Biotech Injectable Drugs: Clinical Applications and Financial Effects

Biologic therapies don’t fit traditional pharmacy benefit designs. The authors model the effects on all stakeholders of new plan-design changes.

Abstract

Previously, the authors explored the issues that biotech injectable medications raise for manufacturers and payers (see Biotechnology Healthcare, July/August 2004). This month, the authors focus on actuarial models that provide options analyses and decision-making support when instituting changes in plan design.

Employers, insurers, and MCOs must consider innovative plan designs to address the concerns biologics raise. In considering implementation of changes in plan design, stakeholders must, at a minimum, understand the implications relative to costs, reimbursement, and utilization. By modeling specific changes in plan design and detailing the effects on stakeholders, each stakeholder can identify plan design(s) that will optimize clinical outcomes and financial performance.

Second of two parts.

Biotechnology-derived injectable medications raise complex medication access and administration issues for manufacturers and payers. In addition, with increases in prescription drug expenditures outpacing health benefit plan cost increases, and with biotech injectable medications representing a growing proportion of prescription drug costs, the cost impact of biotech injectable medications is understandably receiving attention. Nevertheless, the proven value of biotech injectable medications with respect to improving clinical outcomes and quality of life will drive increased use in the future.

Employers, insurers, and MCOs recognize the need to consider novel plan designs that directly address the issues and inequities associated with biotech medications. Adaptations in benefit designs that are focused on short-term or partial solutions tend to exacerbate existing problems.

Stakeholders who attempt to meet the challenges that biotech injectables present must consider plan-design changes carefully before implementing them. To make high-quality, informed decisions, it is essential to understand the implications of those changes on costs, reimbursement, and utilization. Actuarial models can foster this understanding by providing options analyses and decision-making support. By modeling specific plan-design changes and detailing the potential effects on all constituencies, stakeholders can identify and understand the optimum plan designs to use for attaining their clinical and financial goals.

The Reimbursement* and Aggregate models discussed in this article are sophisticated actuarial tools. These tools allow users to determine the specific effects that benefit-design changes will have on different stakeholders. The knowledge gained from the use of these tools allows employers and MCOs to align their benefit-plan structures with their goals. These models provide the results of complex analyses that consider the many and varied elements of plan design and the effects these elements have on one another.

THE AGGREGATE MODEL

The Aggregate model builds on the Reimbursement model, refining its focus while expanding its scope. The Aggregate model allows users to:

• Assess the aggregate cost of a group of health plan members (e.g., a self-insured employer or MCO) for a bundle of key injectable medications (Table 1) available at the beginning of 2003.

• Evaluate the effect of benefit design and plan coverage changes on these costs (holding provider reimbursement as a constant).

• Demonstrate the effect of changes in benefit design on patients in five disease categories.

TABLE 1.

Aggregate model: injectable medications, by disease category

Ancillary oncology Aranesp (darbepoetin) Neulasta (pegfilgrastim) Neupogen (filgrastim) Procrit (epoetin alfa)

Rheumatoid arthritis Enbrel (etanercept) Kineret (anakinra) Remicade (infliximab)

Multiple sclerosis Avonex (interferon ß-1a) Betaseron (interferon ß-1b) Copaxone (glatiramir acetate)

Anemia/renal Aranesp (darbepoetin) Epogen (epoetin alfa) Procrit (epoetin alfa)

Hormones Humatrope (somatropin) Lupron (leuprolide) 3.75 mg Lupron 22.5 mg Nutropin (somatropin) Sandostatin (octreotide)

The user of the Aggregate model is able to select assumptions in these key areas of benefit design:

• Medical benefit design assumptions (e.g., copayments and/or coinsurance, out-of-pocket maximum, level of other medical expenses)

• Prescription drug benefit design assumptions (e.g., copayments or coinsurance, out-of-pocket or annual benefit maximum)

• Plan of coverage — either “status quo” (medical plan covers physician-administered drugs, prescription drug plan covers self-administered drugs), or all injectables covered under the prescription drug plan

The model provides key results for the status quo set of assumptions and up to three alternatives. Status quo results include graphs by disease category that demonstrate the top 15 injectables and total healthcare cost (aggregate dollars) for status quo (Figure 1) and the total cost distribution (percentage) by disease category for status quo (Figure 2).

