Navigating China's Access Landscape for Orphan Therapies: Insights into Funding Pathways

Welcome back to the final installment of our three-part series exploring China's access landscape of rare disease therapies. In the previous articles, we delved into orphan therapies' unique characteristics and commercial challenges. We also examined China’s progress in developing rare disease policies and diagnosis and treatment capacities while acknowledging the remaining challenges.

Today, we focus on funding pathways for innovative orphan therapies in China.

As we have previously discussed, the allocation of public funding for rare diseases often reflects the priorities of a nation's healthcare system. Developed economies typically incorporate special considerations for orphan therapies within their Health Technology Assessment frameworks. However, in developing countries with competing healthcare priorities, a multi-layered financing ecosystem becomes essential to address the gaps left by public insurance.

In China, basic medical insurance is primarily designed to meet the fundamental healthcare needs of the general population. National drug reimbursement negotiations often utilize a volume/price trade-off strategy, which poses significant challenges for drugs targeting small patient populations, particularly orphan therapies.

Moreover, even with public insurance coverage, the current reimbursement system falls short in providing sustainable coverage for rare disease patients. These patients often bear a financial burden of around 20 to 30 percent for drugs listed in the National Reimbursement Drug List (NRDL), and the cost can be even higher for outpatient prescriptions.

Recognizing the limitations of public insurance, the Chinese government has actively encouraged the development of a multi-layered healthcare security system to expand access to high-value orphan drugs while alleviating the burden on the country's basic medical insurance.

As part of the multi-layered healthcare security system, commercial health insurance is increasingly crucial in financing innovative orphan drugs, especially with the emergence of city commercial health insurance, a type of all-inclusive commercial health insurance offering more relaxed health restrictions than pure commercial health insurance. However, as discussed later, commercial health insurance faces unique challenges as a standalone vehicle in financing access to orphan drugs.

One of the brightest spots of China's orphan drug financing landscape lies at the local level. Provinces have been exploring innovative approaches to establish multi-layered reimbursement systems for rare disease patients.

This article will delve deeper into these funding mechanisms, shedding light on their strengths, weaknesses, and potential implications for the accessibility of orphan drugs in China.

Basic Medical Insurance Access Pathway for Orphan Drugs

Since 2017, the National Reimbursement Drug List (NRDL) has been updated annually. As of Jan 2023, 73 orphan drugs, class A and B, have been included in the NRDL catalog, representing 70% of the approved orphan drugs in China, encompassing 31 of the 121 rare diseases listed in China’s First List of Rare Diseases (CLRD).

Undoubtedly, the NRDL remains the most significant pathway for drug makers to access the largest orphan drug market in the world. However, gaining entry can be costly.

In 2021, Biogen's Spinraza for Spinal Muscular Atrophy (SMA) was included in the NRDL after offering a 95% discount. A year later, its competitor Evrysdi was also included, reportedly at a discount of 94%.

The Spinraza and Evrysdi case study suggests that for rare disease hot spots like SMA, the price volume trade-off NRDL offers is worth it. For example, early inclusion in the NRDL helped Biogen expand Spinraza's patient population sevenfold while fending off competition from Evrysdi. Unsurprisingly, Roche joined the NRDL SMA lineup the following year.

Yet, despite the potential increase in patient population, such substantial price cuts may not make sense for less common orphan drugs due to the inverse relationship between patient numbers and drug prices.

This has led to speculation about whether China would adopt a value-based pricing approach, particularly for orphan therapies.

While the future remains uncertain, there are several facts and nuances to consider:

First, China's basic medical insurance schemes primarily aim to cover the basic medical expenses of the general population. The National Healthcare Security Administration (NHSA) has been firm on this “insuring the basics” principle. The annual price threshold for national drug negotiation, set at 300,000 yuan (CNY), reflects this principle. As a result, 13 of the 16 orphan drugs approved in China, not yet covered by basic medical insurance, are high-value drugs with annual treatment costs ranging from 400,000 yuan to over 2.8 million yuan.

