Using Contracts to Encourage Post-Marketing Research

Most of the voices on Sensible Medicine are doctors and patients. This is a bit of a shame as so many people are involved in and work on healthcare and healthcare policy. We are thrilled to feature this article from three legal scholars. The essay outlines a recommendation for how we can encourage better post approval research. This piece is just a taste of the work they are doing. I encourage you to read it, and then follow their coming work.

Adam Cifu

The FDA is approving drugs and devices faster these days. The upside is that innovative products get to patients more quickly. The downside is that approvals are often granted based on a single study conducted on a small and carefully selected population, leaving uncertainty about these products’ safety and effectiveness. In recognition of this tradeoff, the FDA often orders manufacturers to conduct additional research, known as post-marketing studies or Phase IV trials, or accepts their voluntary commitments to conduct follow-up studies.

In principle, accelerated review based on limited evidence followed by a more extensive post-marketing study makes sense. This approach gives patients speedy access to new products that, preliminarily, appear to be safe and effective, while limiting the downside risk and enabling regulators to withdraw or qualify approvals in response to follow-up studies.

However, this approach only works if manufacturers actually perform post-marketing studies and release the results. Unfortunately, drug and device manufacturers often fail to do so. Although the FDA has tools with which to address this problem, it isn’t using them, or at least isn’t using them effectively. We know of no reason to expect the FDA to change course in the future. We therefore propose private regulation to bolster—or perhaps even substitute for—public enforcement. 

We propose that when the FDA approves a drug or device through an accelerated pathway, a health care insurer would offer the manufacturer a contingent contract. In return for the insurer’s agreement to pay for the drug or device, the manufacturer would have to complete a post-marketing study. The contract would contain other terms, including specifications for the study, a deadline for completion, and rewards and penalties associated with possible results. For example, if a product is shown to work as intended, the carrier may agree to pay more, but if the product turns out to be dangerous or ineffective, the manufacturer may have to pay back some or all of the money it received from the insurer.  

This approach has merit for several reasons:

• First and foremost, conditional contracts will create better incentives for the completion of post-marketing studies, protecting patients from long-term exposure to safe or ineffective drugs that never receive adequate testing.

• Second, existing insurance contracts already allow carriers to refuse to cover products whose safety or efficacy is unproven.

• Third, if insurers only pay for effective products, premiums will be lower.

• Fourth, manufacturers will take insurers’ demands seriously, because they depend on insurers for payment.

• Fifth, conditional contracts will send valuable signals to patients, providers, and politicians.

• Sixth, insurers will be more willing to pay for innovative treatments when agreements with manufacturers address the possibility that the treatments will not work.

We have more to say about all these points elsewhere, but in the limited space available here we will focus on the signaling effect.

Experience makes it clear that patients rely on providers’ recommendations and that providers are often eager to deliver treatments once they receive FDA approval. We do not need to tell Sensible Medicine readers about the speed with which profitable treatments are adopted or the frequency of medical reversals.

Conditional contracts force manufacturers to stand behind their products.  By rejecting an insurer’s offer of a conditional contract, a manufacturer would send a clear negative signal about the product in question. Unwillingness to “put one’s money where one’s mouth is” is a sure sign of puffery.  Conversely, by entering into a conditional contract, a manufacturer would send a powerful and reliable positive signal.

Conditional contracts would also help insurers, which feel significant pressure from patients and politicians to cover all drugs and devices that patients may want. An insurer that refuses to pay for a product approved by the FDA can expect to be denounced by elected officials, subpoenaed by legislative committees, and pummeled in the press. But an insurer that refuses to pay for a drug or device whose maker rejects a conditional contract would be justified: the manufacturer lacked confidence in its product, so the carrier declined to pay for it.

Consider Biogen’s drug Aduhelm, once touted as a promising treatment for Alzheimer's Disease.  The FDA approved Aduhelm on an accelerated basis despite a shortage of evidence showing that it slowed cognitive decline and amidst serious concerns about side effects including brain swelling and bleeding.  “More than two dozen major health insurers [didn’t] believe” that Aduhelm “[was] medically necessary” and refused to cover it outright. Others followed the lead of the Centers for Medicare and Medicaid Services (CMS) and agreed to pay for Aduhelm for subscribers participating in controlled studies. While both are a more drastic approach than what we propose here, the Aduhelm example is illustrative.

In response to the insurance coverage decision, “[t]he drug industry, patient advocates, and congressional Republicans [] all attacked” CMS’s decision, accusing the agency of “tacit racism, ageism, and discrimination against the disabled.” “[Seventy-eight] Republicans in the U.S. House of Representatives sign[ed] a letter to the CMS demanding broader access.” Not to be outdone, Democrats sent CMS a letter arguing that the decision to use the drug should be left to patients, their families, and their physicians.

History has shown that CMS was right, as were the private insurers that followed its approach or refused to cover the drug outright. Biogen cut the price of Aduhelm in half and then ultimately pulled it from the market, cancelling the clinical trial that was underway.  Biogen apparently lacked confidence in a trial’s ability to show that Aduhelm was safe and effective. Indeed, if Biogen thought it could prove Aduhelm’s safety and efficacy, it almost certainly would have proceeded with the trial. 

If CMS had agreed to pay for Aduhelm outright, it would have spent an enormous sum on a drug that didn’t work and could even have endangered patients. At $56,000 per patient per year, the price Biogen originally set for the drug, commentators estimated that “total spending on Aduhelm in one year alone” would have been between $29 billion and $57 billion. To put these numbers in context, total spending on all drugs covered under Medicare Part B was $37 billion, and $57 billion roughly equaled the total amount Medicare spent on all hospital outpatient services in 2019. The expected financial impact of Aduhelm was so great that CMS anticipatorily raised the premium for Medicare Part B by 14.5 percent, with half the increase being attributable to the expected cost of Aduhelm alone. 

CMS’s decision helped patients too. The physical and psychological costs would have been considerable, as dementia sufferers (and their families and caregivers) experienced the inconvenience and cost of traveling for treatment, the trauma of side effects, and the disappointment of having their hopes dashed. Financially, those covered under Medicare Part B would have shelled out about $11,500 annually for the drug, while those with Medicare Advantage plans would likely have paid $7,550 per year. 

By putting Biogen’s feet to the fire, CMS and the insurers that followed its lead averted a national catastrophe. Other similar catastrophes are likely ongoing, as billions of dollars are being spent on drugs and devices that would be shown to be ineffective or harmful if post-marketing studies were being completed and disseminated on a timely basis. Insurers can perform a valuable service by incentivizing manufacturers to follow through on these studies.

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Wendy Netter Epstein is Vincent de Paul Professor of Law, Associate Dean of Research and Faculty Professional Development and Faculty Director, Jaharis Health Law Institute at DePaul University College of Law.

David A. Hyman is Scott K. Ginsburg Professor of Health Law & Policy, Georgetown University Law Center.

Charles Silver is Roy W. and Eugenia C. McDonald Endowed Chair in Civil Procedure at the School of Law, University of Texas at Austin.

Photo Credit: Cytonn Photography