FIGURE 1.

Status quo annual group cost*

Total annual healthcare cost and top 15 injectables, by categories in Table 1

*200,000 lives.

SOURCE: AON CONSULTING

FIGURE 2.

Distribution of injectable medication costs

By disease categories in Figure 1

SOURCE: AON CONSULTING

AGGREGATE MODEL: KEY FINDINGS

The Aggregate model can be used to help employers and MCOs contemplating changes in benefit design to analyze these effects.

• The top 15 injectable medications are utilized by an extremely small portion of the group —about 0.5 percent, who also have very high out-of-pocket costs. For example, even with fairly rich coverage, patients can have annual out-of-pocket costs of $760 for each of these injectables.

• Medical benefit design changes alone — even fairly aggressive ones — often are unattractive, because a small decrease in employer cost (e.g., 4 percent) necessitates a large increase in employee cost (42 percent).

• A switch from copayments to coinsurance in the prescription drug plan has a significant impact on employee cost that varies across disease categories (from zero for anemia/renal to a one-year, 200-to-300 percent increase for rheumatoid arthritis and multiple sclerosis).

• Covering all injectables under the prescription plan can reduce total (combined medical and prescription drug) plan cost (e.g., a total cost decrease of 12 percent) but still increase employee costs (ranging from zero for multiple sclerosis to more than 70 percent for ancillary oncology) (Figures 3a and 3b, Alt. 1, page 40).

• Employers could reduce both their own and employee costs by roughly equivalent percentages by covering all injectables under the prescription drug plan while simultaneously reducing employee cost-sharing; employee costs, however, still could increase for certain disease categories (e.g., anemia/renal) (Figures 3a and 3b, Alt. 2, page 40).

FIGURE 3A.

Change in cost from status quo

All injectables, by stakeholder

Alt. 1 – Cover all injectables under the prescription drug plan.

Alt. 2 – Cover all injectables under the prescription drug plan and also reduce employee cost-sharing.

FIGURE 3B.

Change in employee cost from status quo

By disease category in Table 1

Alt. 1 – Cover all injectables under the prescription drug plan.

Alt. 2 – Cover all injectables under the prescription drug plan and also reduce employee cost-sharing.

SOURCE: AON CONSULTING

As the sample findings for the Aggregate model demonstrate, plan design changes — from the seemingly minor to the obviously dramatic — create ripples that affect specific groups of patients very differently. This is in part because of the fragmentation of coverage that results from covering some injectables under the medical plan and others under the prescription drug plan.

Looking at the cost of biotech injectable medications alone is not enough. It also is necessary to evaluate overall healthcare and productivity costs. This combination provides a plan sponsor with a more complete picture of the effect of various approaches to biotech coverage costs.

For example, in some cases, reduced healthcare costs and/or increased productivity may more than offset the expense of biotech injectable medications — assuming plan design does not inadvertently deter their utilization.

The Total Cost of Care model for multiple sclerosis (MS) addresses these issues for a specific disease and provides a useful tool for employers in crafting an injectables benefit design that yields the best balance between cost control and employee health and satisfaction.

TOTAL COST OF CARE MODEL FOR MS

The Total Cost of Care model for MS builds on the scope of the Aggregate model, allowing users to:

• Assess the aggregate cost for a bundle of key injectable medications, available at the beginning of 2003, for a group of employees and spouses diagnosed with MS.

• Evaluate the effect of changes in benefit design on utilization of injectables — and the resulting effect of that utilization on overall drug costs, all other medical costs, absenteeism costs (short- and long-term disability coverage), and “presenteeism” costs (coming to work but not performing at standard capacity).

TOTAL COST OF CARE MODEL: KEY FINDINGS

Benefit design has a major effect on injectable medication utilization and out-of-pocket costs (Table 2, page 43):

• Going from a high ($15 copayment) to a medium (20 percent coinsurance) plan can halve injectable medication utilization.

• For the remaining half of plan members with multiple sclerosis who continue utilizing injectable medications, out-of-pocket drug costs are likely to increase nearly 600 percent — as compared to an 18 percent reduction in total employer costs for these members with multiple sclerosis.

TABLE 2.

