Leveraging its buying power as one of the state’s largest health insurers, Harvard Pilgrim Health Care has struck two more deals to pay for expensive drugs based on how effectively they treat patients, an emerging strategy aimed at reining in medical spending.
Harvard Pilgrim, which has 1.3 million members, said the agreements cover the rheumatoid arthritis medicine Enbrel, made by Amgen Inc., and Eli Lilly & Co.’s osteoporosis medicine Forteo.
Known as pay-for-performance or pay-for-value contracts, the deals seek to curb spending on drugs while giving patients access to costly treatments. Enbrel costs nearly $45,000 per patient per year in the United States, according to the research firm EvaluatePharma, while Forteo costs about $29,000 a year.
Such contracts are relatively rare in the United States, where drug companies typically set whatever price they wish and negotiate with insurers seeking lower costs. But Big Pharma is now embracing pay-for-performance contracts and including them as a pillar of a new public relations campaign aimed at burnishing the industry’s reputation after several high-profile drug pricing controversies.
The industry’s vocal critics include President Trump, who recently said drug companies charging high prices are “getting away with murder.”
Stephen J. Ubl, president of the Pharmaceutical Research & Manufacturers of America, or PhRMA, said companies support tying drug payments to effectiveness.
“Our view is that the pricing model does need to evolve, that we need to move to a system that focuses on reimbursing the product based on the outcomes achieved by the patient,” Ubl told reporters Tuesday at a conference in Boston.
Harvard Pilgrim’s deal with Amgen is the first of its kind for a rheumatoid arthritis medication, both companies said. The two-year contract is based on an algorithm that includes six criteria, including how well patients comply with their prescription instructions. Enbrel, which is self-injected weekly, works on the immune system to help relieve joint pain and stiffness. It is also used to treat other autoimmune diseases.
Harvard Pilgrim’s deal with Eli Lilly works differently: The insurer will pay less for Lilly’s drug over time if patients take it for the required two years. Many patients have trouble sticking to the regimen as Forteo must be self-injected daily. When patients stop taking their prescription, their treatment is less effective and the drugmaker loses revenue. Forteo helps prevent bone fractures.
“We believe these sorts of value-based agreements are a big part of addressing concerns around both the costs and values of medicines,” said Scott MacGregor, a spokesman for Indianapolis-based Eli Lilly.
It’s unclear exactly how much the new agreements might save Harvard Pilgrim. The insurer said it spends about $30 million a year on Enbrel now and about $2 million a year on Forteo. Harvard Pilgrim negotiates prices directly with drug companies, unlike many other insurers, which work through middlemen called pharmacy benefit managers.
“Our pharmaceutical cost is going up significantly, and our concern is, how do we balance making the drugs people need available to them without making it unaffordable? It’s very hard to balance things,” said Dr. Michael Sherman, chief medical officer at Wellesley-based Harvard Pilgrim.
Since late 2015, Harvard Pilgrim has reached pay-for-performance deals for three other medicine’s: Amgen’s cholesterol drug Repatha, Novartis AG’s heart failure treatment Entresto, and Eli Lilly’s diabetes drug Trulicity.
Industry experts, including critics of pharmaceutical drug pricing practices, said such contracts can be a good alternative to flat-pricing systems typically used in the United States. But they cautioned that pay-for-performance systems are complicated to run and aren’t guaranteed to control costs.
“These contracts can kind of implode under their own weight,” said Dr. Steven D. Pearson, president of the Boston-based Institute for Clinical and Economic Review, a nonprofit that studies the value of medical treatments. “I think it’s still a good thing to try, but it’s tougher than it looks. And it can’t be the solution for everything.”
Dr. Joshua Ofman, Amgen’s senior vice president of global value, access, and policy, acknowledged these complex contracts can be hard to implement. But Amgen, based in Thousand Oaks, Calif., has about two-dozen value-based agreements in place already and is working on at least 10 more.
“We’re looking to do many more of these,” Ofman said. “We think it’s a great way to show the value of our products.”
Policy makers and patients have increasingly criticized the pharmaceutical industry’s practices — which includes raising the prices of old drugs. Such criticism has prompted federal and state proposals that seek to make the process more transparent and fair. Massachusetts has been among the leaders. State Senator Mark C. Montigny, a Democrat of New Bedford, has introduced a bill that would require pharma companies to submit detailed information about their production, research, and marketing costs for the most expensive drugs.
PhRMA’s Ubl said the industry is taking a disproportionate share of the criticism, adding that pharmacy benefit managers, hospitals, and other parts of the health care system also need to be examined. “We need to move away, I think, from having a conversation that’s myopically focused on drug pricing in isolation and open the aperture and have a discussion about health care costs broadly speaking,” he said.Priyanka Dayal McCluskey can be reached at firstname.lastname@example.org. Follow her on Twitter @priyanka_dayal. Curt Woodward can be reached at email@example.com. Follow him on Twitter @curtwoodward.