – they are calling on industry to suggest possible options – which will undergo NICE’s health technology assessment process by the end of 2020.

The NHS wants this model to be copied elsewhere in the world, since AMR is a global problem, which needs international solutions.

However Mather notes that this subscription payment model is “realistically only viable” in single payer systems. He adds it is likely to be most effective at: “Providing a boost to R&D in small biotechs”, while “unlikely that enough of an incentive can be provided to interest big pharma back to the area.”

Flaws of current US patient access to Hepatitis C DAAs

Despite the ability of highly effective, direct-acting antivirals (DAAs), to treat, and potentially eliminate, Hepatitis C, the condition remains the most common blood-borne infection and a major cause of death in the US.

This is because these drugs come with high costs – Gilead’s Sovaldi, one of the first approved DAAs costs around $84,000 for 12 weeks of treatment, according to the National Institutes of Health. This has caused Medicaid in the US to ration the use of DAAs to those most in need, hindering scale up of treatment and ultimate eliminate of the virus.

This untenable situation triggered two states in the US – Louisiana and Washington – to individually agree a fixed monthly cost for a drug company’s DAA, rather than paying on a per prescription basis. Both schemes have been approved by the US federal Centers for Medicare and Medicaid Services (CMS).

Louisana and Washington secure guaranteed access

Louisiana struck a five-year deal with Gilead’s subsidiary Asegua Therapeutics for Epclusa (sofosbuvir/velpatasvir); it was given the go ahead by CMS in June 2019. As a result of this deal, the state plans to treat 31,000 people in the next half decade; only 3% of the 40,000 Hepatitis C patients in Louisiana were treated in 2018.

According to Gilead, Epclusa’s list price is $24,920 per month; the price Louisiana will pay for the drug has not been disclosed, by the state authorities revealed the reason they chose Gilead as a partner was because it offered the lowest price for its DAA.

Epclusa will be particularly useful in the state’s efforts to eliminate the disease because it is effective in all six genotypes of Hepatitis C due to its dual mechanism of action.

Washington’s subscription payment approach is similar, however, it selected AbbVie and Mavyret (glecaprevir/pibrentasvir) as its industry partner and DAA. This was on the basis AbbVie “provided the best overall portfolio” to the state achieving its aim of eliminating Hepatitis C. Like Epclusa, Mavyret treats all six common types of Hepatitis C in eight weeks; a four week supply has a list price of $13,200.

Benefitting stakeholders in the Hepatitis C space

Talking about Gilead’s deal with Louisiana, Mather comments ““Because of the number of patients the department is responsible for this deal works out to a huge saving compared with purchasing the products through the usual US reimbursement system.”

The state’s Department of Health Secretary Dr Rebekah Gee wrote in a statement: “We were extremely pleased that three manufacturers offered proposals, with the plan submitted by Asegua offering us a clear path forward to offer a Hepatitis C cure to our most vulnerable patients.”

Similarly, Washington state governor Jay Inslee commented: “Today’s announcement is a big step not only in our efforts to eliminate hepatitis C in Washington, but to use our purchasing power in the future to control costs and improve access to care for those we serve.”:

“[The companies] were willing to make this deal because the Hepatitis C market will shrink considerably over the next five to ten years – Hepatitis C will be almost eradicated in developed countries over the next 20 years – so they are in a race to secure remaining revenue from their products,” Mather explains.