Innovative Drugs Deserve Innovative Pricing

The Food and Drug Administration made big news Wednesday by granting approval to the first gene therapy for cancer. The therapy from Novartis, called Kymriah (tisagenlecleucel), produced an 83% remission rate in clinical trials for children and young adults afflicted by a blood cancer called acute lymphoblastic leukemia. The drug was a single infusion of a patient’s own immune cells that have been modified reprogramed to attack their deadly cancer. These young people had failed to achieved remission using other treatments, including stem cell transfers, so this approval may be life-saving.

There was another announcement from another government agency, the Centers for Medicare and Medicaid Services (CMS). But it also could have far-reaching impact on how we pay for—and ultimately treat—cancers of all kinds. CMS would cover Kymriah’s announced price of $475,000 for the treatment. That grabbed headlines, but in the long run it does not compare to the other part of the announcement from CMS. For the first time the agency agreed to a payment plan which is dependent on whether the drug actually produces a benefit to the patient. Novartis will get paid $475,000 only if patients respond to the drug by the end of the first month of therapy.

This risk sharing arrangement is the right way to restructure our deeply flawed drug pricing system. Currently, providers are tied to a revenue model that rewards more doses rather than outright cures. Pharmaceutical companies try to make cures, but they encounter huge risks in the form of development costs and tighter public and private health care budgets. Patients in need of a cure suffer when pricing results in reduced availability.

CMS has taken a major step toward breaking the cycle. Better outcomes are what we want, and that is what we should pay for.

In outcome-based pricing, drug companies will know that payment is coming if the treatment works, and that means more incentive to develop new cures and to find new applications for existing drugs. Payers will know that the drug companies are at risk if their products are ineffective, and that means their budgets are less at risk from endless doses of marginal treatments. And patients will get a better chance at a cure.

Ultimately this kind of system, which elevates the hard proof to the market, will enhance competition and that will bring down prices. If a drug works, it results in new revenues. If a particular drug doesn’t measure up, it won’t keep cluttering drug formularies. One company can step in where another fails. A drug that works measurably better gets the chance to displace those that don’t.

Kymriah’s price also doesn’t look so bad when placed against other therapies that are neither as innovative nor perhaps as effective. The cost of stem cell transplants, for example, range from $350,000 to $800,000. In fact, some experts expected that the Novartis would price its drug even higher than $475,000.


From a value perspective, if the young adults with leukemia who respond to therapy end up with more years of life—an outcome that is quite likely—then Kymriah will be cost-effective for society as well.

The drug may soon find a wider market if it can be shown effective in treating lymphoma and other blood cancers, and the price for those indications may well be different, based on their if value story.

As we wait for more evidence to emerge with the use of this “living drug,” let’s hope the CMS announcement heralds a new era in finding ways to link reimbursement to patient outcomes. In the meantime, let’s also celebrate a new innovation for treating—and paying for—cancer.

David Agus, a medical oncologist, is the founding director and CEO of the Lawrence J. Ellison Institute for Transformative Medicine. Dana Goldman, a health economist, is the director of the Leonard D. Schaeffer Center for Health Policy & Economics. Both centers are at the University of Southern California. Goldman has consulted for the life sciences industry, including Novartis.

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