Ushering in a New Era of Antibiotic Innovation With a Netflix-Style Subscription Payment Model
HTA Quarterly | Winter 2020
Ushering in a New Era of Antibiotic Innovation With a Netflix-Style Subscription Payment Model
Antibiotic stewardship programs and increasing drug development costs have disincentivized manufacturers from pursuing antibiotic pipelines. As unmet need rises for novel antibiotics to treat resistant infections, innovative Netflix-style subscription payment models, which provide a consistent revenue stream regardless of utilization, are leading the way to new ideas for funding antibiotic development.
Antibiotics once captured the excitement that specialty, rare, and cell and gene therapies now hold in the modern biotech era. There was rapid growth and innovation of antibiotics from the 1940s to 1990s. However, the initial excitement for these new therapies faded when scientists discovered that antimicrobial resistance developed ~2 to 3 years after the introduction of an antibiotic. Because of rising antimicrobial resistance, hospitals in the 1990s began implementing antimicrobial stewardship programs to combat growing antibiotic resistance. Due to these programs, novel antibiotics are now reserved as later-line therapy for more serious and difficult-to-treat infections, leading to lower utilization and increased difficulty for manufacturers to recoup research and development costs. In response, manufacturers have divested from antibiotic development programs over the past 20 years, which has created an unmet need for novel antibiotics targeting resistant bacteria.
In July 2019, the National Institute for Health and Care Excellence (NICE), National Health Service (NHS) Improvement, and NHS England announced a trial pharmaceutical payment system for a first-of-its-kind antibiotic subscription model to incentivize pharmaceutical manufacturers to develop novel antibiotic classes and products. Launched on June 17, 2020, the incentive will pay pharmaceutical manufacturers up to £100 million (~$128 million USD) to develop and market novel antibiotics based on the assigned value to the antibiotics rather than volume of antibiotics sold. A few products targeting serious bloodstream infections, sepsis, or hospital-acquired pneumonia will be selected for the initial trial and will undergo an antimicrobial-adapted NICE health technology assessment through 2021.
The NHS England, Department of Health and Social Care, and NICE are developing a working model for assessing the new antibiotics, and they aim to share the model with other countries, so that other countries can create and test similar models.
Benefits and Challenges When Adopting Subscription Models
Subscription models cap the maximum total payer cost and set revenue for a drug across the agreed upon duration of the contract for manufacturers. These arrangements provide higher financial certainty for both payers and manufacturers by reducing the risk of lower revenue for manufacturers and overspending for payers (Figure 1). Inherent in the design of these models is the assumption that there is uncertainty in utilization of the medication; thus, this subscription model approach is more favorable for scenarios with this uncertainty. The Netflix-style subscription model applies well to antibiotics in the United Kingdom (UK) because of the high level of uncertainty in the volume of antibiotics that manufacturers will be able to sell, as well as the success in commercializing these novel antibiotics.
Figure 1. Risk in Traditional Payment Approach vs Subscription Model
Another benefit of subscription models centers around cost and affordability of expensive medications. Since subscription models set an agreed-upon payer reimbursement amount based on estimated utilization, patients and payers will be able to better afford high-cost treatments because per-patient out-of-pocket spending can be lowered (Figure 2).
Figure 2. Potential Benefits of Existing US Subscription Models
One potential challenge in implementing a subscription model, especially in commercializing antibiotics, is developing standards and assessments for evaluating the treatment’s value. Value is generally determined based on outcomes and cost-effectiveness and could take years to determine, especially if based on real-world evidence collected after a drug is approved and marketed. For the UK’s antibiotic subscription model, NICE plans to use an adapted antimicrobial health technology assessment to decide which antibiotics are of high value and should receive funding. The outcomes that NICE uses to assess these novel antibiotics could affect the timing of payment, antibiotic selection by the NHS and/or NICE, and utilization. The value assignment of commonly used antibiotics will also be important. However, this will require assessing how physicians in modern clinical practices assign value to antibiotics that have been on the market for several decades. Addressing these challenges will be necessary in order to determine unmet needs in currently used antibiotics, which will be critical for the success of this subscription model.
Uncertainty can also be a challenge. Payers and manufacturers agree to spend a pre-determined dollar amount for unlimited access to a product, which could lead to overspending from the payer perspective or lower revenue than expected from the manufacturer perspective. Volume estimation becomes a critical aspect of this agreement to predict beneficial outcomes for payers and manufacturers.
Feasibility and Implications for Adoption of Subscription Models Globally
A recent PricewaterhouseCoopers survey indicates moderate-to-high usage of subscription models across all products/indications around the world (Figure 3). Subscription models can be a good financing strategy for high-cost drugs to provide broad access to typically high-cost medications or to support the development and commercialization of treatments with high unmet needs.
Figure 3. Pharmaceutical Executives Around the Globe Are Using Subscription, Mortgage, and Indication-Specific Pricing Models
Adoption of subscription models by high-income countries, especially the US, will be integral for successful global implementation. For example, in the case of antibiotics, if only a few smaller pharmaceutical markets choose to participate in antibiotic innovation through subscription models, the impact will be limited. One of the main challenges for adopting these in the US, is that the subscription model approach may be more easily implemented and standardized in countries with single-payer healthcare systems (Figure 4).
Figure 4. Barriers to Antibiotic Subscription Models in the US
The UK and Australia both have centrally administered health systems with regional flexibility. Australia has national and regional financing and policy-setting roles, and the UK is similar, with national financing and national and regional policy-setting roles. All citizens receive a publicly funded benefits package that covers physician, diagnostic, and hospital services, and inpatient medications. Since single-payer healthcare systems only have 1 payer that enters manufacturer contracts, they can negotiate lower prices for an entire population. In contrast, the US has so many payers, both commercial and government-funded, that it would be quite difficult to negotiate manufacturer contracts that would provide access to a medication for almost all citizens. In other words, even if subscription models were implemented by some US payers, it would only provide access for patients whose health insurance had negotiated contracts with the manufacturer.
Future Impact of Subscription Models
During the golden era of antibiotic development and commercialization, unmet need for common infections was driving antibiotic innovation. Today, the unmet need in antibiotics is not for common, widespread use but a niche subpopulation of patients with resistant bacteria and serious infections, providing fewer commercial incentives to develop antibiotics. The adoption of antibiotic subscription models is creating financial incentives for manufacturers to innovate to meet these otherwise high-risk, low-reward areas of unmet need.
Success in the antibiotic payment scheme announced by NHS England may encourage the use of Netflix-style subscription models to advance development and innovation in other therapeutic areas as well. Considerations for disease states suited for subscription models include those for which treatments are acute and have high effectiveness, cost, and/or unmet need, and higher uncertainty surrounding utilization. Thus, cell and gene therapies and treatments for rare diseases, and cancer may be ideal candidates for pursuing subscription models as a path to stimulate innovation while providing greater financial certainty to payers and manufacturers.
Globally, as the healthcare environment continues to struggle with cost containment while providing access to valuable care, strategies like subscription models may receive greater attention as possible solutions. Given the potential role and positive impact for subscription models in certain disease states, payer and manufacturer experiences with hepatitis C and antibiotics may prompt more Netflix-style subscription models in other disease states with high-cost treatments.
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