Will the traditional formulary tier structure hold up under the expense of biologics? Decisions on how to manage biologics open the door for a significant change in the relationship between health plans and pharmacy benefit managers.
Abstract
With more biologics for chronic conditions becoming available in the next few years, managed care plans face the issues of whether and how to cover such treatments. Prudent plans are shaping their strategies now, so they’ll be ready when the big biologics wave hits.
Until the makers of Tysabri (natalizumab) voluntarily suspended marketing of their popular injectable on Feb. 28, the Multiple Sclerosis Society had hailed the monoclonal antibody as a “very exciting” new option for more than 400,000 Americans with the disease. In explaining its enthusiasm, the patient-advocacy group cited clinical trials showing that the much-anticipated drug, approved by the U.S. Food and Drug Administration last November, reduced the rate of relapse in patients by up to 66 percent.
“In some ways, we’re taking on a lifetime’s worth of work,” says William Fleming, PharmD, of Humana. “With the introduction of high-cost biologics, what causes the employer stomach upset is cost per unit. At the end of the day, you have to ask yourself whether you believe in the value of biologic drugs.”
PHOTOGRAPH BY PATRICK PFISTER
Regardless of the drug’s market withdrawal, there’s another side to this story — a larger issue that comes part and parcel with many “breakthrough” biologics. The annual wholesale cost announced by Tysabri’s manufacturers, Biogen Idec and Elan, was $23,500 — significantly more than other treatments. After absorbing the sticker shock, third-party payers could be excused if they chalked this up to the anticipated cost of shouldering what was thought to be a significant advance in treating a difficult illness.
Yet, experts say such expensive biologics are the harbingers of what’s to come. Consider that biologics represented 53 percent of the new molecular entities approved by the FDA in 2002. Moreover, an estimated 40 new biopharmaceutical products could be approved by the end of next year. The biologics market — now about $35 billion — may reach $70 billion, or 12 percent of the pharmaceutical market, according to a recent article in Nature Biotechnology.
Herein lies a complex challenge for managed care organizations — should they cover the cost of these high-priced treatments? Can they afford to cover them? Can they afford not to do so? How will such decisions be made? The search for answers means that third-party payers will have to examine not only their strategies for coverage, but what’s best for patients — without committing ethical lapses.
Before its withdrawal from the market, Tysabri was being touted as a possible first-line drug for MS, The study used to document improved efficacy, however, enrolled patients with more mild forms of MS, notes Jeff Hawes, PharmD, RPh, pharmacy practice manager at Med-Impact Healthcare Systems, a pharmacy benefit manager in San Diego. “We cannot assume that Tysabri [would have] yielded 66 percent reduction of MS in more severely affected patients. We need more information, such as head-to-head trials in naïve patients, and Tysabri [would have had to] show clear clinical differences in disability progression at the end of two years in the study.
The study used to document improved efficacy of Tysabri-enrolled patients with more mild forms of multiple sclerosis, says Jeff Hawes, PharmD, RPh. “The question,” Hawes adds, “becomes how best to manage the appropriate use of [any highly anticipated] medication until more evidence is revealed with time.”
PHOTOGRAPH BY RITA E. KOEHLER
“The question,” Hawes continues, “becomes how best to manage the appropriate use of [any highly anticipated] medication until more evidence is revealed with time.”
RETHINKING PHARMACY
Indeed, over the next few years, not only will an increasing number of expensive biologics become available, but a growing proportion is expected to treat chronic conditions. Imagine a few dozen wonderful treatments that all cost about the same as Tysabri. Current medications — such as $3 pills to treat cholesterol that raise howls of protest from people who say drugs are too expensive — may soon be considered cheap by comparison.
“This is really all about rethinking how pharmacy is used, from a budget perspective and in terms of performance,” says Randy Vogenberg, senior vice president and national practice council leader at AON Consulting, in Providence, R.I. “If a health plan that’s on the hook for cost of care can save 20 percent with fewer hospitalizations and emergency room visits, that’s huge. But if you move from simply managing a disease, such as arthritis, to something that’s closer to a cure or even a significant clinical improvement, do you pay if it also costs a whole lot more, maybe twice as much? This raises ethical issues, too.”
The initial outlay may seem overwhelming, though some experts say the return on investment may justify the decision to cover biologics. This approach to patient care relies on the logic that by providing treatment today, the third-party payer will realize savings over time as the need for hospitalizations and other interventions decreases.
The unpredictability of that logic is especially vexing as corporate America undergoes massive restructuring. The ongoing spate of mergers transforming many industries means that more and more employees spend fewer years working for the same company. As a result, some large employers might be tempted to forgo those pricey treatments if they believe the average job tenure does not warrant a long-term investment in health care. Smaller employers simply may be unable to cope with the rising expense.
“Currently, patients are insulated from the true cost of medications,” says Hawes. “With employers looking to minimize the trend in healthcare costs by offering health reimbursement arrangements and health savings accounts, patients quickly will begin to bear an increased share of the cost of their medications. The member responsibility for any given biotech drug may reach a point where the patient can no longer afford to pay for the drug. This is the issue that I think most insurers are debating.”
EVOLVING STRATEGIES
Not surprisingly, some health plans already are searching for solutions. While there’s no single approach that is most likely to work, experts say that some possible outcomes may include placing more cost on the consumer; creating still more tiers for copayments; shifting more business to specialty pharmacies, or watching health plans take on more functions, which might alter the role of — if not squeeze — PBMs.
Most health plans will have to look beyond the conventional three-tiered structure tied to a formulary run by a PBM.
