What Is Gene Therapy?

Gene therapy is the therapeutic delivery of polymers into a patient’s cells for the purpose of treating a disease. Polymers interfere with gene expression or correct mutations.

There are a number of gene editing technologies. The easiest way to describe gene editing is as a cut-and-paste function in the human genome. Gene editing technologies essentially cut out and replace the defective portion of a gene. There are then a number of ways in which the corrected gene segment can be reintroduced to the body’s system through both viral and non-viral mechanisms.

Two Types of Genes

It’s important to remember that there are two types of genes. Germline genes are responsible for the replication of the body’s genetic material and, if modified, would result in a sustained and reproducible change from generation to generation. Various ethical agreements and strictures have taken editing germline genes off the table.

Somatic genes are the genes that belong to individuals and are not used for reproduction or generational transfer of genetic information. Those are the type of genes used in gene editing therapies.

Gene Editing Technologies and Their Uses

There are a number of gene editing technologies. The latest innovations are Clustered Regularly Interspaced, Palindromic Repeats (CRISPR) nucleases and Transcription Activator-Like Effector (TALE) nucleases, both of which are easier to use and less costly than earlier technologies.

Some earlier generations, however, may well be as helpful or more helpful, depending on the disease state. For example, in 2014 the University of Pennsylvania used Zinc-Finger Nucleases on a subpopulation of HIV patients with promising results.

Most recently, the CRISPR-Cas9 technology has captured the popular imagination. In late October, the first CRISPR gene editing technology was tested in China. These are emerging technologies, and they’ll begin to inform coverage and reimbursement as they reach a greater degree of maturity.

As one would expect, first-generation gene therapy products most often address rare genetic diseases that tend to be monogenetic or caused by a single genetic defect. For example, in an ideal world, if a patient has sickle cell anemia and we know exactly why and where that gene is defective, we should be able to edit and correct that defect.

Delivery System Implications

Gene therapy is more complicated than anything we’ve seen to date. It requires the highly choreographed coordination of laboratory, pharmacology, pharmaceutical, inpatient, outpatient and community-based resources. Gene therapies implicate multiple settings of care, payers and payment models, requiring new approaches to reimbursement. The result is considerable complexity and uncertainty for innovators. The need to address gene therapy’s complexities is leading to creative partnership and collaboration opportunities between and among innovative life sciences companies, delivery systems, payers and academic medical centers.

We need to begin thinking about the challenges around tapping into different areas of expertise across different geographies and the implications for payment models. Many of these therapies are best performed in centers of excellence. If a Medicaid-eligible gene therapy patient in North Dakota needs to go to Pennsylvania for some component of treatment, how would payment be handled?

Pricing Challenges

Gene therapies face the challenge of pricing to value, given their curative potential but high cost. Few of the diseases for which gene therapies are used are curable, many are life limiting—and all are expensive to treat. Comparing a high-cost curative therapy to a lower-cost ameliorative therapy starts to raise some interesting financial questions—and to shape the conversation around reimbursement.

Adding to the complexity is the proliferation of governmental and nongovernmental value- assessment organizations—some of which have very short timelines relative to return on investment and many of which impose budget constraints. We still aren’t certain how value-assessment organizations will view very expensive but curative therapies.

Industry Trends

According to the Journal of Gene Medicine, as of August 2016, there were about 2,400 clinical trials being run related to gene therapy. About 1,500 or 43% are focused on oncology, about 250 in the monogenetic field, 180 in infectious diseases and 180 in the cardiovascular category. While oncology is attracting much of the trial work, monogenetics is the low-hanging fruit for gene therapy technologies.

Other Issues Shaping the Gene Therapy Market

There are a number of legal and regulatory issues in play that will shape the gene therapy market, including the patent challenges for the CRISPR-Cas9 technology; the potential ethical questions; and the 21st Century Cures Act, which reforms the standards and appropriations for biomedical research.

We also have some lessons to learn from Europe, which has approved two gene therapies. The first, Glybera, which treats lipoprotein libase deficiency, did not meet market expectations. GlaxoSmithKline’s Strimvelus—approved this past summer for ADA-SCID , a rare condition in which children are born without a fully-functioning immune system—is priced at $665,000. In spite of the high cost, it arguably is preferable to have a curative treatment than to pay for ameliorative therapies that would persist a lifetime.

The Patient Journey and Challenges to Access

The journey for gene therapy patients presents several challenges to access, because it spans multiple treatment settings, different types of providers and varying payment models. Before patients become candidates for gene therapy, they have to be diagnosed with a genetically inherited disease. Then the cells containing the defective genes that are eligible for gene editing need to be extracted. The facilities that perform gene therapy services are limited and often some distance from where the patient lives, even outside the U.S. in some instances, requiring travel. After the gene modification, the corrected gene needs to be re-introduced into the patient, most often through a stem cell transplantation procedure. Again, only a few facilities perform these procedures. Finally, there’s the need for long-range medical monitoring.

How will insurance pay for these highly specialized therapies that span multiple treatment settings? Private employer-sponsored insurance and the Medicaid program are going to be the critical payers. According to the Kaiser Family Foundation, 48% of non-elderly adults and children are enrolled in employee-sponsored coverage. We need to distinguish, however, between coverage and payment. A patient may be technically covered but receive inadequate payment for the most expensive portions of gene therapy: the actual gene editing and transplantation procedures.

In addition, coverage is not guaranteed under private insurance, even when there are formal coverage policies. Coverage can be subject to medical necessity and other criteria , including specific conditions.

