Rising costs drive drug price targeting
By: John Doyle, DrPH, MPH | June 22, 2016
This is the first in a series on trends impacting the biopharma industry.
You can’t have a conversation about healthcare today without talking about value. U.S. spending on healthcare reached an astonishing $3 trillion in 2014 – a 5.3 percent increase over the previous year, according to a 2015 CM report. And there appears to be no end in sight. Forecasts suggest this rate of growth will increase to almost six percent per year through 2024. This surge in spending is being driven by a confluence of healthcare trends, including Affordable Care Act (ACA) coverage expansions, rising economic growth, and population aging. At the same time, some 32 million people in the U.S. remained uninsured as of early 2015, with about half eligible for Medicaid or subsidies under the ACA.
Hospitals are feeling pressure as state policymakers, insurers and healthcare technology companies, such as Castlight Health, set up databases and mechanisms that provide employers and patients with greater transparency into healthcare pricing so they can make more informed decisions about their care.
Although responsible for a relatively small proportion of overall rise in healthcare costs, prescription drug spending is drawing increasing attention from policy-makers, payers and patients thanks to greater pricing transparency. High-price, high-innovation specialty products have drawn particular interest from government stakeholders who question the viability of their pricing. The interest in pharmaceutical value appraisal is manifested by the rise of health technology assessment focused on oncology drugs such as the value frameworks created by ASCO, NCCN, and Memorial Sloan Kettering Cancer Center.
In primary care, the cholesterol-lowering PCSK9 inhibitors are also generating economic controversy, after a draft Institute for Clinical and Economic Review analysis concluded that the products are not cost-effective. Nonetheless, Express Scripts is covering both available PCSK9 inhibitors in contrast to setting an all-or-none formulary negotiation with hepatitis C drug manufacturers.
All of this controversy is making it difficult to determine how we can fairly evaluate the improvement in overall benefit-risk profile of these new agents. Pharmacy benefit manager formulary exclusions based on price are becoming more prevalent. This type of cost containment mechanism represent a crude approach to managing value, tantamount to evaluating investment without return. Instead, the value of new and innovative products to the healthcare system should be evaluated holistically, including clinical, humanistic, economic and system factors.
What does this mean for biopharma?
Biopharma companies must embrace a health systems view when addressing this rising tide of costs. Reframing a cost problem as a value equation requires an evidence-based mechanism to measure return on investment. The onus will be on all stakeholders to clearly delineate and communicate the ROI of their products and services. The patient journey – which is emerging as unifying theme – is becoming more nuanced and complicated in 2016 as real-world data illuminates proximal and distal causal factors for each stage. Biopharma is uniquely positioned to perform factor analysis and root-cause analysis to determine the key relationships and levers impacting the value chain. Biopharma can then target interventions to improve system performance, thereby enhancing their products’ ROI and value proposition to the public.
To read more and to download our recent white paper, please visit "10 trends shaping healthcare value and outcomes"