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Using drug warranties to mitigate financial risks of costly therapies

Advanced gene, cell, and specialty therapies have the potential to transform patient lives.

05/01/2025

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.

When therapies fail, repercussions ripple

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.  

Who are the end payers for a therapeutic warranty?

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:

  • Increase adoption of therapies.
  • Improve patient outcomes.
  • Yield significant savings to end payers and the healthcare system.

Two primary applications for drug warranty programs

There are two primary applications for drug warranty programs, though this article will largely consider the first:

  1. A drug warranty program for a high-cost therapy. Suppose a patient takes a gene therapy for sickle cell disease (SCD). One of the prime objectives of treatment — and indeed the primary endpoint of clinical trials in SCD — is the reduction in the number of vaso-occlusive crises (VOCs), which are painful blood vessel blockages that can lead to acute chest syndrome, stroke, jaundice, and heart failure. A warranty for such a therapy may aim to reduce the number of VOCs experienced by a patient by a specified amount or range over a period.

    If a reduction in VOCs does not occur during the predetermined period, the payer may be reimbursed for all or a portion of the cost of the gene therapy. For obvious reasons, the reduction in VOCs is an important outcome for a patient. But it is also important for payers because each VOC that results in a hospitalization or disease progression equates to a higher cost episode of care. In this case, a drug warranty can provide reassurance to the end payer that if the desired clinical outcome was not achieved within the specified timeframe, they will not bear the financial burden on their own.

  2. A drug warranty program for a lower-cost drug, serving as a differentiator in a competitive market. Consider a hypothetical eye drug designed to treat vision loss associated with an age-related eye disease. In this scenario, two drugs with similar clinical efficacy and safety profiles are available: Drug A, without a warranty, and Drug B, which costs slightly more but offers a warranty with clearly defined terms.

    In our example, the warranty for Drug B may aim to achieve a specific level of vision improvement or stabilization over a defined period of time. If patients do not achieve the predefined outcomes, the payer would receive a warranty payout, which could cover a portion of the drug's cost or provide additional support for alternative treatments. This warranty serves as a differentiator in a crowded market while also giving patients and payers some assurance about the drug's efficacy. By mitigating the financial risk associated with potential treatment failure, the warranty may encourage more patients to choose Drug B. The manufacturer may benefit from enhanced trust in their brand, while patients gain access to the same clinically effective treatment as Drug A with an added layer of financial security.

Determining the suitability of a drug warranty program

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. 

Warranty program basics

Although warranty terms will be unique to each drug, most programs follow a one- or three-year term and outline the following:

  • The duration of the warranty
  • The specific circumstances that trigger payment, such as:
    • Definition of therapeutic nonperformance
    • Discontinuation of use if a patient decides to stop taking the drug
  • The total amount being reimbursed under the policy

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:

  • Create more flexibility for providers and payers.
  • Drive adoption of potentially life-altering drugs.
  • Outline how warranties impact best price calculations.

Expanding patient access through partnership

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.

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Eddie Albers

Eddie Albers

Managing Director, Industry Leader – U.S. Life Sciences Practice