The pharmaceutical industry is complex—it’s ever changing and growing. That’s why Managed Healthcare Executive (MHE) conducted its first-ever managed care pharmacy survey to better identify top industry trends and challenges. To conduct the survey, which was performed during the second quarter of 2016 and received nearly 230 responses, MHE partnered with Access Market Intelligence and the National Institute of Collaborative Healthcare. Here’s a look at some of the key trends reflected by the survey findings, and analysis from experts. Here’s a look at some of the key findings from the survey, with experts weighing in on the results.
Trend #1: Several factors are driving up specialty drug costs
According to survey participants, the biggest drivers of specialty drug costs in 2017 will be a growing demand because of an aging population and increased prevalence of chronic disease (this answer received 38.1% of responses), followed by the introduction of new specialty drugs to market (26.5% of responses) and manufacturer pricing for new products (14.2% of responses). Inflation rates for specialty drugs already on market as well as broadened labeled indications and off-label use of existing products were both in the single digits, with 9.3% of responses and 8% of responses, respectively.
Mendelson“The results show that a diverse set of factors is causing expenditures on specialty drugs to grow,” says Dan Mendelson, CEO, Avalere Health, Washington, D.C. “Because it’s not just one factor playing a role, rising spend on specialty drugs is a complex issue.”
Mark Ginestro, principal, KPMG LLP, an audit, tax, and advisory firm headquartered in New York, agrees with survey takers that both an aging population and increased prevalence of chronic disease will be significant drivers.He points to cancer as one disease with a big impact, because cancer patients are among the biggest users of specialty drugs. Furthermore, he says, oncology drugs are some of the most expensive treatments available. He believes that due to some remarkable innovations now on the market, such as targeted therapies, access to these drugs is improving and therefore demand is increasing. As the population ages, demand for oncology therapies will only continue to rise, he says.
Other chronic diseases that will drive increased specialty drug spend include HIV and hepatitis C, driven by drug addiction and the sharing of hypodermic needles, says Ginestro. “The comorbidities are challenging to manage and will continue to be a problem in 2017, thereby driving the cost of specialty drugs,” he says.
GinestroMendelson adds that patients’ expectations about their healthcare are changing, which is also leading to higher specialty drug spend. “Patients expect to be able to get the benefit of medical improvement under their insurance products—whether it’s a cure for hepatitis C or psoriasis therapy,” he says. “Awareness has also grown as specialty drugs have been prominently in the news.”
Ginestro says much of the recent cost increases have come from new drugs that have either been curative or have targeted specific populations where they have strong efficacy. “In both cases, there is a strong arguable value and incentive for patients to take them,” he says. “Value drives cost and incentives drive utilization. Our current system is not structured to absorb curative treatments.”
Next: Trend #2
Trend #2: Uptake of biosimilars will increase—slowly
Biosimilars hold great promise in reducing the drug trend for specialty drugs, say experts. So how soon could they have this effect? Only 8.5% of survey respondents foresee this happening in 2017. But 21.4% of respondents expect a reduction in 2018, 13.4% in 2019, and 25% in 2020.
Borden“I think the results sound about right,” says Spencer Borden IV, MD, MBA, principal, Integrity Consulting, LLC, Concord, Massachusetts. “Biosimilars will disrupt the market, but their effects will be much slower than pill-based generic medications due to their lower rate of production, slower rate of adoption, and concern about equivalency of clinical outcomes. The cost differential between biosimilars and branded biologics will be smaller than generic discounts because of the high costs of protein manufacturing. The uptake will be slower as the approval process gets more standardized and well known.”
Ginestro agrees that the results reflect a realistic, staggered view of the impact of biosimilars. “We are seeing a more gradual introduction of biosimilars into the market than many were expecting,” he says. “Patents, a key indicator of timing, are and will be expiring. But many other factors are involved as well, including the cost to develop and get a biosimilar approved. As a result, the biosimilar market will not be a flood of low-cost competitors. Rather, it will be a staggering of one to several key players entering the market. In this regard, it will function more as a competitive branded market where a new entrant will bring down the price of the incumbent to a certain extent, but not to the extent that the incumbent leaves the market.”
Borden thinks the biosimilar market will take between three and seven years to grow and peak. “The full impact will occur when the approval process becomes routine and there are several biosimilar competitors in each drug category,” he says. “Then, I expect price competition to occur between biosimilar competitors. Those with a large and existing market share will have to offer discounts in order to fend off new entrants in their category. New entrants will find it challenging to take market share away from well-known biosimilar standards.”
Another reason it will take several or more years for biosimilars to reduce the drug trend for specialty drugs is that biosimilars will need to prove that their clinical outcomes are not different than the branded biologics, says Borden. “By definition, their chemical structure is different from branded biologic products,” he says. “Proof of clinical equivalence will require time-consuming clinical trials and subsequent publications. Failure to prove equivalent clinical outcomes will cause biologics to be slow to replace branded biologics, or even fail in a certain drug category.”
Notably, the survey also revealed that 31.7% of respondents don’t think
biosimilars will reduce the drug trend for specialty drugs. Ginestro surmises that these respondents probably expect one of two things to happen, which will cause overall specialty spend to continue to increase:
1. Demographics will continue to shift toward an aging population, which will continue to increase demand.
2. Next-generation products will debut that may mitigate the demand for biosimilars, which will offset savings.
Borden reasons that some respondents think that biosimilars won’t reduce the drug trend for specialty drugs because the uptake will be slow compared to generic pills. “The discounts will be smaller and new entrants will be slower to manufacture and appear in the marketplace as manufacturing challenges remain stiff,” he says.
