Receiving regulatory approval for your therapy or device is only the start of the battle. Once it is developed and ready to enter the market, you need to convince a variety of key stakeholders of the value of your therapy. One of them is the entity or organisation that ultimately reimburses the cost of medicines or medical devices – the healthcare payer.
Several kinds of organisations can come under the category of payer. These include:
- National payers – set the overall rules for market access, and require evidence of the product’s safety, effectiveness, and costs
- Regional payers – set regional formulary guidelines based on regional and local needs. They want to understand how the arrival of a new treatment in the system can affect their region
- Local payers – can consist of clinicians, pharmacists, and administrators who serve as committee members within hospitals. They look at the impact of new treatments on local budgets
- Insurance companies – including publicly traded and private health insurance companies
- Provider-led plans – health insurance coverage provided by hospital systems
- Government payers – government-funded health insurance coverage, such as Medicare and Medicaid in the US, and single-payer healthcare systems in the UK and the EU where the cost of healthcare is paid for by the government
Whatever type of payer you deal with, they can be the difference between the success and failure of your innovation. Payers have limited resources so will carefully look at what benefits your therapy brings to patients in relation to its cost.
So, it is important to understand the costs that are faced by payers, which include:
Expensive therapies
In terms of medicines, payers face costly treatments such as drugs that target large patient populations, including diabetes medication and treatments that manage non-alcoholic fatty liver disease. Another considerable source of expense is the shift towards specialty drugs and cell and gene therapies. For example, CAR-T therapies that treat liquid tumours such as leukaemia and lymphoma, and gene therapies that target rare diseases are very expensive to develop and commercialise. These ground-breaking innovations come at much higher prices, which drive costs up for payers.
How biotech companies can help?
In recent years, there has been a call for biotech companies to work with innovative payment models and reimbursement arrangements, particularly for cell and gene therapies, which are often one-off treatments that come with very high upfront costs. Examples of innovative payment models include:
- Outcome-based payments – Payment for the therapy is adjusted based on its effectiveness in a real-world setting. Payments can be reduced or not made if the treatment fails to meet outcomes. Alternatively, reimbursement for the treatment can be granted on the condition that additional evidence is produced. The main advantage of this model is that the risk of unsuccessful treatment is shared between the pharma and biotech companies.
- Payment in instalments – This model allows payers to spread the cost of the therapy over a longer period of time, reducing the upfront cost and making access to treatment more feasible. This plan is especially useful for high-priced one-off therapies, and each instalment can be linked to the observation of specific patient outcomes, allowing payers to address the uncertainty regarding the treatment’s benefits at launch.
- Indication-based pricing – The price paid for the treatment is based on the value it brings to different therapeutic indications. The idea behind this pricing model is that some groups of patients may benefit more from the treatment than other groups.
- Companion diagnostic-based payment – Reimbursement is only granted if a companion diagnostic, such as a medical device shows that a patient is highly likely to respond to the therapy. The main advantage of this payment model is that fewer patients will receive inappropriate treatment, which reduces costs for payers.
Shortage of doctors and other healthcare professionals
Hospitals and clinics are experiencing shortages in clinical staff. Doctors, nurses, and other medical professionals are experiencing increasing workloads and suffering from burnout. These shortages are likely to last for years to come, compelling hospitals and clinics to pay higher salaries to attract talent. Consequently, this will lead hospitals to seek higher reimbursement to cover the increase in costs.
How can biotech companies help?
While biotech companies may not be able to help directly with the shortages of healthcare professionals, they can develop treatments and devices that help reduce the higher reimbursement costs. So, they need to demonstrate both the clinical and economic benefits of the new therapy or device. For example, a medical device company can communicate how a new AI-powered diagnostic device helps reduce oncologists’ workloads. Or biotech can demonstrate how a new therapy helps reduce hospitalisations and the associated costs to the healthcare system.
Medical inflation
Inflation is driving prices of healthcare costs up, including prescription drugs and services provided by hospitals and physicians. These costs are then passed on to payers, which leads them to increase their premiums. In turn, patients pay more for health insurance coverage, often in the form of higher deductibles, higher monthly premiums, and/or higher out-of-pocket expenses.
How can biotech companies help?
There are 4 main ways biotech companies can offset increasing medical inflation and healthcare costs:
- Develop cheaper alternatives – biotech companies can develop lower-cost versions of biologics, known as biosimilars, and generic versions of branded medicines.
- Virtual/decentralised clinical trials – biotechs can use digital technologies such as wearable devices to conduct decentralised clinical trials, which allow patients to participate remotely. They can also use AI to plan clinical trials. These technologies allow biotechs to optimise clinical trial design and reduce costs.
- Use AI for drug discovery and development – using AI models and algorithms helps biotech companies quickly identify promising molecules, and predict the efficacy of potential drug candidates. This reduces the time and cost of drug development. Savings can then be passed on to payers and healthcare systems in the form of lower prices.
- Personalised medicine – Biotech companies can develop highly targeted therapies tailored to patients’ genetic characteristics, leading to more effective therapies with fewer side effects, which reduces costs. In addition, personalised medicine targets smaller patient populations, which lowers the impact on payer budgets.
Increase in life expectancy
People are living longer and several countries are experiencing aging populations. This leads to an increase in people with chronic conditions such as heart disease, cancer, respiratory diseases, and diabetes. These diseases require long-term and ongoing care, which significantly contributes to overall healthcare costs.
How can biotech companies help?
Many of the solutions to rises in healthcare costs as a result of increasing life expectancy are still in their infancy. But their development has begun. Biotech companies are now using AI to develop therapies that tackle the underlying cause of age-related diseases such as diabetes, respiratory illnesses, cardiovascular diseases, and cancer. This will lead to people leading longer and healthier lives, which will lower the need for long-term care, reducing healthcare costs. Biotech companies are also developing innovative technologies and methods to stop or even reverse the aging process. For example, some biotech companies are pioneering in epigenetic reprogramming, which involves modifying gene expression patterns to slow down or even reverse the aging process.
By knowing and understanding the costs faced by payers, biotech companies can better and more tailored therapies and solutions that help lower these costs. It also allows them to create more effective value propositions that will encourage adoption of these therapies, leading to successful reimbursement and increased sales.