Cell and gene therapies have been grabbing news headlines, both for their potential to cure rare diseases and for their million-dollar price tags. Milliman pharmacists and healthcare experts explain why state Medicaid agencies are particularly affected and the strategies many are using for predicting uptake and covering these high costs.

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Melanie Kuester: Hello and welcome to Critical Point, brought to you by Milliman. I'm Melanie Kuester. I'm a clinical pharmacist and senior healthcare consultant at Milliman, and I'm going to be your host today. In this episode of Critical Point, we're going to talk about cell and gene therapies (CGTs)—breakthrough treatments that are helping patients with rare diseases but presenting huge costs, and maybe sometimes headaches, for state Medicaid agencies.

I have Kristin Niakan and Brittany Schock with me today and they are a part of our Milliman team. They will be discussing how cell and gene therapies are changing pharmaceutical calculations and the strategies states are using to pay for these drugs. Brittany, would you like to tell a little bit about yourself?

Brittany Schock: Yeah. Thanks, Melanie. So I've been here at Milliman for about a year and a half. And prior to coming here I was at the state of Colorado's Medicaid program as the preferred drug list and clinical strategy pharmacist. And there my work primarily focused on the pharmacy benefit, but also helped execute three value-based contracts, one of which was for a gene therapy, and also monitor the drug pipeline and estimated uptake and costs for cell and gene therapies. So I'm happy to be here.

Melanie Kuester: Thank you. And Kristin?

Kristin Niakan: Hi, I'm a pharmacy management consultant with Milliman. I've been in the Medicaid pharmacy space for over six years, where I've supported over 15 state Medicaid agencies, both on the fee-for-service and managed care side.

Melanie Kuester: Thank you for that. So let's go ahead and get started with our discussion today. Let's start at a really high level. What are cell and gene therapies and why are we even talking about it on this podcast today?

What are cell and gene therapies, and why are they grabbing all the headlines?

Brittany Schock: Yeah, cell and gene therapies are—we're in a very exciting time right now with them. They're not new, but the number of them on the market is becoming more significant. And also they're just becoming more available for a greater diversity of diseases. Some diseases even have more than one gene therapy option out there right now, such as beta thalassemia, sickle cell, and hemophilia B. So they're pretty interesting in that they're sophisticated. The medicinal technology, it's almost like personalized medicine for some of these.

And the costs are pretty high. The highest-cost gene therapy right now is over $4 million, and others are commonly in the $2 million and $3 million range. They are a one-time per-lifetime treatment. They may potentially cure a patient for life. They treat rare diseases, especially in children, and some diseases that really have no other option. And these diseases shorten the lifespan compared to patients or people without the diseases.

And what are they being used for right now? They're typically out there to treat oncology and blood disorders, as well as eye diseases and neuromuscular and other muscular diseases.

How CGTs work—and why administration contributes to the costs

Brittany Schock: And how they work is really—to boil down very, very complex processes for the purpose of this podcast—the cell therapies modify patients’ own cells, and they modify them so that they can attack the disease. Other gene therapies use the patient's own cells and introduce a new therapeutic gene into the patient via their own cells. And these new therapeutic genes can help attack the disease or genetic deficit. Some administer a corrective gene, which were manufactured and then introduced into the patient, and this is a little bit less complex than what we're talking about when we're using patients’ own stem cells. So if you think about a stem cell transplant process, some of these gene therapies are essentially using that same process. Last year, there was one that was approved to edit patients’ genes to counteract the disease as well.

So some of these are, you know, they can take a significant amount of time to administer, they're not just going in and getting a one-hour IV infusion. Lyfgenia and Casgevy, which were approved last year for sickle cell disease, are a nine- to 12-month process, and that's more like a stem cell transplant, where they're collecting the patient's stem cells, extracting them out of the patient, sending them to the manufacturing site for modification, and then being readministered back into the patient. And then the patient has to stay in the hospital after for recovery.

And these also can have significant administration costs outside of the $2 million to $3 million gene therapy cost for all that hospitalization, all that care around the administration of the gene therapy.

Melanie Kuester: I know the three of us, we're talking about these really high-cost drugs nearly every day to the point that we're like, "It's another drug, it's $2 million dollars." But when Lyfgenia was approved, I remember talking with family members, and I said whatever the million-dollar cost was associated with it. And they're like, “That's just the cost of the drug. No, that can't be the cost of the drug. That's the cost of everything.” I'm like, “No, no, no, that's really just the cost of the drug.” And as you were pointing out, Brittany, there's a lot of other administration costs associated with this for the hospitalization time, and getting the patient ready to receive it, as well as to make sure that there's no side effects afterwards.