Finally, an additional hurdle will be for manufacturers to work with professional associations to get biosimilars included in current clinical guidelines as best practices in specific disease treatments, Borden says.
Next: Trend #3
Trend #3: Executives agree that new pricing models must be explored
When participants were asked about the best strategy to allow for coverage of new innovative therapeutics and biologics, using value-based contracting where manufacturers are willing to go at risk for the therapeutic performance received the highest number of responses at 44.7%. In second place, 30.5% of participants pointed to excluding the most-costly products from the formulary—unless there is a proven benefit. Using manufacturer net pricing (wholesale acquisition costs plus discounts) ranked third, with 14.2% of responses; and adjusting the premium costs across the broader pool of members/employees was last, with 5.3%.
VogenbergRandy Vogenberg, PhD, RPh, partner, Access Market Intelligence and the National Institute of Collaborative Healthcare, Greenville, South Carolina, agrees with most survey respondents that to confront this issue of ensuring coverage for new products, new pricing models must be explored. “As part of the sea of change that is swamping the post-ACA healthcare market, value-based contracting is a moderate to significant change in the way business is done by healthcare stakeholders,” he says. “For biologic and specialty therapeutic agents, old rules and methods don’t apply like traditional drugs. New methods and payment strategies need to emerge.”
From a payer standpoint, Ashraf Shehata, principal and member of the Global Healthcare Center of Excellence, KPMG LLP, Cincinnati, Ohio, says value-based contracts are seen as a means to control unit costs for medications. “However, there needs to be consistency in the standards and outcomes being measured, and there needs to be trust between health plans/pharmacy benefit managers, providers, and payers that the outcomes are being presented fairly,” he says. “With many new drugs, manufacturers often find themselves providing significant details to the payer community in order to spell out a drug’s benefits so they can get it included in formularies.”
ShehataShehata says value-based contracting also must be approached in the right manner to ensure patient care is not jeopardized. “Globally, some national health programs remove that decision about covering certain treatments from the hands of doctors and patients by excluding drugs that do little to extend survival or improve the quality of life,” he says. “That is taking the stringency around formulary design to an extreme. Value-based contracting or step therapy is acceptable in drug categories where there are other alternative treatments, but there needs to be a case made about the use of a specialty drug.”
Vogenberg says many value-based strategies are being used to allow for the coverage of new innovative therapeutics and biologics. Different forms of value-based pricing include: economic or cost focus only, such as value-based purchasing; middle-ground with some balance of cost and quality metrics related to value that employers are interested in; and quality or outcomes centric models that tend to be more holistic and moderate and focus away from just cost.
“Most have had some short-term success, but none have been universally proven to be the most successful for all stakeholders,” he says. “Medicare and commercial markets operate somewhat differently, so differentiation of market segments and stakeholders in each segment is necessary to determine the best strategy for each segment. What may work in CMS-based reimbursement does not necessarily work for commercial markets and vice versa.”
Vogenberg did not find the survey findings regarding value-based contracting as a solution to ensuring coverage of new therapeutics and biologics surprising. “It’s a typical view of market options and thought processes around contracting, where value is never clearly defined or interpreted,” he says. “This is an important area for research and innovation in more optimally addressing acquisition costs with appropriate reimbursement.”
Next: Trend #4
Trend #4: Performance-based contracting is already gaining traction
Also in the survey, participants were asked: “How do you think the trend toward performance-based pricing for pharmaceuticals vs. reference-based pricing will evolve over the next three to five years?” The majority of respondents (62.4%) predicted that performance-based pricing will be used more often than reference-based pricing.
“The findings are not that surprising, given the push toward finding value in healthcare,” says Shehata. “Payers are looking for greater value and are pressing drugmakers to prove their outcomes, especially in cases in which drug categories are largely comprised of generic treatments. A new drug has to make a case for why it should replace a drug that only costs a few dollars a month.”
Shehata expects performance-based pricing to be used somewhat more than reference pricing because some drug categories lack alternatives, especially in cases of rare diseases or some specialty drugs. “In those instances, the drug manufacturer has an upper hand,” he says. “If drugmakers find new ways to tweak drug formulas or delivery systems to improve medication adherence or patient outcomes, the negotiation between payer and the manufacturer becomes less about price and more about lowering the overall cost of care.”
TaketomoRobert Taketomo, PharmD, MBA, president/CEO, Ventegra, Inc., a California benefit corporation in Glendale, anticipates pricing to continue to evolve beyond traditional practices, but such evolution will be dictated to some degree by market segment (i.e., Medicare, Medicaid, commercial, classes of trade, and distribution channels).
Vogenberg agrees that commercial versus public sector differences will vary from the traditional practices today, but differs on the future role for reference-based pricing. He says there is greater value from a risk basis incorporating today’s reference-based pricing that actuaries and underwriters prefer versus the vagaries of only performance-based pricing.
Shehata says the biggest pricing battles will be regarding specialty drugs competing against existing specialty drugs; cases in which biosimilars will be launched; or cases in which the brand name drug has to prove clear superiority in a category with mostly low-cost generics. “We are seeing this play out with Amgen’s launch of Repatha [evolocumab] to lower cholesterol and Novartis’ Entresto [sacubitril/valsartan] to treat heart failure,” he says. “Both manufacturers are taking on pricing risk to prove that their drugs work.”
Karen Appold is a medical writer in Lehigh Valley, Pennsylvania.