Defining Value in Healthcare

Many proposals have been suggested to address the escalating costs, fragmentation and misaligned incentives of the U.S. healthcare system in general and with prescription drugs specifically. But while many of these help some patients and some stakeholders in some disease states, none present a comprehensive solution, said Greg Warren, partner and consulting actuary at Axene Health Partners, at the Pharmacy Benefit Management Institute (PBMI) annual meeting in Orlando.

“The proposed solutions help us cope with U.S. healthcare system challenges, but they are not cures,” he said. “They do help but they are not a comprehensive cure. But let’s not give up our search for cures that can comprehensively heal our U.S. healthcare challenges.”

A comprehensive solution, he said, would align stakeholder incentives, would encourage competition, promote transparency, and mitigate total cost of care increases.

The many challenges include the opaqueness of prescription drug pricing and misaligned incentives of those stakeholders. The various types of pricing, fees, discounts, and rebates calculated in many different ways, as well as the acronyms used, create a system that is not easily understood, he said.

“These aren’t necessarily bad,” he said. “They’re hard to understand. They’re often not clearly defined. They’re sometimes defined differently. There is a brand definition and a generic definition. How do we develop specialty pharmacy programs when every PBM defines specialty them differently?”

Warren said any solution needs to work through the opaqueness to bring clarity and understanding to the solutions and address the misaligned incentives.

Biosimilars have been put forth as solution to one area of prescription drugs. Beginning in 2023, seven biosimilars of Humira (adalimumab), an immunosuppressive drug to treat patients with arthritis, plaque psoriasis, Crohn’s disease, and ulcerative colitis, is expected to be launched. Beyond Humira, biosimilars of Stelara (ustekinumab), also an immunosuppressive drug to treat plaque psoriasis and psoriatic arthritis, are also expected.

“This does appear to be impactful but the bigger impact will be in 2024 and 2025,” Warren said. “There will likely be billions of dollars of savings to our healthcare system in the next couple of years. But will this solve the healthcare systems’ problems? Probably not, but it’s going to help.”

Plans, Warren said, will develop new financing mechanisms and new benefit designs that capture the savings of biosimilars for appears. The same was true when generic drugs first appeared on the market in a big way 15 to 20 years ago. “There was a big wave of generics that lasted five or 10 years that brought us a lot of cost mitigation.”

The issue of transparency in pricing in general, and drug pricing specifically, has been an ongoing discussion for many years. State and federal legislative and regulatory efforts are under way to assess or set limits on pricing and data on pricing and rebates. For example, the Federal Trade Commission (FTC) has launched an inquiry into the impact of PBMs on the access and affordability of prescription drugs. Specifically, the FTC is looking for information and records about PBM business practices and how those practices might impact out-of-pocket costs for consumers.

Additionally, the Inflation Reduction Act, recently signed by President Joseph Biden, includes provisions that address the price of prescription drugs, including capping insulin at $35 for Medicare beneficiaries. It also includes a drug price negotiation provision for 10 drugs covered by Medicare in 2026, increasing to 20 drugs in 2029.

“The government will be negotiating some drug prices, and so that can help,” Warren said. The pharmaceutical manufacturing industry, of course, says generally that this could reduce innovation. And that seems logical that could be the case, but that isn’t going to solve everything.”

Additionally, he said, when it comes to value-based reimbursements, the question becomes, how do we measure the value of prescription drugs. As an actuary, Warren looks at total cost of care and overall survival. They are easily understood and can be measured. But other measures could include pain, activities of daily living, productivity, and quality adjusted life years.

“If we really do make people healthier, don’t we all believe that will lead to a mitigating total cost of care impact? It should reduce hospitalizations; it should reduce length of stay, etc.”