Pharmacoeconomics: Bringing value to the table

Everything you need to know about pharmacoeconomics and its vital role in the development of managed formularies As an insurer, benefits advisor or broker, you know firsthand that plan sponsors are worried about the cost of their drug plans, and that is not new. The 2016 Sanofi Canada Healthcare Survey shows that 80% of plan sponsors are concerned that growing costs will exceed the rate of inflation over the next three to five years, and 70% of plan sponsors responding to a Benefits Canada survey fear that, in the long run, their drug plans won’t be sustainable.1,2 Claims data from TELUS Health confirm that both the average number of claims per cardholder and the average cost per claim increased in 2015.3 The total average annual eligible cost per cardholder reached $424, a 7% increase over the last three years.4 Specialty drugs fuel concerns over sustainability. While they accounted for just 0.5% of claims adjudicated by TELUS Health in 2015, they swallowed 23% of eligible drug-plan dollars. The average cost of a specialty drug claim has grown from $15,000 per year in 2008 to more than $20,000 per year in 2015. The cost impact of these medications will continue to escalate, and not just because almost half of the drugs currently under review by Health Canada are specialty drugs.5 Their impact on health outcomes also drives utilization. When traditional medications become ineffective or simply do not work, specialty drugs can transform lives, restore productivity and prevent disability leaves.

A question of balance

For a small percentage of plan members, therefore—many of whom were likely among the highest-cost claimants for health benefits, even before taking specialty drugs—the value of these medications is beyond calculation. The challenge for plan sponsors and providers is to balance that value against affordability. To do that, however, we need to step back and reexamine whether or not we are extracting enough value from our coverage of the remaining 99.5% of drug claims. Are we doing enough to manage costs for the bulk of claims in order to maintain coverage for the relatively few cases of extraordinary need? The answer, increasingly, appears to be no.

“There is so much more we can do with the 99.5%. We can take a more balanced approach, recognizing there is no one magic bullet,” says Karen Kesteris, Director, Product and Pharmacy Management, TELUS Health.

Relatively low adoption rates for even the most common forms of cost-management reflect that more can be done. For example, just 47% of plans have mandatory generic substitution in place despite evidence of substantial savings—one analysis of claims data in Ontario uncovered savings of 7%, compared to just 1% among plans where generic substitution was optional.6 As well, as many as 41% of drug plans still do not have any form of coinsurance.

A managed formulary is another cost-management strategy rarely used by private drug plans—just 20% of plan sponsors indicate having one, according to the Benefits Canada survey.7 Yet interest appears to be growing. Or perhaps more accurately, the growing consensus among plan sponsors and providers is that traditional open or prescription-by-law formularies simply can’t continue in today’s environment.

“When we look at our book of business, the vast majority of drug plans use open formularies, but for the past year we’ve noticed that more people are asking questions and showing greater interest in managed formularies,” says Kesteris. “Managed formularies present an opportunity to take a more balanced approach to cost management, especially as more specialty drugs come down the pipeline.”

Costs related to benefits: the logic of value

Enter pharmacoeconomics, which is essential for the success of managed formularies. In a nutshell, pharmacoeconomics can be described as a compass that uses value as its “true north.” Cost is still an important part of the equation, but outcomes are equally important for navigation. The science of pharmacoeconomics, particularly when applied to managed formularies, can help lessen uncertainty and increase comfort levels among plan sponsors. To understand how it can do that, however, we first need to remove misconceptions about the science itself.

“People often use the word ‘pharmacoeconomics’ out of context,” explains Jayson Gallant, Pharmacist, TELUS Health. “The term seems to be used whenever there’s talk about general drug costs, but it’s much more than that. At the other extreme some think it’s used to calculate the ROI of a drug, but that’s also not accurate.”

Simply put, pharmacoeconomics seeks to quantify value by considering “the cost of the drug in relation to its documented efficacy,” says Gallant. This is especially useful when multiple drugs with varying price points are available to treat one condition. For example, if a new drug costs more than an existing drug but works more effectively, thereby improving the patient’s quality of life (including productivity), pharmacoeconomics may determine its value to be higher than the older, lower-cost drug. “It puts the extra cost in relationship with the extra benefits,” says Gallant.

Sounds like “Wally”

How does pharmacoeconomics create an apples-to-apples environment that relates a medication’s cost to seemingly unquantifiable outcomes such as quality of life? That’s where the quality-adjusted life year, or QALY for short, comes into play. It is a globally accepted standard that translates quality-of-life data, such as a drug’s impact on morbidity and mortality, into a mathematical variable.

