While the recent acquisition spree of Walgreens, a pharmacy chain in the US, seems only tangentially related to the increasing competition for evidence in drug reimbursement, a deeper connection exists. Indeed, as drug formularies such as Express Scripts increase in scope and size (particularly after merging with Medco), pharmaceutical firms and prescription retailers are facing unprecedented pricing pressure. With planned payment reforms in the US focusing on rewarding patient health outcomes rather than simply volume, pharmaceutical firms are facing a patent threat to their business model that will put an even greater emphasis on clinical and economic evidence to prove a drug’s value proposition.
Although drug formularies (in a basic form) have existed for a long of time, health insurance plans have increasingly used them as cost-cutting tools to limit access to expensive drugs with limited clinical efficacy. Indeed, with drug costs increasing nearly twice as fast as general health care costs, which have outstripped GDP growth, many heath insurance plans have developed in-house expertise or outsourced drug formularies to firms such as Express Scripts. The motive behind this trend is simple: Formulary firms have greater expertise to parse the evidence for drug use from clinical studies, economic modeling, and can aggregate buying power to lower prices of prescription drugs.
The emphasis on evidence has increased as public payers, which insure nearly 30% of the US population, have also developed “evidence-based” formularies. Medicare, arguably one of the most important payers for pharmaceutical firms, authorized formularies to be established as part of the 2003 Medicare Prescription, Drug, and Improvement and Modernization Act. Medicare, another important payer, has also adopted the payment model: As of 2011, roughly 37 states had developed “preferred drug lists” for Medicare beneficiaries based on differing standards of evidence. Some states’ reimbursement policies have also become more rigorous collecting evidence as they adopt managed care plans for Medicaid beneficiaries in which payments for patients are fully or partially capitated (based on the illness treated).
even though pharmaceutical companies spent significant resources on clinical and economic evidence for 122 new molecular entities (NME) launched from 2005 to 2010, the correlation between the level of evidence and ultimate commercial success was abysmally low
As fiscal pressures on payers have passed through to reimbursement pressures on pharmaceutical companies, they have spent more money to gather evidence that is less successful in securing reimbursement. Indeed, this is the conclusion of a recent report by consultancy Oliver Wyman entitled “A New Key to Access: Solve the Payer’s Problem.” The study found that even though pharmaceutical companies spent significant resources on clinical and economic evidence for 122 new molecular entities (NME) launched from 2005 to 2010, the correlation between the level of evidence and ultimate commercial success was abysmally low: what is the evidence disconnect between payers and pharmaceutical firms?
The main disconnect is the type of evidence offered and what the evidence intends to show payers. While the FDA requires robust clinical data (randomized control trials) to examine efficacy claims, formularies and payers are increasingly interested in the “real-world” performance of drugs including side effects. Indeed, the shift in evidence from controlled clinical data (and extrapolated Markov modeling) to longitudinal data is also a function of the epidemiological shift towards more chronic diseases: patients with high blood pressure, cancer, or heart issues are usually on drugs for a longer time than the average clinical subject; payers want to know if patients can adhere to and ultimately benefit from pharmacological treatments over longer time periods.
The increasing battle between price versus value in pharmaceutical reimbursement is likely to intensify over the near-term
Evidence is also shifting in its purpose to prove cost effectiveness. The Oliver Wyman report points out that pharmaceutical firms produce many “me too” drugs that offer a marginal improvement in treatment efficacy, but at a premium cost to payers. Instead, the most successful pharmaceutical companies have identified expensive conditions to treat (e.g., ischemic heart disease or cancer) where payers face higher costs and drugs are a lower percentage of that care package-meaning drugs have a significant probability to lower costs of care. This is in contrast to many firms that provide evidence for drugs used to treat hypertension, diabetes, and depression; these treatments offer little value to payers because drug costs are already a substantial portion of these treatments - the probability of further cost savings is low. The result: pharmaceutical firms need to rearrange development priorities and evidence gathering towards convincing payers that cheaper health outcomes can be obtained.
The increasing battle between price versus value in pharmaceutical reimbursement is likely to intensify over the near-term. In the United States, the Center for Medicare and Medicaid Services (CMS) is undertaking a series of demonstrations based on paying providers for health outcomes rather than mere administration of services (volume-based pricing). Indeed, Accountable Care Organizations (ACOs) and bundled payment models means that pharmaceutical firms will need to increase their ability to make a compelling case that drugs directly reduce the cost of treatment episodes. While pharmaceutical firms are spending more on evidence, it looks like they would be well served to look at evidence that directly addresses payers’ bottom line: otherwise, their bottom line will continue to suffer.