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Unlike a traditional formulary, the value-based formulary emphasizes the clinical effectiveness of a drug rather than cost so that if a drug is very effective but expensive, it might still fall on tier one.
Sovaldi, the new drug that treates hepatitis C, created quite a buzz with its $84,000 price tag for a 12-week course of treatment when it hit the marketplace late in 2013. Other high-cost specialty drugs are not far behind, nor was Sovaldi the first to rattle payers’ decision-making abilities.
In fact, another hepatitis C drug, Harvoni, has already overshadowed Sovaldi, costing $95,000 for a 12-week regimen. A once-a-day pill, it was approved in October.
While these high-cost drugs may prove to be superior to their predecessors-studies have shown they can eliminate the virus and Harvoni may even shorten the treatment cycle-that still leaves payers in a quandary about how to pay for them.
Expect to see within the next two years, new drugs for cancer-especially lung cancer-heart failure, schizophrenia and some for chronic diseases such as asthma and hyperlipidemia.
Keytruda, approved in September for advanced melanoma, has an estimated cost of $12,500 per patient per month, according to FiercePharma. Its ability to disrupt a process in which cancer cells tell the immune system to not attack them, is the first of its kind to be approved in this country. It targets patients who do not respond to other drugs.
Health plans and pharmacy benefits managers are using new and some tried-and-true tools to manage the skyrocketing costs for specialty drugs.
Besides creating formularies in accordance with federal laws, plans focus on providing patients access to prescription drugs in the most affordable manner for everyone and designing options to meet consumers’ healthcare needs across the spectrum, says Patrick Johnston, president and chief executive officer of the California Association of Health Plans,
“There also needs to be a clear discussion about whether the ‘newest’ is the best value or most effective treatment,” he says. “Often an older medication is just as effective at half the cost. The answer is not a one-size-fits-all approach.”
NEXT: Premera Blue Cross' value-based formulary
In 2008, Seattle-based Premera Blue Cross introduced a formal pharmacoeconomic process that took 18 months to develop. To ensure its effectiveness, says John Watkins, PharmD, MPH, BCPS, pharmacy manager for formulary development at Premera, the health plan developed a three-year pilot offering the new value-based formulary to about 6,000 of its employees.
According to Premera, the design of its value-based products grew out of the recognition that some medical services are of greater value to specific individuals when three factors are considered:
“Our formulary incorporates the clinical impact on patients, quality of life and utilization of other resources,” says Dan Danielson, MS, RPh, pharmacy manager for Premera.
When the insurer’s Pharmacy & Therapeutics Committee reviews drugs for formulary, its primary concerns are: 1) whether a drug works; 2) whether it is safe; 3) should it be on formulary; and 4) whether a therapy is better than competing ones based on value, Danielson says.
Targeting medications for diabetes, hyperlipidemia and hypertension, the pilot revealed a decrease in plan costs of 11%, or $7.82 per member per month, compared with projected costs based on trend in the previous 36 months.
The process bases a medication’s formulary tier on a drug’s cost per quality-adjusted life years (QALY). Watkins says that the advent of specialty pharmacy has created two new issues: What to do with drugs that are effective but expensive, and what to do with an expensive drug whose effectiveness is not superior, but has no other options.
Premera created a four-tier design, plus a tier designated as “preventive,” in which the tiers have ‘”nominal but flexible cost-utility thresholds,” Watkins says. Prior to the development of a value-based formulary, Premera’s plan had three tiers with copayments of $10, $30 and $50.
Each tier is assigned an incremental cost-effectiveness ratio (ICER), and all of the drugs that fall into each tier’s ratio threshold are included in that tier with a flat copayment. The copays for the pilot were:
Preventive: Cost-saving and preventive drugs, $0 copay.
Tier one: Cost-saving or <$10,000/QALY, $20 copay.
Tier two: $10,000 - $50,000/QALY, $40 copay.
Tier three: $50,000 - $150,000 QALY, $65 copay.
Tier four: >$150,000/QALY or insufficient evidence to determine ICER, $100 copay.
Unlike a traditional formulary, the value-based formulary emphasizes the clinical effectiveness of a drug rather than cost so that if a drug is very effective but expensive, it might still fall on tier one. Such was the case of Gleevec, an expensive cancer drug but one that has proved to extend life longer with fewer side effects.
In the same vein, both Enbrel and Humira, used to treat rheumatoid arthritis, fall in the second tier. Although expensive, they reduce the burden of disease and improve mobility.
Drugs on tier three might be inexpensive but could have safety issues, while medications on tier four offer little clinical value despite their reasonable costs.
“In our original formulary, all specialty drugs would have fallen on tier four, but the value-based formulary enables us to blunt increases for more ‘sensitive’ members,” Danielson says.
Watkins says that Sovaldi falls in tier two, and he anticipates that the even newer hepatitis C drug, Harvoni, will land in the same tier.
Premera plans to roll out its new formulary to more employers in the near future.
NEXT: Using a prospective strategy
Kirsten Tiberg, vice president, specialty clinical program development for Prime Therapeutics in St. Paul, Minnesota, says the PBM helps prepare clients in advance of drugs such as Sovaldi by forecasting their impact on the market and by estimating their utilization and potential costs.
“We apply different management strategies, such as applying prior authorization, and monitor these high-cost drugs as data become available,” she says. “Then there are no surprises.”
Once a specialty drug is approved by the FDA, Prime Therapeutics applies utilization management so that the drug is used appropriately. Tiberg says the PBM works with manufacturers and health plans to determine which drugs should be considered for a preferred tier.
She says that Prime Therapeutics has looked at new drugs such as Esbriet and Ofev for idiopathic pulmonary fibrosis that causes progressive lung scarring; secukinumab in comparison to Enbrel and Humira for psoriasis; and super statin evolocumab for high cholesterol, which was submitted to FDA in late August.
“About 10% of patients fail statin therapy so even though evolocumab might be high-cost, we help plans understand that if a class of drugs is well managed, the new drug can be affordable,” says Tiberg.
She says the PBM encourages insurers to cover clinically effective but expensive drugs if there are no alternatives, and helps them manage appropriate use.
Prime Therapeutics also incorporates coupons into its drug utilization management strategies. Tiberg believes they encourage adherence to what otherwise might be unaffordable drugs.
NEXT: Clinical evidence directs decisions
McKesson Health Solutions, a care management company based in Newton, Massachusetts, says the company critically appraises peer-reviewed literature and information from external clinical consultants to find clinical evidence decision supporting appropriateness of care.
Laura Coughlin, vice president of clinical development for McKesson Health Solutions, says that while McKesson looks at the evidence, drug availability, drug alternatives, cost and step therapy rules, clients make the ultimate decision. But, she adds, they need to have all the evidence in hand.
She also emphasizes the importance of taking a broader view of the total cost of care, not focusing on just one element.
The company uses the McKesson Benchmark Analytics program which provides reports and analysis that compares an organization’s paid medical claims with McKesson’s proprietary, recent benchmark dataset based on aggregated claims data from more than 20 payers. The data represent 75 million covered lives segmented by region and service.
“The data helps plans anticipate costs and recognize any anomalies in claims data compared to others,” Coughlin says.