Here’s a question it seems everyone wants to answer: Will high-cost medications bust the budget or provide a return on investment?
On one side, we have the conventional wisdom among most health plans and their lobbying group saying that the price of some medications is astronomical and unsustainable and will certainly push health plan budgets into the red well before payers realize any return on their investment in these medications.
On the other side, we have the potential for substantial long-term savings from at least one high-cost medication, Sovaldi, according to a report earlier this year from the Health Research Institute at the consulting firm PricewaterhouseCoopers.
Sovaldi tier placement
Percent of plans. In categories with coverage, some plans may employ prior authorization and/or step therapy.
Source: Managed Markets Insight & Technology, LLC database as of November 2014.
Indeed, it’s a difficult and pressing question, because spending on specialty medications is expected to rise from $87 billion in 2012 to $402 billion in 2020, according to a report in June from PwC, “Medical Cost Trend: Behind the Numbers 2015.” The numbers were based on an analysis of data from CVS Caremark.
In part because Sovaldi has a 90% rate for curing the liver virus that causes hepatitis C, the report says that Sovaldi (sofosbuvir) has a strong potential to deliver long-term savings.
But for health plans, the $84,000 cost of this antiviral (at $1,000 per day for 12 weeks) is astronomical and unsustainable, according to the lobbying group America’s Health Insurance Plans (http://www.ahipcoverage.com/2014/05/20/yikes-1000-per-pill/).
Another factor driving up costs is inappropriate use of drugs for hepatitis C, says Brenda Motheral, RPh, MBA, PhD, president of Artemetrx, a specialty drug management consultant. “Our research of nearly 1,000 Sovaldi users found significant off-label use, overuse, and premature discontinuation of the drug or drug regimen, and an average waste of $33,000 per patient treated with Sovaldi,” she adds.
Express Scripts estimated, in a report on specialty medication in July, that states could spend $55 billion on Sovaldi if they treat the estimated 750,000 Medicaid patients and state prisoners who have hepatitis C. The pharmacy benefit manager expects U.S. health care purchasers to spend 18 times as much onatitis C medications in 2016 as they did in 2013, according to the company’s 2013 Drug Trend Report. “No major therapy class has experienced this high of a spending increase in the 21 years we’ve measured drug trend data,” the report said.
In October, Gilead announced that Harvoni (ledipasvir and sofosbuvir), its next-generation treatment for hepatitis C, would cost $94,500 for a 12-week course.
The cost of medications for cancer patients also has risen sharply, according to the global oncology trend report “Innovation in Cancer Care and Implications for Health Systems” from the IMS Institute for Healthcare Informatics.
When costs rise, health insurers react as consumers do: They begin asking what they’re getting for their money. As if to answer this question, PwC’s researchers suggested that while new high-cost therapies are driving up spending, it’s important to look at the potential to produce long-term savings.
“Compare the average $84,000 for a course of the new therapy to medical costs for treating those with varying severity of liver disease,” the researchers wrote. “For instance, patients with no scarring of the liver can incur average annual costs of $17,000. Patients with compensated cirrhosis, a scarred but functional liver, can incur $270,000 in treatment over a decade. At the most severe side of the spectrum, patients who require a liver transplant could expect to be billed an average of $580,000.” PwC did the report independently and not at Gilead’s request, PwC said.
Rosy future for hepatitis C patients — and for payers
The use of new hepatitis C therapies will increase rapidly, but the greatest financial effect is likely to be in the early years. The highest cumulative effect on benefit costs for employer plans is 2015–2016. The trend quickly turns downward as patients are cured. Percentage change in employers’ costs:
Source: “Medical Cost Trend: Behind the Numbers 2015,” PricewaterhouseCoopers Health Research Institute, June 2014. PwC analysis based on National Health and Nutrition Examination Survey and 2012 Truven claims data from employers.
The researchers did not state that Sovaldi would provide an actual return on an insurer’s investment, but they did clearly suggest that the potential exists.
It’s important to note that the cost of Sovaldi will be high in the next few years, says HRI Director Benjamin Isgur. “But our analysis also shows that while there are a lot of costs on the front end, those costs decline over the outer years as these treatments get into the population.”