And so what we really want to talk about today is—when we think about how the pharmacy system works, whether you go to your local drugstore, or you have a specialty pharmacy or a hospital, they purchase the drug ahead of time, it's essentially ready for the patient when they come in and they get it. This just turns everything on their head, and so when we think about paying for it, Kristin, how are states approaching this? I understand, from a commercial standpoint, there can be rules and other systems put in place to really mitigate and minimize the number of patients who receive these, but when we're talking about state Medicaid programs, that's a whole different ballgame.

Why are cell and gene therapies of particular concern to Medicaid?

Kristin Niakan: Yep, you're totally right. State Medicaid programs are required to cover these drugs if they participate in the Medicaid Drug Rebate Program and, currently, all states participate in the Medicaid Drug Rebate Program. And what that basically says is that, for a state's participation in that program, they have to cover all of a participating manufacturer's drugs with very few exceptions. And so Medicaid programs are required to cover these drugs. And I think another challenge for Medicaid is that many of these rare diseases that these drugs treat, they're more prevalent in the Medicaid space, especially because there is a higher proportion of pediatric population in Medicaid.

Melanie Kuester: I'm going to interrupt you. And just to level set, many of these cell and gene therapies that we're talking about are disproportionately treating these rare diseases in kids versus rare diseases in adults.

Kristin Niakan: Yep, that's correct.

Melanie Kuester: OK. I just wanted to make sure that as we're talking about Medicaid and saying that they have a lot of these patients, this is why it matters.

Kristin Niakan: Absolutely. And then just another challenge for Medicaid, and this isn't necessarily unique to Medicaid, but many of these cell and gene therapies treat rare or very, very rare conditions, and so it just makes it really difficult to project utilization and uptake of these drugs.

The impact of missing diagnosis codes for rare diseases

Melanie Kuester: So I know I've worked on a few projects where we've attempted to do this. How are states doing this across the board, Kristin?

Kristin Niakan: Luckily, states have access to very robust claims data sets. And we at Milliman have projected utilization of these drugs for a handful of our clients. But one of the challenges that we've run up against is that many of these rare diseases don't actually have diagnosis codes that are specific enough to get down to the truly eligible population. So I saw a statistic that there are over 7,000 rare diseases, but we only have about 500 specific ICD-10 diagnosis codes for rare diseases. Now that's all going to change with the introduction of ICD-11 codes, which has more than 5,000 rare disease codes. So that will be interesting to see how that helps our process in identifying some of these members.

Melanie Kuester: But in terms of an ICD-11 timeline, I think we're probably still talking like decade-plus off. If I recall correctly, I think it took 15 or some odd years after the World Health Organization approved ICD-10 before the U.S. adopted it, so it sounds like we're kind of stuck with what we have at this point in time for at least the foreseeable future.

Challenges in projecting CGT utilization

Kristin Niakan: Yep. And that's true. So we can estimate the eligible population based on the clinical trial design, based on the FDA approval, using different fields in the claims data, potentially putting some assumptions around the prevalence of disease severity. But projecting who is eligible is one part of the equation, and then the other part, which in my opinion is the most difficult part, is forming assumptions around how many individuals who are eligible are actually going to take the drug.

And there are so many challenges that may inhibit a member who is eligible from receiving these drugs. They may be really far from one of these Qualified Treatment Centers (QTCs). So typically, these drugs are administered in university hospitals or really specialized treatment facilities that are called Qualified Treatment Centers. And for an eligible member who is in maybe a more rural setting, may have to travel long distances to access one of these Qualified Treatment Centers. And then within the Qualified Treatment Centers themselves, they may not have capacity to treat a large volume of these patients.

Melanie Kuester: I would say, Kristin, that definitely dovetails some of the research that we've been doing here in looking at this. Because, to your point, not every academic medical center is a Qualified Treatment Center. The institutions have to go through additional training and research. I don't recall which of the CGTs it was, but I believe it launched with like three QTCs across the country. So when it's launching with three facilities across the country, to your point, it really affects patients who don't happen to live in a 200-mile-radius area or a 100-mile-radius area, or as we're talking about Medicaid patients, when we really think of the capacity to travel and to get places, that can be really hard.

Kristin Niakan: And in many cases, it's not just the patient who's going to need to travel, but also potentially their caretaker. And absolutely, it may require out-of-state travel, especially for some of these ultra-rare diseases that do not have Qualified Treatment Centers in every state.

Melanie Kuester: So we talk about location. There's also, I'm assuming, probably manufacturer capacity. Do manufacturers have the capacity to treat? So let's just make up a number and say that there's 500 patients in the U.S. who are eligible, do manufacturers have the capacity to even treat them if they were all wanting to be treated within the same year?

