Pharmacoeconomics Refresher: The CVS $100k/QALY Announcement (Part 3)

In this series, we have used the recent announcement by CVS Health regarding a strategy to lower drug prices as an example to review basic pharmacoeconomic principles. In Part 1, we focused on the incremental cost-effectiveness ratio (ICER) and a scenario using quality-adjusted life-years (QALYs) as the primary measure for effectiveness. In Part 2, we began to place the resulting ICER into context so it could be applied to making a decision recommendation. For Part 3, we are going to discuss various stakeholders and how each might view the results of decisions based off of pharmacoeconomic analyses.

Who are the stakeholders?

When it comes to making “managed care” decisions involving the treatment of one’s health, it is important that we consider several potential stakeholders:

1. Patients & Caregivers — The group that has the most at stake in a health decision is the actual patient (which includes the immediate family or caregiving persons involved). The term caregiver is often used when we think about patients who rely heavily on someone else as a proxy for decision making (children, persons with psychological disorders, elderly patients, etc.). Patient advocacy organizations are often included in this category and for this post I’m going to lump them in as well.
2. Clinicians — Our clinical experts are important to help guide the best possible treatment in terms of efficacy and safety. The clinicians help establish guidelines and best practices with the evidence available and in many cases serve as advocates for their patients.
3. Payers — The term “payer” is broadly used to encompass the private or government managed care entity that is responsible for the care of a population. This is often misleading as employers (especially in the United States), taxpayers, and the patients themselves are the ultimate payers for health services. The payer term in pharmacoeconomics typically just focuses on the managed care entity that handles the transaction to the provider of the clinical service. In the United States, payers are a mix of private for-profit companies, not-for-profit organizations, and government agencies (Medicare and Medicaid). These entities serve as an intermediary (often called a “Third Party”) attempting to balance the benefits provided with the costs to provide said benefits for the entire covered population they represent.
4. Pharmaceutical Manufacturers — In the context of pharmacoeconomics, the companies responsible for the research and development of new pharmacologic treatments for disease are considered important stakeholders as a managed care decision will ultimately determine whether or not they will recognize a return on their business investments.
5. Society? — I’m going to incorporate a generic “Society?” group (yes – question mark included), although it is really difficult to capture a societal perspective in an advisory board. From an economics standpoint, we frequently discuss the impact of a decision on society which may capture many indirect costs and benefits of a decision.

Now that we have identified a set of stakeholders, let’s walk through a few scenarios and discuss how each may be impacted.

Scenario A: Brand new (expensive and effective) drug is covered because it is cost-effective compared to the current standard of care for a subset of patients in our population (determined by our cost/QALY calculation <$100,000/QALY).

For the individual patients & caregivers impacted directly by the new treatment, the determination to include on the formulary means increased access to the therapy, as many patients may not be able to afford the treatment without the support of a third party payer. The benefits may include decreases in mortality or morbidity (remember that using the QALY incorporates both the length of life and the quality of life).

For the clinicians, inclusion on the formulary will hopefully make day-to-day operations a bit easier as their staff will be able to spend less time worried about patient access. If the formulary decision incorporates several managed care hurdles (step-therapy, prior authorization, etc.), then the clinicians may bear a bit more of the burden in terms of ensuring their patients have access to the new treatment.

For the payer, the decision to cover based on a <$100,000/QALY calculation only explains efficiency of the new treatment versus the old treatment. It says nothing about the impact on the overall budget for the health plan. In other words, the payer must estimate how much more the entity will spend on the new treatment compared to previous years and will need to make adjustments to ensure they have the funds. This could be done in a few ways. First, the payer could eliminate payment for other services in the plan (which would impact other patients, clinicians, etc.). Second, the payer could increase the overall contributions or premium amounts necessary to make up for the new spending. This means employers, taxpayers, or other covered individuals in the plan will be expected to pay more to ensure a subset of patients get access to the new treatment.

For the pharmaceutical manufacturer, formulary inclusion means access to a larger pool of customers and increased sales of product. This may not necessarily reflect greater profitability, as a large insurance company may require overall price concessions (through rebates or discounts) from the manufacturer.

For society, gains may be realized through the improvement of health (as measured in total QALYs gained) in the population. Society may also benefit as healthier people may be more likely to contribute to the economy (ie: working, paying taxes, consuming goods).

Scenario B: Brand new (expensive and effective) drug is NOT covered because it is not cost-effective compared to the current standard of care for a subset of patients in our population (determined by our cost/QALY calculation >$100,000/QALY).

For patients & caregivers, this negative coverage decision will ultimately limit the access to the treatment. Maybe a few patients will gain access through charitable networks or they may pay 100% out-of-pocket if they have the means to do so (which may create an equity issue). From the patient perspective, being denied a new treatment that is efficacious but not cost-effective could be incredibly disheartening as they see are denied health gains because it “costs too much.” This may be compounded by the numerous ads on television of smiling actors over-selling the effects, but we can save that issue for another post.

For the clinicians, this coverage decision can be extremely frustrating. From a clinical viewpoint, the gains in efficacy in the clinical trials are exciting (I mean, who settles for “good” when you can have “even better”?). In this case, the clinicians may share a patient-centric viewpoint and just want to find a way to get increased access. Many clinicians are amazing patient advocates who will gladly jump through administrative hurdles to get the drug to the patient.

For the payer, this is an extremely tough decision politically. Theoretically, by denying the treatment they are allocating the health plan’s dollars more efficiently (*DISCLAIMER* This assumes that everything else currently on the formulary is held to the same cost/QALY standard, which is likely not the case). Denying the treatment will certainly create a very unhappy subset of patients who may become vocal and slam the payer from a customer service perspective. In the case of the for-profit insurance market, customer service could potentially hurt future business. In the case of the government, denials could result in advocacy to our elected representatives.

For the pharmaceutical manufacturer, this certainly limits the revenue potential for the new therapy. The manufacturer could conduct more research to demonstrate greater clinical effectiveness or simply lower the price (also another topic that deserves its own post).

For society, whether or not there is a net benefit or loss with this decision may be unknown. If the cost/QALY calculation was only determined using a “health sector” perspective, then there is a chance the negative coverage decision will actually hurt society.

The Balancing Act

Moving to a system where formulary decisions made by a large health plan or pharmacy benefits manager incorporate economic analyses in a formal way will certainly create some controversy. Especially in Scenario B after a drug is approved, shown to be clinically effective, and fails to meet the cost-effectiveness threshold. When we step back and view a health plan as a large group of people, rather than individuals, it really is just a mathematical calculation (Which this series was meant to simplify for a broad audience).

Philosophically, many people support the idea of balancing the potential clinical gains with the additional costs to achieve those gains…until they are the one sick and hoping to receive the best treatment money can buy. We can all relate to the patient & caregiver group, as we have likely all experienced a situation where we faced a diagnosis with a poor prognosis if left untreated (either for ourselves or close relative). In future posts, I would like to discuss a few more nuances that might challenge our understanding and interpretation of a pharmacoeconomic analysis. Stay tuned!