Pharmacoeconomics: Evidence-informed drug reimbursement

A new drug may not seem affordable at face value, but is it cost-effective? Will it increase quality of life and plan member productivity in the long run? The ability to make those distinctions is one of the main advantages that pharmacoeconomic evidence brings to drug reimbursement and formulary decision making.

The process of health economic evaluation, or pharmacoeconomics, results in an enhanced drug review program that goes well beyond clinical evidence to determine listing recommendations, by also incorporating economic evaluation (i.e., cost-effectiveness) and budget impact analysis (i.e., affordability).

Estimates of cost-effectiveness predict how much clinical benefit we will get for each dollar spent—in other words, value for money. Budget impact, on the other hand, looks at how many dollars need to be spent, and whether the funds are available or would have to be taken from something else. Health economists are able to use a widely accepted statistic, called the incremental cost effectiveness ratio (ICER), to summarize the cost-effectiveness of a new medication relative to comparator drugs. The lower the ICER, the better. There may be instances, however, where a drug is deemed cost-effective, but the budget impact would be substantial.

Such an enhanced drug review program is becoming the norm for the growing number of higher-cost, specialty drugs coming to market. It also forms the basis for listing decisions on managed formularies to assess value, help ensure cost containment as well as quality of care.

A managed formulary does not seek to exclude drugs or limit plan members’ access to therapy, which are common misconceptions. Rather, managed formularies assign appropriate levels of coverage based on a drug’s value relative to other drugs available to treat the same condition. Currently, less than 10% of the private drug plans in TELUS Health’s book of business use a managed formulary.

For more information on this topic read “Pharmacoeconomics: Bringing value to the table”.