Payers Tightening Management Of Specialty Therapies

Abstract

Continued market growth among specialty therapies has attracted the attention of big pharma and investors. Many payers, however, believe the industry has reached a tipping point, where greater management focus — and tougher decisions — are needed.

As commercial health plans look for ways to rein in specialty drug costs, Zitter Group’s Fall 2008 Managed Care Injectables Index finds that despite payer concern and an increased focus on specialty category management, current strategies for managing specialty therapies have had only limited success.

Payers placed great hope on reimbursement reform to reduce overall specialty therapy utilization and spending. It has become clear, however, that controlling reimbursement is only one aspect of a larger challenge in managing specialty therapies.

SETTING PRIORITIES

When asked to prioritize management of various health conditions and treatment categories in a broad way, payers cited diabetes, asthma, cancer, and hyperlipidemia as their primary targets (Figure 1, page 35). These categories correspond to high prevalence, high treatment cost, and significant opportunity to manage consumption of healthcare resources. In diabetes, asthma, and hyperlipidemia, pro-active patient management can limit downstream medical costs. At the same time, cancer is one of managed care’s fastest growing cost drivers. Payers are sensitive to the widening number of cancer treatment options and their contribution to healthcare spending.

FIGURE 1.

Broad payer management priorities

A different picture develops, however, when payers talk about near-term specialty category management priorities. Rheumatoid arthritis, human growth hormones, and erythropoiesis-stimulating agents are now at the top of their list (Figure 2). Payers see significant management opportunities within these categories. Robust clinical guidelines and therapeutic alternatives give payers the confidence to shape category dynamics without fearing significant patient or provider pushback.

FIGURE 2.

Payer specialty category management priorities

On the other hand, for near-term management, cancer therapies drop in priority. The different prioritization of cancer on the two lists hints at an important aspect of the specialty landscape — a disconnect exists between aspirational management goals and actual near-term payer management opportunities. Payers are managing categories where their involvement will have the greatest impact on utilization patterns and category spending.

TRANSITIONING TO ASP

One intervention that has offered a compelling return on payer effort is how physicians are paid for office-administered therapies. Following Medicare’s 2005 decision to transition payments from an average wholesale price basis to an average sales price basis, commercial payers have looked to mimic CMS and adopt ASP pricing. Although progress has been gradual, a significant portion of commercial lives are now managed in an ASP environment. The Fall 2008 Managed Care Injectables Index shows that 44.1 percent of payers, representing 57.3 percent of covered lives, use ASP pricing as their primary reimbursement methodology (Figure 3). CMS’s ASP+6 percent is the most common rate commercial payers use, but a significant number have adopted higher rates, namely +8, +10, +12, and up to +20 percent.

FIGURE 3.

Adoption of ASP reimbursement

The Zitter Group’s Managed Care Injectables Index is a large semiannual quantitative analysis of the management of biologics and specialty therapies by commercial payer organizations. The sample for The Fall 2008 Managed Care Injectables Index included 102 decision makers, split approximately evenly between pharmacy and medical directors, at commercial plans throughout the United States for a representative sample of organization types, sizes, demographics, and geography. The study uses multiple techniques to collect information, including basic Likert scales, rank-ordering, and open-ended questions.

Figures in this article are derived from The Fall 2008 Managed Care Injectables Index. San Francisco: The Zitter Group.

ASP adoption is typically a gradual process in which AWP contracts are renegotiated as they expire. As a result, payers commonly have a mix of ASP and AWP contracts. For instance, although 44.1 percent of payers use ASP as their primary methodology, only 15.7 percent depend exclusively on ASP, and 37.3 percent have no ASP contracts.

There are key demographic differences between plans that have moved the bulk of their contracts to ASP and those that still depend on AWP reimbursement. Midsized regional organizations have done best with the transition to ASP. Smaller organizations lack the size to generate negotiating leverage, and large national plans often lack market concentration (Figure 4, next page).

FIGURE 4.

Distribution of ASP contracts based on size of payer organization

With scant exception, payers report that cost savings and other positive aspects of ASP adoption have offset potential drawbacks. Payers, however, continue to monitor the implications of the evolving site-of-care dynamics.

SITE-OF-CARE DEBATE

In the face of reduced reimbursement, healthcare providers commonly threaten to shift patients to alternate sites of care if it is not financially viable for them to deliver treatment in their offices. They believe this threat to be compelling, because hospital outpatient-based care is, typically, far more expensive. Payers concede this point —they are aware of the adverse cost implications of hospital-based care. Hospital outpatient departments are not the sole treatment alternative, however. Payers welcome a shift in treatment from a physician’s office to, for example, a freestanding infusion center, believing that infusion centers offer an attractive combination of high-quality care and lower treatment costs. The primary drawback of infusion centers is their comparatively modest footprint across all markets and low prevalence in some regions, adding credibility to provider threats of utilizing hospital-based care. In light of these dynamics, payers pushing for reimbursement reform and increased adoption of ASP must be careful to avoid triggering so-called landscape events that may offset potential cost savings. At this time, current shifts in site of care have been too small to offset the benefit of reduced provider reimbursement.

POST ASP

Although payers are increasing their use of ASP methodology, The Zitter Group research shows that the pace of ASP adoption has slowed. This suggests that payers have nearly exhausted the low-hanging fruit. As payers successfully transition contracts with smaller or less influential physician groups to ASP pricing, greater effort will be required to grow ASP reimbursement among more challenging market segments. But a greater effort comes at a higher risk of triggering undesired outcomes.

Over the past few years, payers have used reimbursement reform as the primary avenue by which to control specialty spending. Effective specialty management now requires a coordinated effort across all segments of an organization. Reimbursement reform must be considered as only part of a multipronged approach to ensure that specialty therapies are used in the proper context by the appropriate patients. In post-ASP management, ASP contracting will have to be paired with interventions aimed at ensuring appropriateness of care. To be successful in this management phase, payers will have to complement clinical guidelines and treatment protocols with innovative interventions, namely disease management programs, pay-for-performance metrics, and others that actively shape utilization according to payer goals.

ORPHAN DISEASES

As attention shifts to ensuring quality and appropriateness of care, specialty therapies that offer a nebulous value proposition will be susceptible to increased scrutiny. One such specialty category that will no longer be exempt from cost/benefit analysis is orphan diseases.

Although orphan diseases affect only a very small share of a payer’s covered lives, treatment consumes a disproportionately large number of resources, and payers have long considered these diseases to be an unavoidable cost driver. However, payers are beginning to question the value generated by these exorbitantly expensive drugs, especially when the benefits to the patient are not well defined. Consequently, more than one third of payers believe the industry is approaching a tipping point where a greater management focus will be placed on orphan drugs. To head off payer concerns about investing in orphan therapies, manufactures will be asked to consistently demonstrate a therapy’s economic and clinical value propositions.

WHAT NEXT?

Faced with fast-growing specialty budgets, payers must decide if it is time to tackle categories that, historically, have been hands-off. With ASP-centric management evolving into broader efforts to ensure appropriate use of resources, payers will carefully analyze what they are getting for their investment in specialty therapies. Biopharmaceutical manufacturers will have to ensure that payers find the right answer.