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Pharma Insights

Navigating Pricing Models for COVID-19 Innovations

Authored by

Jacquelyn W Chou, MPP, MPL

Affiliation

PRECISIONheor

Disclosures

Jacquelyn W Chou is an employee of PRECISIONheor, a consulting firm to the life sciences industry, and holds equity in the parent company, Precision Medicine Group.

Citation

J Clin Pathways. 2020;6(6):23-25. doi:10.25270/jcp.2020.8.00003

Pricing models are important for decision-making because they help to translate preliminary clinical benefit information into longer-term health benefit and economic value. However, in the face of an on-going global pandemic, relying on a single pricing model without some guides for assessing applicability can be difficult. While Institute for Clinical and Economic Review (ICER) has presented the pros and cons of a number of pricing models, we suggest three key areas that must be considered in the choice of a model and in interpretation of model results: target population, disease management goals, and non-health care (ie, policy) objectives.


The pace of COVID-19 innovation has been fast in the face of the historic global pandemic. A number of milestones have been reached in a few short months. Gilead’s remdesivir, a novel treatment, has been authorized under the US Food and Drug Administration’s Emergency Use Authorization for the treatment of COVID-19,1 with a limited supply already donated and distributed to hospitals across the United States.2 Dexamethasone, a commonly used steroid, has been found to reduce risk of death for patients receiving oxygen therapy by 20% and by approximately 33% for patients receiving invasive mechanical ventilation.3 Late-stage clinical trials for COVID-19 vaccines are expected to start by the end of July,4-6 with AstraZeneca having started its clinical trial in the United Kingdom.7  

How and what to price these innovations has been the subject of much discussion. Prior to a set price for remdesivir, the Institute for Clinical and Economic Review (ICER), a private nonprofit organization that performs economic evaluations on pharmaceutical treatments to estimate what it deems to be a fair price, conducted two evaluations of potential pricing for remdesivir.8 Vaccine innovators have started taking no-profit pledges for their vaccines even before completion of phase 3 clinical trials.9 

In the midst of these discussions, ICER released a white paper on July 1, 2020, discussing different models for how to price novel vaccines and therapies for COVID-19.10 ICER provides a concise summary of each of the six commonly referenced pricing strategies—unrestricted pricing, cost-recovery pricing, value-based pricing, monetary prizes, compulsory licensing, and advanced market commitments/subscription models—for a novel vaccine or treatment, as well as their pros and cons. No single pricing model adequately addresses all of the unique challenges faced by a vaccine for an on-going pandemic, and those responsible for setting and negotiating prices must consider a variety of factors carefully to assure the pricing model used aligns with the broader priorities of a pandemic. 

What Are Pricing Models?

Pricing models are important for decision-making because they help to translate preliminary clinical benefit information into longer-term health benefit and economic value. Clinical trials frequently rely on intermediate outcomes rather than the final outcome of interest.11 As an example, although the final outcome of interest for COVID-19 is mortality, the remdesivir trial was designed to measure time to clinical improvement.1,12 Particularly in the case of a novel virus, such as COVID-19, where uncertainty exists around the disease itself, models simulating potential outcomes provide key information.

Different pricing models will likely return a different price for the same treatment, despite the underlying clinical data being the same. This is because each of these models is trying to achieve a different objective. Although the clinical benefit of the treatment or vaccine remains the same, the perceived economic value has altered. During a global pandemic, we will be eager to grasp onto any viable treatment or vaccine that may help our countries and economies reopen safely. How do we as a society or we as individuals know if we are getting a good deal for those innovations? Pricing models suggest some answers, but selecting the right one can be complicated.

Key Signposts for Navigating Pricing Models

Models create a version of the world to project possible outcomes for a specific population using imperfect or incomplete data. That means no model is perfect or necessarily accurate, but they can be designed to answer specific questions. In the US health care marketplace, no single entity exists to set pricing when new technologies come to market. Instead, the United States has a fragmented approach, requiring public payers, private payers, and health systems to negotiate their own prices. Each of these health care decision makers may be trying to answer a different question, requiring a different pricing model. In navigating the field of pricing models for COVID-19 innovations, three key signposts can help point toward the appropriate models.

Population of Concern

COVID-19 is a disease that has the potential to affect any individual, indiscriminate of race, age, or gender. However, certain populations are more vulnerable to developing a more severe form of the disease, with a higher likelihood of death. From the individual perspective, if you fall into one of the more vulnerable categories, you may be more willing to pay a higher price for a proven effective prevention technology or treatment. Similarly, a health system or payer with a large population of the more vulnerable may also be willing to pay a higher price to ensure access or make market commitments to guarantee supply.  

Another key consideration is the socioeconomic status of the population of concern. Beyond the relationship between socioeconomic status and health outcomes13,14 as well as the socioeconomic dynamics at play with COVID-19,15,16 the socioeconomic profile of the population for the health care decision maker likely affects the purchasing power and financial health for that decision maker. For example, a health system that supports a large proportion of Medicaid patients compared with a health system that supports a privately covered population will be reimbursed differently and have different financial margins for a given patient. This would affect the ability of a given health care stakeholder to engage in advance commitments, offer monetary prizes, as well as tolerable thresholds for value-based pricing.

