Payer Considerations A Gamechanger for Drug Manufacturers as Outlined at DCAT Week '14

By Patricia Van Arnum - DCAT Editorial Director

March 25, 2014

Larger social and healthcare issues are playing a greater role in drug development and commercialization strategies.

Pharmaceutical companies have always faced the scientific and technical challenges of new drug development, but they are now also facing a more difficult commercial environment shaped by new requirements under US healthcare reform and evolving cost-management strategies by payers. At DCAT's 2014 educational program, PharmaChem Outlook: Pipelines, Products, Restructuring Data, Market Trends, and the Impact upon Pharma Innovation, held during DCAT Week' 14, Roger Green, founder, president, and CEO of the consultancy Roger Green and Associates, Inc. explained these challenges and how the industry is addressing them.

Roger Green
Founder, President and CEO
Roger Green and Associates

"Increasingly, BioPharma is being driven by larger social and healthcare issues, not defining them," said Green. "Risk was once entirely about health but now includes economics as well." He pointed to several examples in which the paradigm was changing largely based on payer considerations. For example, for pharmaceutical manufacturers, the risk had traditionally being reserved to getting a product approved, but now the risk extends to getting the product paid for and widely used.  For physicians, the risk focused on deciding on the best drug available, but now it focuses on the best drug available given payer constraints. Payer strategies have always been driven by risk mitigation, and Green outlined the implications of US healthcare reform and cost-management strategies by payers.

Implementation of healthcare reform

Green pointed out that the Affordable Care Act (ACA) limits ways health plans can limit risk. "Traditionally, insurance plans limited risk through cost shifts, limiting services, or denying care," said Green. "Under the ACA, risk limitation is addressed by improving care as defined by quality metrics and reducing costs."

One mechanism for addressing risk in balancing cost and coverage in healthcare is the use of a tiered system. Beginning in 2014, public health plans created by ACA will be required to offer health insurance that meets certain levels of coverage. The coverage levels are based upon the actuarial value of the plan and are represented by metal levels: Bronze, Silver, Gold, or Platinum. These indicate different levels of coverage. The levels of coverage correspond to how costs are shared between the health plan enrollee and the health plan. "Each plan trades off lower premiums for higher coverage costs," explained Green. The metal refers to the coverage of the plan and indicates the typical out-of-pocket costs covered in the plan. For example, the Platinum plan with an actuarial value of 90% means that the plan will pay 90% of an enrollee's healthcare expenses while the enrollees themselves will pay 10% through some combination of deductibles, copayments, and coinsurance.  The other "metals" are correspondingly rated: Gold (actuarial value of 80%); Silver (actuarial value of 70%); and Bronze (actuarial value of 60%). The higher the actuarial value, the less patient cost-sharing the plan will have on average. Also, as part of the provisions of the ACA, out-of-pocket spend cannot exceed $12,700 per family ($6350 per individual) in 2014.

While only 5-7 million Americans are expected to sign up for the public exchanges in 2014, their impact will be more far-reaching. Green explained that already, small employers wishing to provide health insurance to employees are forced to do so through private exchanges that mimic the features of public exchanges, and larger employees are free to do the same. As between now and 2018, increasingly larger employees can place their employees in public exchanges, and private exchanges are anticipated to flourish.

Payer and patient considerations
A key consideration for the pharmaceutical industry, however, is not only the implementation of healthcare reform but also the shift to specialty drugs and how these type of drugs will be paid for under insurance coverage. Green shared data from Artemetrx, a healthcare analytics and services company, that showed that annual plan spending rates on specialty drugs will grow much faster than traditional drugs, and that by 2018, the 1-3% of patients using specialty drugs will account for half of the plan budgets by 2018. To illustrate the cost implications, Green cited the following: "In 2018, the average patient taking a specialty medicine will cost a pharmacy budget 40 to 60 times as much as one who does not."

The issue of cost for specialty drugs has drawn recent attention from drugs to treat hepatitis C virus (HCV) infection. One recent FDA approval, Gilead Sciences' Sovalidi (sofosbuvir), approved in December 2013, has drawn attention. Sovaldi is the first drug that has demonstrated safety and efficacy to treat certain types of HCV infection without the need for co-administration of interferon (1) and is administered orally. Sovaldi is a nucleotide analog inhibitor that blocks a specific protein needed by the hepatitis C virus to replicate.