“Let’s say a drug gains the patient an extra year of life, but the quality of life is very poor due to side effects. In that case the QALY is quite low. Meanwhile, for a drug that gains a year of perfect health, the QALY would be high,” says Gallant. The QALY score is then factored into other pharmacoeconomic calculations.

The incremental cost-effectiveness ratio (ICER) is another key parameter when it comes to determining the relative value of a drug that is more effective than another drug, but costs more. “The ICER is a standardized measure, used by most health technology assessment agencies around the world,” says Gallant. It can be used for private managed formularies as well.

Mathematically speaking, the ICER divides the difference in costs between the two drugs by the difference in effectiveness. Put another way, it calculates the average added cost for each added unit of effectiveness—and the “unit of effectiveness” is the QALY, or quality-adjusted life year.

The lower the ICER per QALY gained, the greater the cost-effectiveness (or value) of the drug compared to the other drug. The top threshold for an ICER per QALY, again used by formulary experts around the world, is typically in the tens of thousands of dollars. “For example, we consider an ICER of up to $50,000 per QALY gained to be good value. We would judge that drug to be cost-effective,” says Gallant.

“An ICER at or near the top of the threshold is not, however, a reflection of hard costs for plan sponsors or plan members,” explains Gallant. “The ICER is a parameter used for pharmacoeconomic modeling, which follows its own guidelines when it comes to analyzing the results.”

A basic understanding of pharmacoeconomics helps dispel misconceptions about managed formularies. For example, some equate managed formularies with restrictive or closed plans that exclude coverage for certain drugs, based mainly on costs. A true managed formulary, however, uses the value-based logic of pharmacoeconomics. The objective is not necessarily to exclude medications but to categorize coverage based on value. The greater the pharmacoeconomic value, the higher the coverage.”You are not losing access to vital medications, nor are you ‘forced’ to use only lower-cost drugs,” says Gallant. “Instead, the managed formulary categorizes all the options available in a drug class and encourages the use of those that give the best value. Just as important, it’s a way to clearly communicate the different levels of value to plan members, which encourages them to be ‘smart shoppers’ with drug plan dollars—the more they use medications that are deemed to give the most value, the more coverage they get.”Education also plays an important role to dispel possible misconceptions. For example, plan members may not be aware that new drugs go through a review process to determine their position on a managed formulary (see sidebar). During that time period, which could take several months, coverage for the drug is not available. Plan members may also not understand why coverage levels differ for their medications. Advisors and insurance carriers can differentiate themselves by taking the lead to provide such education on how a managed formulary works.

Building on a solid foundation

Guided by pharmacoeconomic determinations of value, a managed formulary gives plan sponsors greater certainty that their drug-plan dollars are invested wisely. In some cases, that means that a higher-cost drug will be eligible for the highest level of coverage due to its value in terms of health outcomes. A managed formulary also sets the stage for plan members to become more educated about how their drug plan works, which encourages greater personal accountability.Managed formularies also provide a better basis for other cost-containment measures. Coinsurance, for example, can be built right into managed formularies, and takes on a logical pattern of ebb and flow based on the value of the medication.In a new era of modern medicine, managed formularies help create order from the relative chaos of open formularies, propelled in large part by the value-based science of pharmacoeconomics. From that foundation, plan sponsors and their benefits providers can plan more confidently for the future, knowing that they are better able to protect their drug plan’s sustainability while also supporting the health and productivity of employees.

How the managed formulary works

Under a managed formulary for a private plan, all drugs approved by Health Canada undergo a drug review process by the pharmacy benefits manager (PBM), similar to what currently happens with public plans. The PBM receives information from the manufacturer, which consists of clinical evidence, pharmacoeconomic modeling and a budget impact analysis (including predictions for number of claimants).

The PBM’s managed formulary committee, typically comprised of pharmacists and other pharmacotherapy experts, evaluates the manufacturer’s submission for possible bias and completeness (e.g., to ensure that all relevant clinical trials are considered). Once all materials are gathered and evaluated, keeping in mind the objectives and projected impacts that are unique to private plans, the committee determines the drug’s position in the formulary.

A managed formulary’s levels of coverage are often referred to as tiers, with tier one denoting the highest level of coverage. While it’s up to the plan sponsor to determine the tiers of coverage, a three-tiered formulary could provide coverage levels of 100%, 80% and 50%, for example. Some formularies may use the terms “preferred” and “non-preferred” to describe a drug’s position in the formulary.

Information for life

TELUS Health is a leader in telehomecare, electronic medical and health records, consumer health, benefits management and pharmacy management. TELUS Health gives health authorities, healthcare professionals, patients and consumers the power to turn information into better health outcomes. Visit telushealth.com.

Source : http://page.telushealth.com/rs/655-URY-133/images/perspectives_Fall2016_Pharmacoeconomics.pdf