Persuading MCOs and employers to buy into the cost of biotech therapies means defining biologics’ value proposition from a payer’s viewpoint.
Abstract
Just what is the value of a biotech therapy? It depends on your perspective. Throughout the last decade, private healthcare financing has been oriented toward managing costs more than care. The ‘value’ of biotech therapies depends on what you see from outside the silo.
Although the concept of determining an object’s value before deciding its cost has a certain simple, visceral appeal, in health-care it is as alien as anything NASA’s Spirit may encounter as it roves around Mars. Perceived as desirable by many, few payers and employers can define the value proposition of biotechnology therapies. Considering the cost of these therapies, it’s up to manufacturers to avoid the mistakes of the pharmaceutical industry and offer a clear vision of the value of their products.
Biotechnology Healthcare recently discussed the value proposition with F. Randy Vogenberg, RPh, PhD, vice president and national practice leader at Aon Consulting. Vogenberg’s clients are employers, who, like health plans, are just beginning to wrestle with questions about managing biologic drugs. Vogenberg spoke with Bill Edelman, who wrote this article for Biotechnology Healthcare.
Biotechnology Healthcare: Let’s define the value proposition, in terms of biotechnology drugs.
Vogenberg: That is a big problem. Every payer wants to use the value proposition. They all want to answer the question, “What is the value associated with covering the drug?” Yet they each have their own definition. There is no nice, easy answer, no standard formula.
BH: Then how do they go about determining value?
Vogenberg: Consultants derive the value proposition from a particular employer’s perspective. We focus on what is important. Typically, in business, there are direct and indirect costs. Nobody argues about direct costs, because every employer knows what they are — premiums paid for health insurance, payments for drugs and doctor visits, and other tangible elements.
BH: What are the most important indirect costs?
Vogenberg: Productivity, which means both absenteeism and presenteeism. Absenteeism includes sick days, down time, and personal days. Presenteeism is the exact opposite: The employee goes to work, even if sick, and works nights, weekends, holidays, and during vacation, even if there is no work to do or cannot function properly, to maintain a presence. It causes high stress and employee burnout. Although direct costs may be marginally higher for biotech therapies, they may generate huge indirect savings, in terms of productivity enhancement.
BH: Can you offer an idea of the potential impact of substantially improved productivity? And what level of productivity improvement is significant?
Vogenberg: Consider a hypertensive person with a cardiovascular condition. Effective therapy may improve productivity by as much as 5 percent, in terms of additional hours worked. Depending on the size and nature of your organization, that improvement might generate hundreds of thousands of dollars, perhaps millions. It works the same way for an employee suffering from migraines, arthritis, very early-stage renal disease, or multiple sclerosis; a 3 to 5 percent improvement is considerable. These patients can do much more now than they could before receiving effective therapy.
BH: If productivity is the key, doesn’t that make determining value easier?
Vogenberg: Sometimes. For example, technology companies, such as Microsoft and Hewlett-Packard, are employee oriented, and productivity is an issue. These more enlightened payers often look broadly at the value proposition. They might even include employee job-satisfaction scores in their calculations. In contrast, manufacturing companies, such as auto manufacturers or steel corporations, tend to count heads, screws, nuts, and bolts. Although they may recognize the potential value of improved productivity, it is a difficult concept for them. Further, most of these companies are unionized, which changes the dynamic. When you have a contract with a union, there is nothing you can do but adhere to its terms. Defining the components that go into the value proposition is usually not negotiated.
Then there are companies between the two extremes — for example, the banking industry. In such companies, productivity is important because competition is tremendous and banks, for instance, work to lower their pertransaction costs. Many banks are starting to consider some aspects of productivity in their value proposition.
F. Randy Vogenberg, RPh, PhD: “Although direct costs may be marginally higher for biotech therapies, they may generate huge indirect savings, in terms of productivity enhancement.”
PHOTOGRAPH BY WEBB CHAPPELL
BH: How do the biotech drugs fit into the value proposition, in terms of productivity?