“I’m not sure whose bank this is going to break,” says Albert Carver, RPh, director of pharmacy strategy and operations at Kaiser Permanente in Downey, Calif. “As a general statement, the approach we’re embarking on is to review evidence of effectiveness and utilize treatments where they’re most effective. If you take one of these new biologic agents, it’s not too alarming. But add the expense of several new agents for several treatments and the prospects should be of concern to all of us.”
Most health plans will have to look beyond the conventional three-tiered plan that’s tied to a formulary run by a PBM. The catch, though, is finding permutations that are viable. And this premise will be taxed as biologics emerge for larger and larger patient groups.
“It may be that you want to provide a higher level of benefits for treatments that are more critical to care,” says Sean Brandle, vice president and national pharmaceutical practice leader at the Segal Co., the actuarial and consulting company in New York. “If manufacturers should come out with biologics that are applicable to wider populations, health plans will have to rethink their benefit designs, because there will be demands that these products be adopted and placed on [formularies].”
This might remain hypothetical for a time, but it suggests the potential for a significant change in the relationship between health plans and PBMs. Some speculate that health plans may be tempted to bring the PBM function in-house. This could happen if the traditional tier formulary is blown up by the high cost of biologics.
Anticipating such a shift, some PBMs are repositioning themselves. Last year, Medco Health Solutions, which is the nation’s biggest PBM, struck a 10-year alliance with Accredo Health, a specialty pharmacy, to provide treatments for patients with chronic and long-term needs. Similarly, Express Scripts bought CuraScript Pharmacy, another specialty pharmacy.
These moves underscore the likelihood that expensive treatments, such as biologics, will lessen the reliance on traditional retail and mail-order pharmacies as a key part of a package offered by an MCO. In fact, some specialty pharmacies report that they already are being embraced by many large employer groups. And the reasons that are being cited for the switch — cost savings and patient management — are hardly surprising.
“In doing this, the employer and the health plan can improve patient care,” says John Zevzavabjian, vice president of account management at PharmaCare Management Services, a specialty pharmacy in Lincoln, R.I. “And there are volume discounts. Maybe there are fewer patients overall, but there’s also more visibility with the dollars.”
DELICATE BALANCE
Third-party payers may find that covering the cost of some biologics carries other risks, regardless of pharmacy benefit design. That’s because these are not all self-injectable treatments. Some will necessitate an infusion or administration in a doctor’s office, where the overall cost is higher.
It would be cheaper for a health plan to shift the cost of all biologics to the pharmacy benefit, points out Enoch Strollo, director of sales and marketing for Bio-Plus Specialty Pharmacy Services, in Altamonte Springs, Fla. Such a move, though, could alienate physicians whose practice revenue depends in part on buying and reselling specialty drugs. So it may prove difficult to keep a lid on the cost of at least some biologics, no matter what approach is tried.
“The question is whether the health plan really needs the physician to provide the injectable or if a specialty pharmacy can handle it for significantly less cost,” says Strollo. “It’s a tough call for the payers, and I don’t think they want to alienate physicians.”
Meanwhile, some third-party payers are grappling with other tough calls. Humana formed what it calls a pipeline committee to develop some near-term answers. This committee tries to look under every rock by involving employees from all corners of the Louisville, Ky.-based company — finance, product design, underwriting, network contracting, technology assessment, as well as pharmacy and therapeutics.
“If you take one of these new biologic agents, it’s not too alarming, “says Albert Carver, RPh, of Kaiser Permanente. “But add the expense of several new agents for several treatments and the prospects should be of concern to all of us.”
“In some ways, we’re taking on a lifetime’s worth of work,” says William Fleming, PharmD, Humana’s vice president of pharmacy and clinical integration. “With the introduction of high-cost biologics, what causes the employer stomach upset is cost per unit. We’re not talking about the garden variety drug that may cost $500 to $1,000 per year for a member. At the end of the day, you have to ask yourself whether you believe in the value of biologic drugs.”
To tackle the problem, Humana instituted what he calls a fourth tier. This carries a 25 percent copayment with an annual out-of-pocket cost of $2,500 for an average member. More recently, the insurer went further, creating a new program called RxImpact, which established four categories of reimbursement and coverage, depending on the benefit offered by a treatment.
One category was designed for drugs targeting chronic, long-term conditions, such as cancer or AIDS. A second covers drugs for depression or asthma, treatment of which may offset other medical events such as hospitalization. The third category is for drugs that may not have a medical tradeoff but improve daily functioning, such as a pill for allergies. And the final group may not offer any medical payback, but may improve lifestyle. These include treatments for acne, sexual dysfunction, and weight loss.
“The biologics will fall into one of these groups,” says Fleming. “And we’ll hit the maximum the consumer would pay. Now, there may be a day when an employer will say they won’t cover biologics, because they’re just too expensive. But I don’t see that happening, with few exceptions at least. What we’re trying to say is that there are different ways to go to keep people engaged as they shop around for the best access to treatments.”
“People have to be careful about making decisions before knowing if the outcomes are there, though,” he continues. “The discussion says that if you spend more on drugs you may spend less on hospitals, but the jury is still out on whether that’s reality. If I had one wish, it would be to be able to produce good outcomes data.”
As AON’s Vogenberg notes, biologics give pharmacy and therapeutic committees at MCOs enormous decisions to make. And given the lack of precise outcomes data, the kind that eludes people such as Fleming, it’s unlikely that these decisions will be made with the precision and clarity that some situations will demand.