Editor’s note: “Breaking the bank: Three financing models for addressing the drug innovation cost crisis” by J.D. Kleinke and Nancy McGee, DrPH was published in the May 2015, Vol. 8, No.3 Issue of American Health & Drug Benefits discussing potential financial models to reduce the cost burden of high-cost specialty drugs to health care payers. The following is a stakeholder perspective on “Breaking the bank” from AEI Resident Scholar Joe Antos.
Read the original publication here.
EMPLOYERS/HEALTH PLANS: The pharmaceutical industry has a problem. The cost of developing new drugs has soared, but insurers are increasingly unwilling to pay the price that manufacturers charge. Sofosbuvir (Sovaldi), a breakthrough treatment that cures hepatitis C but has an $84,000 price tag for a 12-week course of treatment, is the poster child for this tug of war over who should pay and how much. As we enter an era in which advanced specialty drugs become increasingly important, will patients continue to have affordable access to potentially life-saving treatments, and will pharmaceutical companies continue to have the financial incentive to continue their expensive research programs?
POLICYMAKERS: In their current article, Kleinke and McGee point to an inherent defect in the way that we finance healthcare that threatens to choke off the development of innovative new pharmaceuticals.1 Drugs that have a long-term payoff in terms of patient health are paid through insurance that takes a short-term view of the cost-value tradeoff. Drugs such as sofosbuvir are investments in good health that pay off over the course of many years, but that require large upfront expenditures.
Kleinke and McGee suggest 3 reforms that could reduce the impact of those upfront costs on payers and keep specialty pharmaceuticals within reach of patients.
EMPLOYERS/HEALTH PLANS: The pharmaceutical industry has a problem. The cost of developing new drugs has soared, but insurers are increasingly unwilling to pay the price that manufacturers charge. Sofosbuvir (Sovaldi), a breakthrough treatment that cures hepatitis C but has an $84,000 price tag for a 12-week course of treatment, is the poster child for this tug of war over who should pay and how much. As we enter an era in which advanced specialty drugs become increasingly important, will patients continue to have affordable access to potentially life-saving treatments, and will pharmaceutical companies continue to have the financial incentive to continue their expensive research programs?
POLICYMAKERS: In their current article, Kleinke and McGee point to an inherent defect in the way that we finance healthcare that threatens to choke off the development of innovative new pharmaceuticals.1 Drugs that have a long-term payoff in terms of patient health are paid through insurance that takes a short-term view of the cost–value trade-off. Drugs such as sofosbuvir are investments in good health that pay off over the course of many years, but that require large upfront expenditures.
Kleinke and McGee suggest 3 reforms that could reduce the impact of those upfront costs on payers and keep specialty pharmaceuticals within reach of patients. Long-term loans akin to home mortgages would spread the financial burden of high-cost drug therapy over a period of years rather than requiring a single large payment in the first year. Reinsurance would spread the cost over everyone in the insurance pool rather than imposing an unreasonable financial burden on the patient. Requiring patient adherence to the therapy to qualify for a rebate adds a performance element to the existing rebate system, which spreads the cost over the patient population of the pharmaceutical company.1
These proposals are attempting to hit a moving target. Insurers are taking aggressive action to limit their financial exposure to high-cost drugs. Complicated multi-tiered drug formularies are proliferating, with specialty pharmaceuticals relegated to the fourth and fifth tiers that require sizable out-of-pocket payments by the patient.
Avalere Health found that some health insurance exchange plans place all drugs used to treat complex diseases—such as HIV, cancer, and multiple sclerosis—on the highest cost-sharing tier.2 For example, in 2015, 60% of silver plans place all antiangiogenic agents (which stop the growth of blood vessels in tumors) in the specialty tier.2 To the extent that they have drug costs temporarily under control, insurers will not be eager to make more radical changes in the financing mechanism.
The difficulty of converting to an entirely new payment approach for high-cost drugs cannot be overstated. To be successful, all payers and drug manufacturers would have to agree on the principles behind whichever scheme is chosen, and on the details. The former is difficult; the latter may be impossible without unprecedented cooperation between insurers and drug manufacturers, because a small change in almost any specification can be advantageous or disadvantageous.
Defining which drugs are deemed “high cost,” and establishing rules for how that list of drugs will change over time, will be the subject of permanent controversy. Similarly, deciding how much financial burden should be placed on the patient, and how to enforce payment obligations that may extend well into the future, will be critical to the success of a new financing approach.
Kleinke and McGee state that each of the financing models is market driven and would not require an act of Congress to take effect.1 Regrettably, that is not likely to be the case. Medicare and Medicaid are the biggest payers in the healthcare system, and any changes in private financing will inevitably be subject to scrutiny, and ultimately approval, by the federal government.
The problem of high upfront costs is most obviously an issue for the pharmaceutical industry, but it reflects a broader problem in the healthcare sector. There has long been widespread agreement that we should better coordinate and manage the care of patients, which is essential if we are to fully account for the long-term benefits and offsetting financial burden of high-cost treatments, but few health insurance plans have been able to accomplish this successfully.
That may be about to change as we develop the capacity to track and analyze detailed information on patients and their care, over time, through “big data.”3 Health insurance plans will soon be able to tailor their policies with a longer-term perspective and demonstrate that cost-savings will result. This opens up employers as another potential ally to help change the financing mechanism, because a cost-effective investment in healthcare means a healthier and more productive workforce.
PAYERS/PATIENTS: Perhaps the biggest obstacle to the adoption of any of the new drug financing models is that they redistribute the cost but do not lower the price of a high-cost drug therapy. In each model, the upfront cost is spread more widely, so that it is not borne solely by the patient and his or her insurer. That is a sound insurance principle, but without lower drug costs, payers and the public are unlikely to find it acceptable.
Indeed, even with a system that spreads the financial burden of high-cost drugs over more people and over time, we will still “break the bank,” unless more fundamental changes are made in the way we finance and deliver healthcare.
1. Kleinke JD, McGee N. Breaking the bank: three financing models for addressing the drug innovation cost crisis. Am Health Drug Benefits. 2015;8:118-126.
2. Pearson CF; for Avalere Health. Exchange benefit designs increasingly place all medications for some conditions on specialty drug tier. Press release. February 11, 2015. http://ift.tt/1S8XNMK. Accessed April 28, 2015.
3. Bates DW, Saria S, Ohno-Machado L, et al. Big data in health care: using analytics to identify and manage high-risk and high-cost patients. Health Aff (Millwood). 2014;33:1123-1131.
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