
Eddie Albers
Managing Director, Industry Leader – U.S. Life Sciences Practice
Advanced gene, cell, and specialty therapies have the potential to transform patient lives. However, they can come at a steep financial cost to patients, payers, and the healthcare system, with prices running into the hundreds of thousands, if not millions, of dollars. A relatively new concept known as a drug warranty is gaining traction as a means to offer some financial protection when these costly treatments do not achieve their intended clinical objectives.
This is the first in a series of articles exploring the use of warranties in a pharmaceutical environment, designed to address drug manufacturers’ challenges, educate patients and end payers, and expand awareness about the value of warranty programs to the wider healthcare system.
Gene therapies that have been effective for some patients may not always achieve their intended clinical outcome for every patient. For example, in the phase three clinical trial for a gene therapy used to treat the severe bleeding disorder hemophilia A, 121 of 134 participants (90.3%) had no treated bleeds or fewer treated bleeds a year after drug infusion. However, 9.7% of patients continued to experience bleeds, some at a rate greater than before they received the treatment. In this example, the therapy successfully achieved the desired clinical outcome for most patients, but 13 patients did not achieve the intended clinical outcome.
When a therapy does not deliver its intended clinical outcome to a patient, the repercussions ripple across the healthcare ecosystem, from the patient who failed to receive the expected benefits of treatment, to the end payer — such as a self-funded employer plan, fully insured plan, or stop loss carrier — whose on the hook for the exorbitant cost of the therapy, to the drug manufacturer, whose overall brand may reputationally suffer with each negative outcome.
In 2024, the FDA approved nine new cellular and gene therapies as innovation continued to advance. Yet, despite these approvals, less effort has been directed towards addressing the financial challenges inhibiting successful commercialization and patient accessibility. The aggregate costs of these therapies are estimated to average over $20 billion per year, according to a recent report.
As more of these high-cost therapies go to market, potential patients and other end payers are seeking assurance from pharmaceutical manufacturers that they will deliver on their clinical promises — and that there will be some financial recourse if they do not. Although a drug warranty’s design will vary based on the therapy and manufacturer, they typically provide assurance that if a particular clinical outcome is not achieved during a prespecified time, the manufacturer will reimburse the end payer up to the full cost of therapy.
Such warranties aim to address the need for financial recourse for end payers, help distinguish a manufacturer’s product in the market, and reduce the barriers to patient access.
The end payer is the party that bears true financial risk. It could be the patient, a stop loss/reinsurance carrier, a self-insured employer group, a traditional health insurance company, or a government-based plan like Medicaid or Medicare. For example, funds received through a warranty program can be used by a health plan to cover care for the same patient or other beneficiaries of the plan, reducing the financial risk a health plan takes when deciding to cover and authorize a therapy.
By providing a means of financial recourse to patients and end payers, pharmaceutical manufacturers may be able to:
There are two primary applications for drug warranty programs, though this article will largely consider the first:
A drug warranty program may not be an effective risk management tool for every pharmaceutical manufacturer or every therapeutic they offer. Before employing a warranty strategy, manufacturers should thoroughly develop a business case for its use: How will offering a warranty benefit the patient, the end payer, and the manufacturer’s brand?
Once a decision is made to explore a warranty strategy, it is crucial to partner with an expert advisor that not only understands the regulatory and legal parameters of a warranty, but also how to efficiently price and operationalize an effective warranty program. With their help, drug manufacturers can create a customized warranty that outlines the duration of the program, defines the conditions that trigger payment back to the end payer, as well as the amount of the warranty payout.
Although warranty terms will be unique to each drug, most programs follow a one- or three-year term and outline the following:
Drug warranty programs must adhere to the latest Centers for Medicare and Medicaid Services (CMS) rules and state insurance regulations. Recognizing the need to foster innovation, CMS has encouraged the adoption of drug warranties, value-based agreements (VBAs), and innovative payment plans to:
Marsh and Octaviant Financial, Inc., a recognized innovator in novel drug warranty and payment models, joined forces in 2023 to create a specialized warranty platform that enables pharmaceutical companies to expand patient access to their life-changing gene, cell, and specialty therapies.
Together, the Marsh and Octaviant warranty platform can support pharmaceutical manufacturers in developing customized drug warranty solutions from concept to execution. Through our partnership, we ensure compliance with the latest CMS guidelines and state insurance regulations, allowing for meaningful reimbursement of the therapy. In addition to the warranties, the Marsh/Octaviant program provides clients access to strategic insights and proprietary tools, such as therapeutic actuarial services and Octaviant’s precision finance platform, to bring highly competitive warranties to market.
To learn more about how drug warranty programs could benefit your organization, speak with a Marsh representative.
Coming soon: The next article in our series will compare the use of warranties to other agreements and market access tools, diving deeper into CMS guidelines for drug manufacturers and existing barriers to access for patients and end payers.
Managing Director, Industry Leader – U.S. Life Sciences Practice