Reimbursement as Environment

Who controls reimbursement?

Talk to a drug company, or most pharmaceutical analysts, and the answer is payers.  Talk to payers and the answer is far more complicated – and not one where they claim overall control of the process.

The fact is reimbursement doesn’t come down to a decision; it’s an environment.  And like any environment, its effects have multiple causes.

I don’t pretend to fully understand why sales of Dendreon’s prostate cancer therapy, Provenge, have so dramatically underperformed the company’s, analysts’ and even some payers’ expectations.  But while plenty of people think that insurers simply choked on the $93,000 price and set up huge obstacles to its reimbursement, that’s not really true (roughly 90% of commercial plans actually pay for it without restrictions any more severe than those imposed on the more expensive and far more successful Yervoy).  Instead, at least one of the problems is that urologists, the primary prescribers of the drug, aren’t used to the buy-and bill-model, particularly when it’s employed for very expensive drugs.  At a time when physician budgets themselves are stretched, owning those costs – even for a short period of time – makes a doctor look hard at the value provided by the medicine.

Meantime, in the summer of 2010 CMS surprised Dendreon and everyone else by not immediately approving Provenge’s coverage – instead announcing they’d do a  coverage analysis to determine when it’s appropriate to pay for the drug.  Since CMS almost never announces such a broad coverage analysis for a drug that’s just gotten FDA approval, urologists – already concerned about reimbursement — got spooked, particularly because most of their prostate cancer patients are in Medicare.  The more spooked they got, the more they looked at therapeutic alternatives. The upshot?  The uncertainty tied to Provenge reimbursement created yet another opportunity for physicians to begin making their own cost-benefit analyses.

In short, Dendreon had a reimbursement problem – but the problem wasn’t that payers said “no” to the drug.  The vast majority said yes – so, eventually, did CMS.  Yet somewhere in the mix of the drug’s price, its prescribers, the CMS announcement of the coverage analysis, and a fresh look at therapeutic alternatives, the reimbursement environment turned ugly.  And today Dendreon’s market cap is about a quarter of what it was a year ago and it employs 25% fewer people.

Drug companies give payers a lot more credit for reimbursement power than payers do themselves.  That’s why drug-company execs talk constantly about the need to get payer guidance on their drug-development programs in order to ensure future reimbursement.  There’s something so simple and attractive to that idea: just do what the most important customers — payers — tell you to do.

But like most simple answers, it doesn’t work in the real world.  Dozens of classes of customers and influencers, from employers to physicians to physician office managers to pharmacy chains to PBMs, interactively, create a constantly changing reimbursement environment.  Given the economic and medical stakes, neither payers nor drug companies can afford to believe the fantasy of the all-powerful payer-customer.