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Innovative Medicines Canada proposes framework for innovative agreements for drug reimbursement

Authored byAlice Tseng and Christian Bekking

Pharmaceutical manufacturers in Canada often enter into Product Listing Agreements (PLA), particularly with public payors, to facilitate their drug being reimbursed. It is common for PLAs to take the form of a first dollar rebate, with an incremental rebate if the annual amount to be reimbursed by the payor exceeds a certain threshold. However, this approach of setting prices or capping expenditures based on anticipated volumes and estimated cost-effectiveness does not address the challenges sometimes associated with new innovative treatments, particularly drugs:

  • with limited or uncertain clinical and cost-effectiveness data (e.g., drugs for rare diseases; NOC/c (conditional NOC) drugs; or when there is a novel or targeted biomarker);
  • with significant upfront costs (e.g., when the drug cures a disease with a high prevalence population, resulting in significant budget impact only initially, including gene therapy);
  • requiring access to health system resources outside the responsibility of provincial drug benefit plans;
  • which challenge budget certainty (e.g., drugs which are the first to treat a condition are often associated with budget uncertainty since, when no medical treatment exists for a condition, diagnoses are seldom made and tracked in a manner that is accurate or accessible for analyses; conversely, even when many treatments are available for a condition, the new product could become the new standard of care and displace other treatments);  
  • which require innovative diagnostic technologies to determine whether a patient is a candidate for treatment (e.g., drugs relying on radiopharmaceutical diagnostics require increased availability of PET tests but face challenges involving physician fee schedules, hospital and ambulatory diagnostic imaging procurement and access to the clinicians needed to interpret these diagnostics); and
  • where combination or add-on therapy can extend the life of the backbone treatment component, including when a non-prescription product (e.g., OTC drug, device or diagnostic) is involved and is marketed by a different manufacturer.

Obstacles in reaching reimbursement-related agreements result in delays to patients accessing innovative medicines and unnecessarily constrain how patients can be treated. To proactively address this, while providing increased value and fiscal sustainability for payors, Innovative Medicines Canada (IMC) published the Innovative Agreements Framework on November 17, 2022, describing various innovative reimbursement models that have already been piloted or implemented globally. The report was created to facilitate new approaches for reimbursement in negotiations between the pan-Canadian Pharmaceutical Alliance (pCPA) and pharmaceutical manufacturers for formulary listing by public payors.

Highlighted below are five types of innovative agreements, including some of their benefits, uses, and considerations.

Performance-Based Agreement

With this model, reimbursement is based on a drug’s performance. If the agreed-upon benefit is achieved or maintained over the specified time, the drug is reimbursed by the payor; if not, there is no reimbursement or only partial reimbursement.

This type of agreement ensures “value” is obtained by both the manufacturer (by listing products with clinical and economic uncertainty which would otherwise not be reimbursed) and the payor (through risk protection against drugs with clinical and economic uncertainty), since risk-sharing is based on response to treatment. These agreements may provide more assurance that only those patients most likely to benefit from the product are the intended market.

There are various models for performance-based agreements. For example, performance can be assessed at the patient level (e.g., payor receives up to 100% rebate if the patient discontinues the drug before the drug has had time to produce clinical outcomes), population level (e.g., rebate percentage tied to aggregate adherence data instead of volume) or be economic or utilization performance-based (e.g., rebate percentage tied to the increase in patients switching from a more expensive, clinically equivalent alternative).

To determine response to treatment, outcomes routinely collected in clinical care are used (e.g., objective imaging response in oncology). This means changes to data infrastructure as well as significant administrative labour and financial costs are required since timely access to existing data (e.g., real-world evidence data) as well as ongoing monitoring and measuring is needed to assess whether clinical thresholds are being met.

Amortization Agreement

This model contemplates lump-sum payments at specified times for a drug (annuity payments). Benefits include budget “shock absorption” (e.g., when a new treatment is available whose benefit is so compelling that the treatment should be funded immediately but it is not feasible to fund the demand within one annual budget cycle, such as when hepatitis C drugs were launched); and budget “warranty protection” (e.g., there is uncertainty regarding whether a treatment is indeed curative resulting in a model whereby payors spread the payments over the manufacturer’s anticipated duration of “cure” time, and if the condition recurs within the warranty period, the payor ceases payment). This model is particularly useful for curative medicines and gene therapy, as well as when patient demand is expected to be especially high at launch.

Some of the particularly interesting factors to consider with this model are how to treat patients who move from one jurisdiction to another or move from the public to private payor system (or vice versa), as well as how to handle any supply disruption during the amortization period.

Subscription Agreement

This model contemplates unlimited access to certain products for a specific time period for a fixed fee, allowing for certainty of payments and broad access to products with relative ease of implementation. This model ensures budget certainty and can be used to address a variety of situations, including a sudden increase in product demand, large patient populations combined with budget constraints, and combination and add-on therapies (cost will remain steady in the face of add-on therapy, extending the lifetime of the backbone therapy while ensuring the payor is not surprised with budget increases).

Although subscription models are often easier to set up and manage than other types of risk-sharing agreements, it is important to have a clearly defined patient population as both the treatment population and the treatment landscape may dramatically change over time, potentially leading to re-negotiation.

Package Agreement

This type of agreement includes not just the pharmaceutical product, but also data infrastructure, testing, and patient support. This “holistic” model can include a variety of elements, including partnerships (e.g., with labs, clinicians, medical device companies, diagnostic imaging companies, technology companies), patient support programs, capital investments (e.g., even establishing a free-standing, non-hospital surgical facility to manage in-patient stays) and novel contracting provisions.

Portfolio Agreement

With this type of agreement, a manufacturer has a set price for its “portfolio” of products. The portfolio can be customized to the needs of the individual jurisdiction allowing, for example, the inclusion of various products from one manufacturer (through one or more of its divisions), whether from the same or different class of medicine, and encompassing brand name, generic, biosimilar and/or diagnostic products, all in one agreement.

Portfolio agreements require the consideration of many factors including whether different provincial drug budgets are impacted (e.g., Ontario Drug Benefit Program plus Cancer Care Ontario, especially if the eligible population for each program differs), challenges with new products (e.g., lack of review and unclear effect on portfolio as new products emerge), loss of patent protection (e.g., possibly leading to a decrease in reimbursed price), and potential product divestitures by the manufacturer. This model can improve efficiency by eliminating the need for multiple, separate negotiations. 

IMC’s Innovative Agreements Framework report is not intended to be comprehensive but rather is a thoughtful report on potential models for stakeholders to consider. The report highlights both the opportunities and challenges facing payors and industry and attempts to kick-start the discussions between the pCPA and industry on jointly developing an innovative agreements framework to expand the potential toolbox for reimbursement negotiations. Though there are potential risks to the manufacturer and the payor if their analysis and predictions do not unfold as expected, there are significant benefits to pursuing innovative agreements and thinking about health care costs differently and more holistically. And, of course, there are risks with continuing the status quo, particularly delays and barriers to patients and clinicians accessing innovative treatments.

Should you have any questions, please do not hesitate to contact a member of the Life Sciences Regulatory & Compliance group.

The preceding is intended as a timely update on Canadian intellectual property and technology law. The content is informational only and does not constitute legal or professional advice. To obtain such advice, please communicate with our offices directly.