Gauging the real value of prescription drugs

Pay-for-performance has become an essential part of the push to stem the upward trend in health care spending that has inflated insurance premiums, ushered in an era of high-deductible coverage, and kept some people from seeking needed treatment. Essentially, pay-for-performance means doctors and hospitals are compensated based on how well their patients do, instead of for every test or procedure they order.

This caregiving model is now being applied to one of the biggest cost drivers of the nation's health care system: prescription drugs. Insurers, often through benefit-management firms, routinely negotiate discounts with pharmaceutical companies. Pay-for-performance ties those prices to a medicine's effectiveness. It sounds like one of the smartest ideas in health care, and in fact could save money, but based on a deal recently reached between Harvard Pilgrim Health Care and Amgen Inc., pay-for-performance doesn't do much to clear the murkiness surrounding drug pricing.

Under the arrangement, Harvard Pilgrim has agreed to cover Repatha, the pharmaceutical giant’s new cholesterol drug. Repatha drastically lowers cholesterol levels in some patients, including those who don’t do well on statins, or who are susceptible to heart attacks and strokes. But the sticker price of $14,100 a year has been cited by Big Pharma critics as the latest example of outrageously expensive medicines flooding the market. Others say that a hefty drug price can be justified if the medicine results in better long-term health for patients and, by extension, reduces overall spending. That was the argument made by Gilead Sciences Inc. when it introduced Sovaldi, a costly new hepatitis pill that can cure patients of the liver-destroying virus, thus eliminating the need for transplants or other expensive treatments.

That "pay more now, spend less later" strategy sounds logical, but Amgen, Gilead, and other drug makers historically have not adequately quantified the value of their medicines, nor have they convincingly explained why drugs cost so much in the first place. Harvard Pilgrim's arrangement with Amgen for Repatha, while promising, is an example of the lack of specifics. The insurer says it can collect rebates from the California company if cholesterol levels in certain subgroups of patients don't fall by a certain amount. Neither party will provide numbers, however, including the price Harvard Pilgrim is paying for Repatha, or how much it could recoup in rebates. A spokeswoman for the insurer said the contract prohibits the disclosure of financial terms.

Amgen, of course, is not in the business of selling products at a loss. In return for accepting the pay-for-performance pact, it gains the protection of exclusivity: Harvard Pilgrim won't offer reimbursement for a similar cholesterol treatment sold by an Amgen competitor. Any revenue loss Amgen suffers as a result of discounting will apparently be made up for in added volume.


The Repatha pact by itself won't solve the problem of exorbitant drug prices — only a subset of patients will qualify to take it. Still, as similar arrangements are applied by insurers across the country to treatments used by wide swaths of patients, pay-for-performance could pay dividends across the health care system. Despite the caveats, it's a modest move towards true transparency in drug pricing.