Second, NHSA has redirected some savings from procuring drugs and devices to subsidize service providers rather than incentivizing medicine innovation. This reflects China's status as a developing market with different priorities compared to more developed markets with mature healthcare infrastructures.

Third, China’s national negotiation process aims to understand manufacturers’ costs. For example, one aspect that manufacturers dislike about the NRDL negotiation process is the "two-strike out" approach. Manufacturers can propose two prices for their negotiated products, and if one of the prices is within 15% of the "envelope price" calculated by the NHSA, the negotiation proceeds. Otherwise, the negotiation ends. This tactic exemplifies how public insurance negotiators attempt to influence manufacturers to price their products closer to their costs.

In pharmaceutical pricing, it is well-known that value-based pricing generally establishes the upper limit for a viable price range, while the cost-plus (or ROI) approach sets the lower limit.

That said, the 2022 NRDL negotiation offered one encouraging development for orphan therapies. It has expanded the opportunities for orphan drug applications. Under the new criteria, all rare disease drugs that received approval before June 30, 2022, are now eligible for NRDL negotiation. In contrast, only those approved within the past five years qualify for consideration for non-orphan drugs.

However, regardless of the future evolution of the NRDL negotiation process, China’s policymakers have been busy. At the central level, 17 policies have been introduced since 2018, specifically designed to incentivize the supply of orphan drugs. As a result, China’s domestic orphan drug pipeline has mushroomed from practically nothing to 46 assets in various stages of clinical development as of February 2023. This surge in domestic supply will have substantial implications for orphan drug pricing in China in the long term.

At the provincial level, policymaking efforts have been concentrated on enhancing affordability and access to orphan therapies, with leading provinces pioneering new payment models to bridge the gaps left by basic medical insurance schemes. These local initiatives are crucial for orphan drug manufacturers seeking alternative access routes beyond the NRDL.

Commercial Health Insurance Coverage for Orphan Drugs

City commercial health insurance (City CHI), also known as "Huiminbao," has experienced significant growth in China since 2020. It operates through a public-private partnership and fills the gap between basic medical insurance (BMI) and pure commercial health insurance (CHI). By the end of 2021, City CHI had provided coverage to 140 million people across 27 provinces, and it is projected to cover 200 to 350 million people by 2025.

City CHI stands out for its inclusive nature, offering affordable premiums, fewer age and health restrictions, and meaningful coverage for inpatient services and specialty drugs within and beyond the BMI catalog. Its design follows a "One City One Policy" model tailored to local epidemiology, disease burden, reimbursement catalogs, and economic development. Around 80% of City CHI products have a reimbursement ratio for specialty drugs ranging from 70% to 90%.

As of January 2021, 86 City CHI products with specialty drug formularies covered 13 rare diseases, the most common being pulmonary arterial hypertension, multiple sclerosis, and Crohn's disease. Different City CHIs may include different drugs for the same condition in their formularies.

Apart from City CHIs, rare diseases with low incidence rates and high economic burdens have become the focus of personal critical illness insurance, a fixed benefit product accounting for the largest segment of China’s overall CHI market in premium income. Currently, more than 200 personal critical illness insurance products provide coverage for 20 rare diseases.

However, CHIs face challenges in expanding coverage for rare diseases due to the early stage of China's commercial health insurance industry and the unique characteristics associated with rare diseases.

First, effective risk sharing relies on having a sufficiently large insured population, particularly for City CHIs that offer low premiums. Historically, China's commercial insurers have operated in relative isolation, with limited consumer awareness of commercial health insurance due to the dominance of public health insurance. Although the introduction of City CHIs has improved consumer awareness, these programs are still in their early stages and have encountered difficulties in growing their enrollment base. In some cities, there has been a decline in the renewal rate among healthy individuals, primarily because common diseases often do not reach the deductible set by City CHIs. As a result, insured individuals, particularly the young and healthy, have a lower perception of the benefits offered by City CHIs. The average participation rate for City CHIs has been hovering around 15% to 20%.