Effects of benefit design on utilization and out-of-pocket costs for plan members with multiple sclerosis

	High plan	Medium plan	Percent change
Share of members with multiple sclerosis who are taking injectable medications	80%	42%	−48
Total employer costs for members with multiple sclerosis (assuming 10,000 total employees)*	$12,395,701	$10,135,532	−18
Out-of-patient drug costs for a member with MS who is taking injectable medications*	$6,446	$44,011	+583

^*Present value over working lifetime.

When an employer covers injectable medications, employer costs for drugs are much higher than when injectable medications are not covered, but reductions in other areas offset a significant portion — approximately 50 percent or more in the example of multiple sclerosis (Table 3, page 43):

• Employer drug costs are 7 times higher with injectables coverage, but overall costs are only 30 percent higher.

• Areas where cost is offset significantly include absenteeism costs — which are 4 times as high without injectables coverage — and a nearly 30 percent decrease in other (excluding drug) medical costs. (The difference in medical costs is probably understated, as the model assumes that medical costs are no longer covered following total disability — which occurs earlier without injectables coverage.)

TABLE 3.

Effect on employer’s costs of covering injectable medications for a single member with multiple sclerosis

	Injectable medications not covered	Injectable medications covered	Cost difference with coverage	Percent change
Drugs*	$26,713	$213,608	$186,895	+700
Medical (without drugs)*	$116,653	$82,750	($33,903)	−29
Short- and long-term disability, sick leave, worker’s compensation*	$100,146	$25,697	($74,449)	−74
Productivity*	$64,967	$77,584	$12,617	+19
Sum of employer’s cost*	$308,480	$399,639	$91,159	+30

^*Present value over working lifetime.

Employers and health plan administrators already are aware that the costs of injectable medications are significant for the few plan members who use them. The Total Cost of Care model for MS helps to put these costs into context by analyzing several other key pieces of information:

• How do changes in plan design affect utilization of injectables and out-of-pocket costs for plan members with MS, as compared to the effects on employer costs for these members?

• In addition to the higher costs of injectable medications, what other medical- and productivity-related cost increases or decreases are associated with coverage of injectable medications, and what is their order of magnitude?

With answers to these questions, employers and MCOs will find that the Total Cost of Care model for MS helps them begin to obtain a clearer picture of costs and the effects of injectables coverage on employees and plan members.

The Total Cost of Care model for MS is likely to be expanded into a complete Total Cost of Care model that will combine elements of the Aggregate model (e.g., additional diseases and their underlying prevalence in a typical group) with the broader cost perspective of the Total Cost of Care model for MS (e.g., overall medical and productivity costs). This Total Cost of Care model will provide the most comprehensive analysis of the issues that employers and MCOs face today with respect to injectables coverage.

CONCLUSION

The clinical and financial effects of biotech injectables have given rise to a need for new thinking about the structure of drug benefit plans. Employers, insurers, and MCOs must consider an innovative and proactive approach to addressing the coverage, financing, access, payment, and administration issues associated with biotech injectable medications. This requires a strategy unlike those taken with traditional oral medications.

Rather than seek short-term fixes, purchasers should align benefit-plan structures with their core goals. To achieve this, the implications of plan-design changes must be understood.

A series of actuarial models, such as the Reimbursement model, the Aggregate model, and the Total Cost of Care model, can provide the level of decision-making support that is needed but currently lacking in the marketplace.

Rather than adopting short-term or partial fixes, stakeholders should seek to create value and align benefit plans with their core goals. To achieve that, however, they must thoroughly understand the implications of changes in plan design on costs, reimbursements, and utilization before implementing those changes.

By modeling specific changes in plan design and detailing effects on all stakeholders, employers and MCOs can identify the optimum plan designs for their respective organizations, employees, and members. As a result, objective and rational benefit decisions can be made, ultimately benefiting all concerned.

Manufacturers also must look beyond the clinical implications for improved patient outcomes and recognize the financial effects of a new medication on the marketplace. Biotech industry sales will increase significantly in both medication and dollar volume through the end of this decade, owing to biologics’ value in improving clinical outcomes.

Despite the existing limitations on access and provider payment, biologic drugs inevitably will constitute a growing share of all medications sold. Therefore, the financial implications of their use must be examined to establish their overall value in the healthcare marketplace. As a result, understanding and evaluating clinical and financial outcomes of biotech products will become increasingly necessary in healthcare.