Jim Prutow, a principal in PwC who contributed to the Sovaldi analysis, adds that “When you do the cost-benefit analysis, you can look at it as a profit-and-loss issue since you are making an investment in a therapeutic. Also, you can produce a cure, which means you will be preventing costs that result from an acute episode or a liver transplant. That’s why the spending curve declines. As you cure people, you have fewer patients who need to be on this therapy and you may have fewer new infections too.”
There is hope. The spending curve declines for high-cost medications because of their potency, says Benjamin Isgur, left, and Jim Prutow of PwC. As people are cured, fewer patients need to be on the therapy.
The PwC analysis was based on the 78,000 to 82,000 patients with hepatitis C who have employer-sponsored health insurance. An analysis of the unemployed, Medicaid patients, or those in prison might show a much different cost curve, Isgur and Prutow add.
Medicaid Health Plans of America (MHPA), an association representing these insurers, says that while the minimum treatment time for Sovaldi is 12 weeks, it could be 24 or even 48 weeks, depending on a patient’s viral load and treatment response. Also, the $84,000 figure is only part of the total treatment costs because Sovaldi is taken with other drugs for hepatitis C. For state Medicaid directors, Sovaldi complicates their spending plans because the FDA approved the medication in December 2013, after states set their capitated Medicaid budgets for this year, MHPA said.
“This unanticipated cost could put health plans at severe financial risk, since their capitated rates would not be actuarially sound as is required by federal law. This will potentially compromise the ability of health plans to provide access to other life-saving services and medications for Medicaid enrollees suffering from other diseases,” MHPA says. Health plans and state Medicaid programs will face a significant challenge in trying to manage the cost of Sovaldi and other high-cost medications, the association adds.
Putting a price on quality of life
While ROI is one way to evaluate a medication’s performance, another way is to analyze its effect on quality of life. For an analysis published in Health Affairs in October, researchers at Tufts University’s Center for the Evaluation of Value and Risk in Health (CEVR) calculated the quality-adjusted life-years (QALYs) that patients could expect from specialty drugs. To estimate the value of specialty drugs versus traditional medications, they reviewed published estimates of QALYs for 58 specialty drugs and 44 traditional drugs the FDA approved from 1999 through 2011. Specialty drugs and traditional drugs were associated with median additional costs of $12,238 and $784, respectively, and mean incremental costs of $72,917 and $3,237, respectively, they reported in an article, “Despite High Costs, Specialty Drugs May Offer Value for Money Comparable to That of Traditional Drugs.” But also they found improvements in quality-adjusted life years as well: 0.183 QALYs for specialty medications in the first group compared with 0.002 QALYs for the group of traditional drugs.
“Our study suggests that although specialty drugs often have higher costs than traditional drugs, they also tend to confer greater benefits and hence may still offer reasonable value for money,” the CEVR researchers wrote. CEVR does custom research for government agencies, private foundations, and industry groups and says it maintains research independence and freedom to publish.
Peter B. Bach, MD, an oncologist, has suggested a similar approach to pricing cancer medications. An attending physician at the Memorial Sloan Kettering Cancer Center and director of its Center for Health Policy and Outcomes, Bach wrote an article, “Indication-Specific Pricing for Cancer Drugs,” published in the Oct. 22/29 issue of the Journal of the American Medical Association. In it, he said that drug prices are not usually linked to value.
Last year, the FDA approved eight new cancer medications, and the per-month cost of these medications for Medicare and Medicaid patients was $7,000 to $32,000, he wrote. While some of these drugs helped extend patients’ lives by six months, others extended lives not at all.
Linking price to indication
It might be possible to set payment rates at the cost per year of life gained, he suggested. A number of organizations are working to link price to benefits, an effort Bach says will be challenging.
In September, Bach’s colleague, Leonard Saltz, MD, chief of Memorial Sloan Kettering’s gastrointestinal oncology service and head of its colorectal oncology section, was featured on the CBS news program 60 Minutes explaining the cancer center’s approach to evaluating the cost and benefit of medications.
For now there is no easy answer to the question of whether specialty medications provide a return on investment. Instead, health systems and health insurers will be evaluating the costs and benefits over time while trying to avoid what MHPA calls the severe financial risk of paying for a rising number of high-cost drugs.