Second, the genetic nature of rare diseases increases the likelihood of "adverse" selection, especially for City CHI products with relaxed health restrictions. This, coupled with shrinking enrollments, significantly raises the risk for the continued operation of City CHIs.

Third, disease epidemiology, patient diagnosis, medical expenses, and other related information are crucial in designing insurance products. However, rare diseases are often poorly understood, and their epidemiology and burden remain unclear. Furthermore, China's late entry into the rare disease field has resulted in limited awareness and knowledge among healthcare professionals, leading to a high rate of misdiagnosis and a lack of relevant medical information in medical institutions.

Additionally, the existing rare disease data is often fragmented and stored separately by different stakeholders, including insurance companies, individual patients, hospitals, internet medical platforms, pharmaceutical companies, and research institutions. And there is no effective mechanism for sharing data among these stakeholders currently.

Admittedly, much still needs to be done for commercial health insurance to assume a greater role in financing access to orphan therapies. Achieving this goal will require collaboration among key healthcare stakeholders and further developing China's rare disease diagnosis and treatment capabilities.

Local Payment Innovations - A Bright Spot for Orphan Drug Access in China

One bright spot in China’s orphan drug financing landscape is at the local level. Several provinces and cities, including Zhejiang, Jiangsu, Gansu, Beijing, Qingdao, and Foshan, have initiated pilot programs to address the coverage gap for orphan therapies left by the basic medical insurance system.

These pilot programs primarily aim to establish independent funding pools outside the scope of the national medical insurance catalog. They provide coverage for high-priced orphan therapies not included in the catalog. These programs offer an important pathway for orphan drug manufacturers seeking alternative avenues to access China's rare disease patients.

Based on expert interviews conducted by the Center for Health Policy and Technology Assessment at Peking University Medical School, there are five main funding models, each with five components: source of funds, governance, formulary decision, coverage and reimbursement, and service provision.

The first model, followed by Zhejiang and Jiangsu, involves carving out funds from provincial Critical Illness Insurance:

• Source of Funds: Provincial critical illness insurance participants pay 2 yuan per person per year to establish a separate funding pool for rare diseases.
• Governance: Local government takes the lead. The local Healthcare Security Administration (HSA) is responsible for execution.
• Formulary Decision: Expert evaluation, price negotiation, and dynamic adjustment.
• Coverage and Reimbursement: The number of rare diseases and drugs covered and reimbursement ratios vary across jurisdictions. For example, Zhejiang's rare disease fund covers Gaucher, Pompe, Fabry disease, and hyperphenylalaninemia caused by BH4 deficiency. There are caps on out-of-pocket expenses: up to 300,000 yuan, the reimbursement rate is 80%; from 300,000 to 700,000 yuan, it is 90%; and expenses above 700,000 yuan are fully reimbursed.
• Service Provision: Patients receive treatment through three designated hospitals, and the drugs are directly delivered to the hospital of their choice.

The second model, implemented in Gansu, leverages medical assistance and charity:

• Source of Funds: It relies on medical assistance, civil affairs assistance, and charitable donations.
• Governance: Led by the local government, it operates through the local Healthcare Security Administration and coordination with multiple departments.
• Formulary Decision: Price negotiation and dynamic adjustment.
• Coverage and Reimbursement: Covers spinal muscular atrophy (SMA) and Gaucher's disease.
• Service Provision: Treatment is provided through designated hospitals.

The third model, followed by Beijing, utilizes City Commercial Health Insurance:

• Source of Funds: Beijing has connected Boao Lecheng Medical Pilot Zone and Beijing City Commercial Health Insurance (CHI). Insured individuals who receive treatment with drugs listed in the Boao Lecheng formulary can be reimbursed through Beijing City CHI.
• Governance: Joint oversight by Beijing Municipal Medical Insurance Bureau and Finance Bureau.
• Formulary Decision: Expert evaluation.
• Coverage and Reimbursement: Covers 25 specialty drugs not listed in the BMI catalog and 75 imported specialty drugs. The reimbursement varies based on deductible and pre-existing conditions, with a maximum limit of 500,000 yuan.
• Service Provision: Participants of Beijing City CHI can purchase prescribed medications from designated medical institutions and pharmacies in the Boao Lecheng area.