Kristin Niakan: Right. Yep. And then there's also the decision between the provider and the patient, weighing some of the risks versus the benefits of taking one of these therapies. So some of the cell and gene therapies have fairly significant risk profiles. And as Brittany was mentioning earlier, the sickle cell disease gene therapies have a fairly long treatment duration, so all of these factors really influence the uptake of cell and gene therapies, which is really hard to project. And when these drugs were first launching, they were projecting $30 million in 2023, and we really haven't seen that significant uptake that we were expecting initially.

Patient and provider considerations surrounding cell and gene therapies

Melanie Kuester: Yeah, and I think we haven't touched on this yet, but we've said that there's a lot of these therapies for pediatric patients where there aren't really a lot of other good treatments. But in SMA, since Zolgensma came out, there's now an oral therapy that can help some folks. And we talk about adults for the hemophilia A and hemophilia B, for decades there have been other treatments that patients can use, but you have to use factor product or you have to use one of the antibody products. But there are alternatives for some of these conditions, which may also be affecting that uptake or that election rate that patients are—when they're making those decisions with their providers.

Brittany Schock: Yeah, I think the providers are really taking a look at their patients and discussing with their patients who is the right patient to use these gene therapies. They are sort of still pretty new, right out of the gate, and so they're probably recommending this pretty sparingly as they find who that, quote, "right patient" is.

There's also a potential that if you use one of these, you may not be able to use another one that comes out in the future, if it's used with the same vector. Some patients that receive these therapies, they develop antibodies to them just because they had it administered and it's a foreign body and their immune system reacts. And so that can negate them from being able to use another one in the future. So they're really trying to, you know, be careful of all of the risks and unknowns at this point. And there will be other gene therapies coming out in the future that aren't even in the pipeline right now.

Kristin Niakan: Brittany, that's actually another challenge for state Medicaid programs, is that when they are building their budgets or building their capitation rates, not only do they have to consider the gene therapies that are currently approved, but they have to consider gene therapies in the pipeline. And gene therapies may not always launch when we expect them to, as we saw a few years ago with Roctavian for hemophilia. And so that's just an additional challenge for state Medicaid agencies.

Budgetary and capitation considerations for state Medicaid agencies

Melanie Kuester: Yeah. And that was actually the next question that I had for the two of you is, so even though we're saying that election rates and uptake may be a little bit slower than we had anticipated, you know, with having 10 of these therapies on the market at this point in time, even if you have one or two, that could still be a lot of money. So what are states putting in place? And I also can't imagine that these patients are evenly distributed. We're talking about the rareness of these, so I would only anticipate that there's pockets and these are disproportionately distributed. So what are states doing to put themselves in a place that they're accounting for this in their capitation rates, and they're also planning to have funds available when that patient does pop up over the course of a year?

Brittany Schock: We're assisting states with putting together risk corridors or risk pools exactly to address what you just mentioned, Melanie, when they're a rare disease, you know, one managed care organization (MCO) might have one or two patients and the other MCOs have none. When states are paying the MCOs a per member per month (PMPM) across the board, some MCOs are losing and some MCOs are gaining based on the distribution of who's getting these gene therapies. So we've helped states with risk corridors and risk pools and getting creative with trying to figure out how to best manage that disproportionate share of claims.

Also, states are just carving them out of the managed care benefit altogether. So rather than including them in the PMPM rates, they're carving them out and then the states are paying the providers in the hospitals directly for them so that they're not able to have a disproportionate risk in that way for the cost of the drugs.

Melanie Kuester: I've helped support some work and it seems that no two states have the same program.

Brittany Schock: If you know one state Medicaid program, you know one state Medicaid program.

Significant manufacturer rebates for CGTs

Melanie Kuester: And, you know, you mentioned it a little bit, of talking about ways to help states pay for this and/or make it more affordable. Kristin, I know you've done some work with rebates and really focusing on making sure that states are getting the rebates for the medications that they're covering. Are these manufacturers participating? Are these drugs eligible for either statutory or supplemental rebates?

Kristin Niakan: Yep. So when these manufacturers participate in the Medicaid Drug Rebate Program and the states do and they have to cover these drugs, there is a statutory rebate. So for brands, it's typically 23.1% of the average manufacturer price. And so because of the cost of these drugs, you know, $2 million, $3 million dollars, when you take 23.1% of that, it equates to hundreds of thousands of dollars. And then when you're looking at, you know, the upper end of the cost of these gene therapies, you know, we're approaching $1 million dollars in rebates. So there's significant rebates to be had here and so it's, you know, really important that states are able to capture the rebate.

There's a handful of things that states have to do to ensure that they are able to collect the rebate. So one, the NDC has to be included on the claim. Historically, drugs that were included in a bundled payment, so a DRG or an EAPG, were not eligible for rebates. But there was a final rule that just came out in September of 2024 that changed this a little bit. And now for drugs that are included in a bundled payment, as long as they can capture the cost of the drug separately, they may be eligible for rebates.