Disease Management Goals

In the case of COVID-19, prevention and mitigation are broad public health goals for society. This suggests placing high value on prevention technologies, such as vaccines and prophylactic treatments, as well as placing high value on broad access. From the health system perspective, disease management goals may include reducing health care utilization, such as hospitalizations, intensive care stays, and ventilator use. These disease management goals may also align for individual payers as reduced health care utilization translates to lower costs. This may suggest aligning the price of an innovation to its ability to reduce or offset the costs, perhaps through a value-based contract.  

Stakeholders in the health care continuum will have different priorities for disease management. The anticipated number of patients who may become affected by the disease also affects these priorities. In the case of COVID-19, without significant prevention and mitigation improvement in the United States, experts anticipate a fairly broad population being infected.17,18 This suggests that decision makers at the societal level (eg, federal policymakers) would want to identify pricing models that incentivize prevention and allow for broad access. Accordingly, monetary prizes and advanced market commitments and subscription models would be appealing. Compulsory licensing could also be perceived as a viable pathway for broad access but would likely be considered to quell future innovation. Health system and payer decision makers, instead, may be more concerned with managing utilization once patients have become infected. This would suggest the appeal of value-based pricing where the model could be used to determine a price where overall costs associated with care would be reduced.  

Non-Health Care Objectives

In the case of COVID-19, three primary objectives are important to weigh: returning to the workforce, reopening the economy/encouraging safe behavior, and incentivizing innovation. These objectives are typically the concern of a public payer or other governmental-level health care decision makers—that is in large part because these types of benefits, though important for society, do not necessarily hold a direct benefit for an individual health system of private payer.

Pricing models, such as cost-recovery pricing, compulsory licensing, and advanced market commitments and subscription pricing, with the goal of broad access, could help support the return of patients to the workforce as well as reopening the economy by making non-socially distant activities safer. However, incentivizing innovation, important for a novel pandemic, as well as safeguarding society against the next pandemic, may require alternative pricing models, such as unrestricted pricing, value-based pricing, and monetary prizes. Additionally, objectives are likely different during different phases of the pandemic. Early in the pandemic, incentivizing innovation and encouraging innovators to enter the market may be of high importance. As the pandemic progresses and parts of the economy are shut down for prolonged periods, ensuring broad access to effective prevention and technology may become the higher priority. As the pandemic hits a manageable or steady state, it may become time to return again to considering how to ensure we are appropriately incentivizing safeguards against the next pandemic. 

Conclusion

Of the pricing models described by ICER, cost-recovery pricing, monetary prizes, and compulsory licensing are options that may only be viable for a decision maker like the US government. However, as ICER notes, both cost-recovery pricing and compulsory licensing are likely to result in a chilling effect on future innovations.10 Monetary prizes would likely reward speedy innovation and not necessarily quality innovation. The balance of options is likely more achievable for state-level governments and large national payers, given relative purchasing power and leverage. Advanced market commitments and subscription models have already been employed at the state level, as recently seen with hepatitis C treatments.19 Unrestricted pricing and value-based pricing models seem suitable for smaller payers and health systems, with value-based pricing or outcomes-based pricing models gaining popularity in recent years.20,21

It is important to note, however, that the prices estimated using any of these pricing models do not reflect the final price a patient pays. In the fragmented US health care marketplace, the price for a patient is determined by insurance coverage as well as the specific pharmacy where the treatment is purchased. Another caveat to bear in mind when considering these pricing models is that, with the exception of unrestricted pricing and value-based pricing, these models largely decouple price and value. As consumers, we often equate higher priced items with higher quality. However, this can be at-odds with the goal of achieving broad access through affordability.  

For COVID-19 innovations, practicality may be the ultimate decision maker for the right model to determine price. As of this writing on July 27, 2020, COVID-19 cases are rising across the United States. As effective innovations are identified, speed of access may override other considerations, making the pricing strategy all parties would agree to the quickest the optimal strategy.  

References 

1. US Food & Drug Administration. Remdesivir EUA letter of authorization 2020. May 1, 2020. Accessed July 27, 2020. https://www.fda.gov/media/137564/download

2. HHS announces shipments of donated remdesivir for hospitalized patients with COVID-19. News release. US Department of Health and Human Services; May 9, 2020. Accessed July 27, 2020. https://www.hhs.gov/about/news/2020/05/09/hhs-ships-first-doses-of-donated-remdesivir-for-hospitalized-patients-with-covid-19.html

3. Horby P, Lim WS, Emberson J, et al. Effect of dexamethasone in hospitalized patients with COVID-19: preliminary report. medRxiv. Published online June 22, 2020. doi:10.1101/2020.06.22.20137273

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10. Emond SK, Pearson SD. Alternative policies for pricing novel vaccines and drug therapies for COVID-19. July 1, 2020. Accessed July 27, 2020. https://icer-review.org/wp-content/uploads/2020/07/Alternative-Policies-for-Pricing-Novel-Vaccines-and-Drug-Therapies-for-COVID-19-_-ICER-White-Paper.pdf

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16. Los Angeles County Department of Public Health CSO. Report on LA County COVID-19 Data Disaggregated by Race/Ethnicity and Socioeconomic Status. April 28, 2020. Accessed July 27, 2020. http://www.lapublichealth.org/docs/RacialEthnicSocioeconomicDataCOVID19.pdf 

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