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As Pricing Scrutiny Intensifies, Pharma CEOs Advocate Value-Based Deals

While drug company CEOs are increasingly pilloried by activists following a series of price-hike scandals, at least two business leaders are advocating a pricing model they say could help restore the industry's credibility.

gettyimages-471744337-compressorIt’s time more drugs were priced based on their effectiveness at treating illness, rather than the cost of their production, according to the Novartis CEO Joe Jimenez and Amgen CEO Robert Bradway. Jimenez said the model could even provide a pricing benchmark for the entire healthcare industry.

Novartis has already applied so-called value-based pricing to treatments for multiple sclerosis, heart failure and leukemia, though companies have only started examining the model in recent years and the practice isn’t yet widespread. It works by setting up pay-for-outcome agreements with insurance companies, where the drug supplier cuts the cost of its medicines if they don’t work.

“We want to be rewarded for the tangible outcomes our products provide patients, not simply selling pills,” Jimenez wrote in Forbes.

“We want to be rewarded for the tangible outcomes our products provide patients, not simply selling pills.

Amgen’s Bradway is also an enthusiast, telling a recent earnings briefing that the company accepts it shouldn’t be rewarded if its products don’t deliver a clear benefit to customers. “We have value-based contracts in place with a number of payers already and expect to do more,” he said.

Whether such moves will quiet criticism of the industry remains to be seen. Companies including Mylan, Valeant and Turing have been sharply criticized by lawmakers and CEOs from some rival drug companies for dramatically increasing the price of drugs, some of them life-saving.

Fearing a regulatory backlash, some leaders, such as Allergan CEO Brent Saunders, have pledged to limit price increases to more reasonable levels.

A big test of how much traction these efforts are gaining will come in California today. The state is due to vote on controversial drug price-control measure Proposition 61, which would prevent state agencies that cover millions of people from paying more for drugs than the federal Veterans Affairs department.

The campaign has recently gotten ugly, with supporters of the move releasing ads on social media sites such as Facebook and YouTube showing the CEOs of six top pharma companies on “Wanted” posters.

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