And so, you know, historically, some states have actually carved these drugs out of, or not allowed the drugs to go through bundled payments. Now that may not be an issue, as long as states have a process in place for having a separate billing line on the claim.

Melanie Kuester: Yeah, and I can imagine all these things that we're talking about for states, you know, and making sure payment is accessible to them, and there's a pathway forward with these institutions, is probably also potentially a barrier for institutions wanting to become, you know, Qualified Treatment Centers to make sure that they themselves, as we talked about before, these drugs really upended how medications are paid for and obtained in our healthcare system. And so I think it's really important for manufacturers as they're looking at their, you know, launch processes to think through where are the patients. If they're Medicaid patients, where are they located, what facilities are near there that would be eligible to become QTCs? How can I get them trained up? And then working with those institutions from, you know, billing and coding guidance to make sure that everybody along the whole supply chain is capable, competent, and able to make sure that the patient in the end is getting the necessary treatment.

How CMS’s Cell and Gene Therapy Access Model will help

Melanie Kuester: There was a program that the federal government was launching, the gene and therapy access model, that came out from CMS. Can one of you share a little bit more information about that? And I believe it was with the sickle cell therapies, but I also believe I read that it was eventually going to be expanded to the others. Can one of you talk about the access model?

Brittany Schock: Yeah. Earlier this year in January, CMS released an announcement for the Centers for Medicare and Medicaid Innovation, or CMMI, model. That's a voluntary prescription drug model, as you mentioned, Melanie. And basically, CMS aims to partner with Medicaid states and help with these sickle cell gene therapies initially to lower costs and improving patient outcomes through access. Access is one of the big things that they're working to help states with. So initially, it is for the sickle cell gene therapies, but they do state that in the future it may be expanded to other gene therapies.

And so really what it's going to do is CMS is going to negotiate an outcomes-based agreement with one or both of the manufacturers, and then the states have the option to participate. So it is a lot of administrative burden and a lot of work to have each state basically set up from the ground negotiated value-based contracts or outcomes-based agreements on their own. And so CMS is going to negotiate them on behalf of the states, and then states have the opportunity to apply and participate. CMS is negotiating key terms with the manufacturers—that is, you know, the structure of the rebate, what the performance measures are. They're going to help states with data collection. They're also seeking the manufacturers to pay for fertility services for these patients that get one of these gene therapies, because the process is known to have a risk of infertility.

States also have an opportunity to seek additional funding for implementation through a notice of funding opportunity. And then separately from the access model, states still can negotiate their own supplemental rebate, if they desire, for any gene therapy.

What are outcomes-based contracts?

Melanie Kuester: Brittany, you brought up a term that I just want to make sure that the audience is familiar with. You mentioned outcomes-based contracts or value-based contracts. Can you share a little bit about what those are for people who may not be familiar?

Brittany Schock: Yeah, great question. So they're more based—the rebate, or the contract—is more based on the performance of the drug, whether or not there are preset parameters around whether or not the drug does what it's supposed to do, whether or not the patient has success on the drug. So for these gene therapies that are supposed to last potentially years, if not decades, if not a lifetime, it's ideal because you can look for, is the drug working long-term? If the drug does work as long as it's expected to, then the state would be paying the full cost of the drug. If the drug stops working earlier than expected, then the manufacturer could potentially pay back a rebate to the state to make up for that lost performance.

And there's lots of different kinds, that's just one example. There's also a Netflix-like model out there where the cost of a drug could be negotiated with a ceiling price, and then they can utilize as much quantity, as much of the product, that's necessary. This was done in the state of Washington and the state of Louisiana for hepatitis C medications. That works really well for that type of disease state and type of medication.

But the outcomes-based contracts are really just kind of a new way to think about how to contract and negotiate rebates for these drugs, different from the standard supplemental rebate, which really is just paid per unit dispensed, and there's no measuring outcomes or measuring performance. It's just if the unit pays, then the rebate is collected.

Melanie Kuester: And I think these are a lot more exciting or worth the administrative headache when we're talking about something that's millions of dollars and you're talking about an up-front one-time cost that's really extraordinarily high, versus a lot of our other treatments that, if medication stopped working or didn't work, you just stopped paying for the therapy and patients stopped getting it. So you weren't necessarily out the full course.

Brittany Schock: Exactly.

Melanie Kuester: Yeah, and I know some of the administrative burden was a headache for some of those other therapies, but I think many people would much—are probably much more amenable to it when we're talking about millions of dollars.

Well, I really want to thank both of you for your time today. You can read the related paper on this topic called “How Will Medicaid Pay for Very High-Cost Cell and Gene Therapies?” on our website, Milliman.com.

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