The fourth model, implemented in Qingdao, establishes a dedicated rare disease fund:

• Source of Funds: It relies on fiscal allocations, contributions from insured individuals (20 yuan per person per year), BMI personal accounts, and special reserve funds.
• Governance: Led by the local Healthcare Security Administration.
• Formulary Decision: Expert evaluation.
• Coverage and Reimbursement: Covers specialty drugs and materials, including more than ten rare disease drugs not listed in the basic medical insurance catalog. Reimbursement ratios and ceilings vary by drug.
• Service Provision: Treatment is provided through designated medical institutions, and patients must choose a designated specialty pharmacy to obtain their medications.

The fifth model, followed by Foshan, utilizes government aid, lottery funds, and charity:

• Source of Funds: It relies on special funds for financial medical assistance, welfare lottery funds, and social charitable donations.
• Governance: Led by the local government.
• Formulary Decision: Foshan City's rare disease drug formulary and list of designated medical institutions are subject to dynamic adjustments, usually made once a year. For newly launched rare disease drugs, companies can submit applications to the Foshan Medical Insurance Bureau for inclusion in the catalog. These applications undergo a thorough review by a specialized rare disease evaluation agency. The Medical Insurance Bureau may include the drugs in the catalog within the same year if approved.
• Coverage and Reimbursement: Covers all 121 rare diseases listed in China's First List of Rare Diseases. Eligible patients receive diagnosis and treatment at qualified rare disease medical institutions using drugs and therapeutic foods listed in the catalog. After reimbursement by basic medical insurance, critical illness insurance, and supplementary medical insurance, the remaining out-of-pocket expenses are reimbursed at 80% by the local medical insurance department, with an annual limit of 300,000 yuan. Eligibility is means-tested.
• Service Provision: Treatment is provided through designated medical institutions in Foshan City and designated rare disease institutions in the National Network to Collaborate on Diagnosis and Treatment of Rare Diseases (NCDTRD).

Implications for Manufacturers

Orphan drug manufacturers face a complex decision-making process when devising access strategies for the China market.

On the one hand, engaging in national negotiations provides the advantage of swift uptake and access to public hospitals throughout China. However, to tap into the world's largest rare disease patient population, manufacturers are typically required to offer substantial price discounts. This arrangement may not be viable or economically feasible for less common rare diseases.

On the other hand, provincial and city-level access routes offer more favorable pricing terms. However, access is limited to specific jurisdictions, and navigating the increasing complexity of numerous jurisdictions can be challenging.

To navigate these challenges effectively, manufacturers may consider a phased approach.

Starting by leveraging local access routes through provincial rare disease funds and City Commercial Health Insurance programs. However, assessing and prioritizing jurisdictions based on their funding capacities and local diagnosis and treatment capabilities for rare diseases is crucial. These factors significantly impact manufacturers' ability to reach their target population of rare yet highly valuable patients.

In addition to considering pilot programs, such as those mentioned earlier, refer to the top 30 City CHI funds based on their funding capacity and coverage scope. These funds can serve as a valuable starting point for manufacturers seeking to establish access.

Begin with a focused approach, targeting one city or province initially. Learn from the experience, identify successful strategies, and make necessary adjustments for future expansion.

Leverage local success stories to accumulate real-world evidence and gain support from Key Opinion Leaders (KOLs). This will strengthen manufacturers' negotiating power during national-level discussions and help defend against potential competition.

China is large and diverse. It is not just one country. Yet, this diversity may be a blessing in disguise for orphan drug makers who aim to access the world’s largest population of rare disease patients.

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