Drug prices based on effectiveness

Marketplace Staff Apr 23, 2009
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Drug prices based on effectiveness

Marketplace Staff Apr 23, 2009
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Kai Ryssdal: Big pharma is putting its money where its mouth is. Today the drug maker Merck announced a new pricing deal with health insurer Cigna. Merck says it’s going to adjust the price of its two diabetes drugs based on whether patient health actually improves. Joel Rose reports on pharmaceutical pay for performance.


JOEL ROSE: Traditionally drug companies offer discounts based on how often their drug is prescribed — not how well it actually works. The deal announced today between Merck and Cigna is different.

ERIC Elliott: Because it drives the right-end result from all perspectives.

Eric Elliott is president of Cigna pharmacy management. He says Merck will charge Cigna less for two diabetes drugs, Januvia and Janumet but only if patients get their blood sugar under control.

Elliott: A health plan will benefit from overall medical outcomes. And individuals will benefit through better outcomes for themselves.

And Merck stands to profit from the deal, too, even though it’s cutting prices. Fiona Scott Morton teaches economics at the Yale School of Management. She says that’s because Merck is counting on selling a lot more pills.

Scott Morton: If an insurance company will really get aggressive in making sure their patients take the drug and get refills for the drug, then the quantity I sell to that insurance company is going to go up. In addition, the people who are supposed to be taking the drug are actually taking it.

The health-care industry is experimenting with other kinds of pay-for-performance deals. Procter & Gamble just announced what’s essentially a money-back guarantee on its new osteoperosis drug, Actonel. Dan Hecht manages P&G’s pharmaceutical business in North America.

DAN Hecht: We’re standing behind our product. If somebody has been taking Actonel for six months, and if they suffered from a fracture, we would reimburse for the cost of that fracture.

Up to $30,000, in the case of a fractured hip. Hecht says the pilot program could expand to other parts of the country — if it breaks even.

I’m Joel Rose, for Marketplace.

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