Payers typically review transplantation requests on a case-by-case basis. Payers usually receive transplantation requests from the facility and first do a check on the patient’s eligibility, determining whether the patient’s plan includes a coverage benefit for transplantation. Then, an internal packet of information is prepared for the medical director’s review. Occasionally, these types of requests may be elevated to the executive committee. Once a positive or negative determination is made, the payer communicates that decision to the facility, as well as to the insured member and his or her family.

Commercial payers negotiate contracts with transplantation centers of excellence (COEs) to be part of their networks and use financial incentives to drive patients to specific COEs. COEs and private insurers negotiate to determine which costs are included or excluded from the specific contracts. Ultimately, the COE’s patient outcomes are going be the most compelling factor to the payer during contract negotiations. One could consider transplantation the original value-based payment model, using all-inclusive contracts based on patient outcomes and upside/downside risks.

Medicaid Coverage and Payment

Across the nation, 39% of children aged 0–3 had Medicaid and CHIP coverage in 2014. More children than many realize are eligible to get Medicaid coverage. Children through age five are eligible for coverage if their families’ incomes are up to about 300% of the poverty level, which, for a family of three, is about $60,000 a year.

Medicaid has a different set of rules for benefit coverage depending on whether the patient is an adult or a child, with 21 being the demarcation point. Medicaid must cover certain services, such as hospital care; nursing facilities; and physician, clinical, laboratory, X-ray and family planning services. States also must cover Early Periodic Screening, Diagnostic and Treatment (EPSDT) services.

For adults, prescription drug coverage is an optional benefit. For children, it is a required benefit, because of the stipulation that Medicaid must provide all medically necessary services to children, even if those services are not covered for adults. The definition of medical necessity is broader for children than for adults, including treatment to “correct or ameliorate” a condition.

States are not required, however, to cover experimental services. Therefore, most states do not include experimental treatments in their coverage. That raises the critical question of whether a treatment is considered experimental. At this time, the determination is left to the state. The federal government has put a guardrail in place, however: the state’s decision must be reasonable and based on the latest scientific information.

States can’t just say that all gene therapies are experimental. They must look at the evidence and, if they determine that a service is not experimental and is medically necessary for a particular child, then they must provide coverage. Like private payers, states have prior-authorization procedures, including looking at costs and exploring whether there are any alternative approaches that are equally efficacious but less expensive. They cannot, however, set service limits on children in the Medicaid program.

Medicaid Coverage for a Low-Income Child’s Gene Therapy

As discussed above, the state Medicaid agency will determine whether a service is covered or experimental. Even if a service is not outlined in the state’s Medicaid plan, it must be covered if it is not experimental and is medically necessary.

States have very broad discretion under the Medicaid program to set their payments for services. They have to make sure, however, that services are available to the Medicaid population to the same extent that they are available in the private sector. States can’t pick a payment rate that is inevitably going to exclude a service if that service is generally available in the private sector.

Much of the Medicaid program is delivered through managed care arrangements. In those situations, the state sets the overall payment rates to the managed care organization, and the managed care organization determines the payment rate for a particular service. Sometimes states will carve out very high-cost services from their managed care contracts. Decisions are made on a state-by-state basis.

Children With or Without Private Insurance May Qualify for Programs Under Medicaid

As mentioned earlier, the income eligibility level for Medicaid is 300% of the poverty level—but there are alternate routes to qualifying for Medicaid, depending on the state. (These additional avenues are not mandatory, though most states offer some or all of them.)

It is important to point out that the alternate sources of Medicaid coverage are not mutually exclusive to employer-sponsored insurance (ESI) coverage. Families can have ESI and still qualify for Medicaid, if they have a child with a significant medical problem. ESI would be the primary source of coverage, and Medicaid would pick up the difference.

The first alternate source is the medically needy program. It is an optional program for families whose incomes are above the normal income eligibility levels for Medicaid, but whose medical bills are extraordinary. The medically needy option allows people to “spend down” to the eligibility level of Medicaid. Once a family’s medical bills reach a certain percentage of its income, the family can qualify for Medicaid for a period of time, typically about six months

Another way that children with significant healthcare needs can get coverage through the Medicaid program if they don’t qualify based on family income is through waiver programs. The Home and Community-Based Services (HCBS) waivers provide Medicaid coverage for adults and children who require an institutional level of care but instead opt to receive care at home. The Katie Beckett program is similar to HCBS but often has less strict eligibility requirements. These programs limit the number of adults and children who can be served. They are not entitlement programs like the rest of Medicaid.

Finally, institutional Medicaid provides another avenue of eligibility for children who have been institutionalized or need to remain in the hospital after birth. Once a child has been in the hospital for at least 30 days, his or her family can apply for Medicaid on behalf of the child. In these cases, the family’s income is not counted.

It’s important to note that families have appeal remedies if there is a denial of coverage. They also can work with advocacy groups, gene therapy companies, and their personal physicians to influence a coverage decision with the Medicaid agency.

Payment Models

There are few analogues in the marketplace that serve as predictors of how gene therapy might be paid for and covered. Possibilities include non-traditional financial models, risk-sharing with transplant facilities, payment for outcomes, and reinsurance across states and employers. For example, if a state is hit with three or four gene therapy cases, is there a way to create some sort of multi-state reinsurance program?

There is also some thinking around a federal Medicaid match—enhanced federal matching for gene therapy and/or amortization of what would have been the federal match for the ameliorative treatment as a substitute for the higher-cost curative treatment. In addition, there is some initial exploration of designing social impact bonds, wherein private investors can choose to make a long-term investment in a patient’s health. As gene therapies reach larger populations, payment will get increasingly complicated, and we’ll need to explore innovative approaches.