Sovaldi and future nucleotide analog inhibitors are considered important advances in the treatment of HCV, but the costs of these drugs are an issue. A recent analysis by the Boston-based Institute for Clinical and Economic Review was presented on March 10, 2014 to the California Technology Assessment Forum, a public service forum conducting evidence-based reviews of new and emerging medical technologies, to evaluate state budget implications that new agents would have. Using an estimate of the number of infected individuals in California who know of their infection and would be considered for treatment, the institute estimated that replacing current care with sofosbuvir-based regimens would raise drug expenditures by $18 billion to $29 billion in a single year (2) not considering potential cost offsets that could result from reductions in liver-related complication, which range from 10 to 20% at five-year time horizon (2).

Green explained that in response to higher costs for specialty medicines, "payers are creating tougher new rules" and need to employ cost-management strategies as well as seek collaboration with pharmaceutical companies in addressing these issues. A 2013 survey by Roger Green and Associates of 52 medical and pharmacy directors from the Health Payer Council (HPC), an online research and co-creation community of medical and pharmacy directors from US medical insurers, examined different cost-management strategies. The most popular approach, used by 44% of participants either through a pilot program or actively being used, was applying pharmacy benefit techniques for infused medicines and biologics. These techniques seek to impose limits on the prescriber's ability to choose the medication a patient receives. Management techniques include prior authorization, step edits, and utilization review.  In prior authorization, a prescriber must seek and request approval before placing a specific patient on the managed drug.  In step edits, the prescriber must demonstrate having tried prior, less expensive therapies before receiving authorization to prescribe an expensive one. Finally, in utilization review, the health plan will meet with a prescriber to discuss his use of specific drugs over a previous period, with the goal of demonstrating that other prescribers are selecting less expensive agents and reviewing why this particular prescriber's costs are so much higher.  These approaches are widely used today in classes such as hypertension, elevated cholesterol, or diabetes, where a generic medicine can provide benefits similar to the branded ones at a fraction of the cost.

The second approach, cited by 39% of participants, was to reduce physicians' reliance on drug revenues.  In specialties such as oncology and rheumatology, prescribers purchase medicines, administer them in their own offices, and bill insurers for the cost of the medicine plus a mark-up. While the standard markup today is 6% to private insurers and 4% to Medicare, private contracts between the insurer can drive the actual profit up dramatically. Insurers seek to reduce profit potential either by reducing the rate at which they reimburse or by mandating that all prescriptions be filled through a specialty pharmacy, which employs the pharmacy benefit-style management practices previously described. 

The third approach, cited by 36% of participants, used performance bonuses for treatment pathways. This approach can take several forms. Many health plans offer primary care physicians exceptional bonuses if they prescribe generics for a set percent (for example, 90% or greater) of their prescriptions. Most plans pay bonuses to physicians who can achieve a specific goal in managing a disease (for example, a percentage of diabetes patients whose glyco-hemoglobin falls under 6 > 0% or whose cholesterol levels fall under National Cholesterol Education Project (NCEP)-defined goals.

Green also offered that as the industry moves to more specialty products, payers will have to not only employ these cost-management strategies, but also seek greater collaboration with pharmaceutical companies, a proposition that to date has been difficult to foster. Such partnerships face two pivotal challenges. Health plans are exceptionally skeptical of biopharmaceutical company data and analysis.This skepticism has made them unlikely to explore far-reaching partnerships with health plans. Over time, it may also be challenging to identify markets that are ripe for collaboration. While pharmaceutical manufacturers seek collaboration in markets where insurers can decrease costs and purchase branded medicines, insurers will increasingly look for support in oncology, autoimmune disease, and HCV, where the bulk of cost is actually attached to use of biopharmaceutical agents. 

References

  1. FDA, "FDA Approves Sovaldi for Chronic Hepatitis C (Dec. 6, 2013).  
  2. Institute for Clinical and Economic Review,  "The Comparative Clinical Effectiveness and Value of Simeprevir and Sofosbuvir in the Treatment of Chronic Hepatitis C Infection" Draft Report for the California Technology Assessment Forum (March 10, 2014).