Cell and gene innovative payment models in the US—will they stick?

The often-discussed and transformational launch of cell and gene therapies (C&GTs) Kymriah and Luxturna in 2017 gave hope to thousands of people in urgent need of effective treatment options. Since then, many new C&GTs have been approved in the U.S., including two of the most recent, Casgevy and Lyfgenia for sickle cell disease (SCD) in late 2023. While these advances are truly lifechanging, and in some cases lifesaving, they introduce major challenges within the healthcare system that have fueled discussions about the need to pay for these innovations differently.

The first major challenge is financial. C&GTs are among the most expensive drugs approved to date, with gene therapies averaging around $2 to $3 million for a single administration. This price is in comparison to the $300,000 to $500,000 average for cell therapies. This translates to significant upfront payments for payers, particularly those with a disproportionate number of cell and gene eligible patients. For instance, nearly two-thirds of the 100,000 U.S. citizens with SCD rely on Medicaid. To treat all eligible SCD patients with a $2 million gene therapy would require budget-sensitive state Medicaid programs to find additional budget upwards of $120 billion.

The second major challenge is outcomes uncertainty. C&GT price tags reflect their value—they are one-time treatments that promise durable response and the hope of a “cure,” often in rare disease and pediatric populations. However, long-term data on efficacy and safety are not yet available for the newest treatments. The result is a value misalignment between payers and manufacturers—payers are being asked to pay today for the value that C&GTs hope to deliver in the future.

In response to these challenges, both manufacturers and payers have been investing in a broad range of financial and value-based solutions to mitigate risk, reinforce value and ultimately enable equitable patient access to C&GTs. One of the most debated solutions has been innovative payment models (IPMs), which are agreements between manufacturers and payers—and sometimes third parties—that enable the payment for drugs beyond traditional fee-for-service agreements. You have likely come across IPMs in the context of C&GTs before, or heard terms like “patient warranties,” “the mortgage model,” “the Netflix model” or “outcomes-based agreements.”

ZS recently interviewed a mix of stakeholders, including payers, providers and third parties such as re-insurers, to better understand which IPMs are being used today and why. We found that, despite their theoretical application in the C&GT space and the publicity they continue to receive, IPMs are talked about much more than they are used today. But what does the future hold?

Today, IPMs are offered primarily for gene therapies (see the figure), which isn’t surprising given their significantly higher price tag than cell therapies. Manufacturer-designed IPMs can largely be categorized into those that allow payers to distribute payments to the manufacturer over time and those that enable a rebate that can be tied to patient outcomes. These two types of IPMs map to the two primary challenges we identified at the outset—that is, each therapy’s one-time price tag and long-term uncertainty around treatment outcomes.

Within these agreement types, the “i” in “innovative payment model” can materialize in multiple ways. As an example, terms may be linked to outcomes or durability milestones, or warranties may be used to administer the refund or rebate. Paying over time, or the “pay later” approach, allows smaller payers and employers to distribute the financial impact of C&GTs over the course of the fiscal year or multiple years. Larger payers prefer to pay the entire cost up front, for a “pay now” approach, and then receive a rebate, allowing them to tie payments to patient outcomes.

Payers of all sizes prefer rebates, as a rule, because this aligns with their billing and accounting practices today. For larger payers and premier academic centers, the budget impact of a one-time gene therapy is unlikely to upend their financials and is therefore not as big of a concern. Paying the full cost upfront enables them to instead append a rebate to the product contract, allowing them to potentially receive a rebate on an innovative product where manufacturers may not otherwise offer one. For smaller payers, their more immediate concern is near-term budget impact, so they may prefer to pay over time due to their financial sensitivity. Payers have a desire to provide measured C&GT access, but they can only do so if they remain financially solvent.

Ultimately, IPMs function as a complement to the existing financial mechanisms that payers use today to manage their risk, including reinsurance and stop-loss policies. To payers, IPMs are principally a financial tool—less about policing gene therapies’ value and more about balancing their financial risk while investing in the future. Indeed, for the larger plans implementing IPMs today, they do expect their importance to increase over time and want to be prepared for that future. As one mega payer told us, “It’s hard to argue that IPMs have been ‘worth it’ given the work involved. None of these have created a budget impact. The main benefit—proof of concept, building internal expertise—is forward looking. We nevertheless believe this is an important area to invest in.”

