The drug pipeline is full of new medications that may be more effective but may also be more expensive than existing treatments. Although they could significantly improve a benefits plan member’s health, they could also render a plan unaffordable.
“Because drugs represent a significant portion of group insurance plan costs, plan sponsors are concerned about the sustainability of their plan,” said Daria O’Reilly, lead health economist in pharmacy consulting and health benefits management at TELUS Health, during a session at Benefits Canada‘s Face to Face in Drug Plan Management Forum in December.
Although different payers may have different plan management philosophies, the common goal is to ensure value for money and drug plan sustainability. “A managed drug formulary may be the key to finding that balance between comprehensiveness and affordability,” she said, noting cost-effectiveness analysis is used by some payers as a tool to manage their formularies.
O’Reilly said listing decisions — what drug formularies cover — should be based on clinical efficacy and cost considerations, which include the estimated financial impact of covering the new drug, as well as an assessment of the cost-effectiveness or value for money.
What makes a private payer analysis different from a public analysis is that it’s done from a private payer perspective and only includes costs and measures that are relevant to private payers, she said. An enhanced private payer drug review should look beyond simply the drug acquisition cost and consider any downstream cost offsets, such as reduced absenteeism or disability claims, as well as improved productivity or reduction in other benefits plan expenditures.
Although plan sponsors want to understand the financial impact of adding a new drug to a plan, this only looks at the cost and doesn’t consider the value or benefit the drug may provide, noted O’Reilly. A new drug may seem costly and potentially unaffordable to a plan sponsor, but it should also consider whether the drug may be cost-effective. For example, it could increase survival or improve quality of life and/or productivity. “The goal of cost-effectiveness analysis is to compare both the costs and benefits of at least two different treatments to determine which alternative produces the best outcomes for the investment.”
It’s possible that different private payers’ cost-effectiveness analysis could result in different coverage decisions. There are a variety of philosophies about what a plan sponsor would consider to be of value, in addition to different sizes of employers and what they can afford and their cost-effectiveness or willingness to pay threshold. Cost-effectiveness analysis is just one piece of information that goes into a listing decision.
Whether the new drug represents good value for money is up to the decision-maker, said O’Reilly. However, she noted there are also instances where a drug may be deemed cost-effective but, due to high utilization, the financial impact would be substantial. “You cannot just consider financial impact without cost-effectiveness and vice versa.
“The goal of cost-effectiveness analysis is not to find the cheapest alternative,” she added. “Rather, it’s to find the drugs that offer the best value for money.”
Read more coverage of the 2021 Face to Face in Drug Plan Management Forum.