Vogenberg: That is another problem, because some of these drugs really do not affect productivity. For example, in the early stages of MS, an employee may function despite feeling ill some days. Biotech drugs help improve functionality, but the apparent impact on productivity is not huge and, as the disease progresses, the drugs restore less functionality, while productivity decreases. There is a diminishing return on the investment. Some disease states are so severe that biotech drugs cannot restore sufficient functionality, and productivity is out of the equation.
BH: Are there any other barriers to establishing a standard equation for the value proposition?
Vogenberg: Inherent inequity. A small percentage of patients have conditions treated by biotech drugs. One client of ours has one person out of thousands covered in the health plan, who needs a biotech drug. But that one person represents about 5 percent of their drug spending. That disproportionality hits you.
BH: What can an employer do to mitigate biotech drug costs?
Vogenberg: Because biotech drugs are different, they need to be looked at differently from the typical chemical medications, but nobody has done that. In the plan design, PBMs and payers have been handling biotech drugs the same way they would handle other oral drugs. When we run the model and calculate some outcomes, in terms of costs to the employee or employer, there is almost no change with respect to the total cost of care. When changes are made to a health plan’s design to mitigate the cost of biotech therapy, those changes do not necessarily alter what happens in terms of the total dollars being spent. What does change is the share of what is being paid.
For example, the share of the expense the employee pays could change by 40, 60, or 80 percent, depending on the mix of copayment, insurance, and other factors. Conversely, changing the share paid by the employer by only a few percentage points accomplishes the same overall mitigation, without drastically increasing the employee’s out-of-pocket costs.
We educate our clients about utilization issues within their plan designs, because the pushback has been the employees saying, “You can’t hit me with an 80 percent increase in my drug plan. I’m not going to work for you; I’m going to go work for your competitor.” Changes that increase the monetary burden carried by the employee — which is what has typically been happening — tend to decrease value, making the company less desirable as an employer. Unions strike. White-collar employees find new jobs. All the plan members are affected by these design changes, all the way up to the president.
BH: Are there any fundamental elements common to solving the value proposition?
Vogenberg: We use a model to answer the question, “What does your value proposition look like when we take into consideration direct and indirect costs? Is there a benefit to you and your employee population?” We tailor each model for the specific employer, based on situational factors. For each employer, our modeling focuses on the disease state(s) being covered, the medication(s) being used, and the employer’s medical plan and drug plan.
Depending on coverage and utilization, the drug could be administered by the patient at home, in the physician’s office or clinic, or a combination of both. We use that information to determine whether the costs apply on the medical side or the pharmacy side. Office and clinic administration costs include the visit, the administration fee for the injection, and the cost of the drug. Pharmacy costs include the dispensing fee and the cost of the medication.
To determine utilization, we break down, by percentage, the patients’ source(s) of the biotech drugs, typically the physician’s office, a retail pharmacy, or a mail order pharmacy. It is also appropriate to decide what proportion of the employer’s plan members need biotech drugs.
The last step involves assessing features of the plan design, including the deductible, copayments, co-insurance, and out-of-pocket maximum.
BH: Can an employer work the model? Is there a resource available for independent analysis?
Vogenberg: Most major employers hire consultants to determine the value proposition. Typically, the insurance carrier gathers information and prepares this kind of report for midsized and smaller employers. The problem for benefits managers and human resources directors who try to determine a company’s value proposition is that this type of calculation is not very user-friendly. When people make these value calculations, they really don’t understand the inputs to the equation, so the outputs are almost meaningless.
BH: What is an ideal solution to the value-proposition question? What should people be doing?
Vogenberg: They should be taking a fresh look at this entire issue, it’s the old “round peg in a square hole” situation. They have to assess the biotech therapies for what they are. The real question should be, “What is the impact of the outcome on my employee, not on “a patient,” but on “my employee?” That issue really has not been researched. The focus has been clinical, on determining the extent of the impact on a patient. We’re just now starting to look at the effects on employees and, by extension, the effects on the employer.