Despite payers’ tepid attitudes toward the value of IPMs today, there is meaningful momentum to suggest that IPMs could become more common and therefore more important for C&GT manufacturers moving forward. One of the biggest accelerators could end up being CMS’s Cell and Gene Therapy Access Model, which according to the agency is a multistate “CMS-led approach to negotiating and administering outcomes-based agreements (OBAs) for cell and gene therapies.” With the initial focus on SCD, IPMs have become an important part of the publicly disclosed strategies and narratives for Casgevy and Lyfgenia. Time will tell whether this push from CMS acts to accelerate adoption across public and commercial payers. These policy tailwinds are further strengthened by the capability and infrastructure investments that some plans have already made, as well as the increasing volume of upcoming C&GT approvals. These factors combine to create a sense of urgency for stakeholders to devise ways to pay for these therapies while ensuring financial viability for all—payers, manufacturers, providers and patients.

Yet, headwinds remain. Many of the challenges that have historically made IPMs unattractive in the U.S. still exist today. Patient portability is at the top of payers’ list of concerns. In the words of one of the payers in our research sample, “IPMs have not seen more widespread use because U.S. commercial insurance is closely associated with employment, despite the ACA [Affordable Care Act]. Likewise, payers and medical claims billing systems are not equipped to stretch single episodes of care over long time horizons.” Related challenges include inconsistent data access, data privacy and the ability to track necessary outcomes and milestones, creating implementation challenges and increasing resource requirements to ensure IPM contractual accuracy. These are macro-level challenges, inherent to the U.S. healthcare system more broadly and for which solutions are neither readily available nor quickly implemented.

The subset of health plans that have adopted IPMs for Luxturna and Zolgensma have demonstrated that existing challenges can be overcome, but the question is—at what cost? As manufacturers and payers explore whether IPMs are worth it, answers will inevitably be mixed: sometimes yes and sometimes no. Given the drivers and barriers that coexist today, IPM applicability will continue to be assessed on a case-by-case basis.

Neither C&GTs nor IPMs have fundamentally altered payers’ ingrained fee-for-service healthcare practices. IPMs are not a prerequisite for C&GT access, and most payers will continue to rely on their traditional access toolkit to accommodate and manage C&GTs, which includes strategies such as:

• Modifying their reinsurance or stop-loss policies and joining risk pools
• Restricting networks and leveraging vertical integration
• Collaborating with emerging and bespoke third-party companies to underwrite C&GTs
• Carving out C&GTs or excluding coverage altogether
• Shifting coverage from a medical to pharmacy benefit (e.g., white bagging)

Just as payers have an access toolkit, IPMs represent one arrow in a gene therapy manufacturer’s quiver to address patient access to C&GTs. As we have seen, IPMs are particularly useful for gene therapies, which have the highest cost and arguably the most uncertainty around long-term outcomes at launch. They are particularly relevant in crowded therapeutic areas where payers and providers have alternatives, like hemophilia and SCD, but their value is offset by their resource requirements in ultra-rare conditions, as we have observed with Skysona and Lenmeldy.

Once feasibility and strategic fit has been confirmed, manufacturers should consider the specific access issue they want the IPM to address. Then, they should work with payers to define the IPM across four dimensions, keeping in mind that term structure and optionality can help to optimize relevance and impact across the diverse payer types that exist in the U.S.:

1. Direction: Should the payments be prospective or retrospective?
2. Trigger: What endpoint or milestone should trigger the payment or refund? How can this be automated so that patient monitoring and follow-up are minimized?
3. Risk: What is the ideal magnitude of the payment of refund?
4. Time horizon: How long should the contract span?

That’s the easy part. Ultimately, payers want simplicity and value out of any pharma contract, so to truly enable IPMs, manufacturers can minimize administrative burden and support implementation by offering solutions to operationalize and track these areas for payers:

• Payers want to know “what good looks like.” As they evolve their internal approaches and capabilities, manufacturers can provide IPM learnings and successes, including dollars saved, for payers to emulate and to facilitate knowledge-sharing.
• Payers want efficiency. Manufacturers can help clear operational barriers, such as IPM modeling, IT and inoperability, patient monitoring and billing and coding support.
• Payers want specialized support and expect to outsource as the number of C&GTs and IPMs grows. Manufacturers can establish third-party partnerships (e.g., software solutions and financial specialists) that can be leveraged by payers as part of IPM negotiations.
• Payers want realized value and, despite theoretical IPM interest, will only evolve pilots into programs if the benefit is quantifiable. Manufacturers can understand individual plans’ IPM objectives and customize the approach, data and evidence accordingly to project and measure ROI.

IPMs are still talked about more than they are used or needed to pay for C&GTs. And in the near term, they will continue to be the exception rather than the rule to truly drive C&GT access. However, the expectation is that they will become more relevant as new gene therapies are approved, coupled with growing momentum overall (e.g., U.S. policy). Manufacturers need to be prepared for that. At a moment when cross-industry collaboration will be important to enact sustainable affordability solutions to achieve equitable patient access, IPMs can allow pharma to become part of the solution.