The Great Debate Part II: Should Managed Care Rely on Cost Sharing to Manage Big-ticket Biologics?

April 1, 2006
Mark Zitter, MBA

Supplements and Featured Publications, The Great Debate Part II: Should Managed Care Rely on Cost Sharing to Manage Big-ticket Biologics?, Volume 12, Issue 6 Suppl

The past several years have seen a rapid introduction of biologic therapies with dramatic efficacy profiles and equally impressive price tags. Approximately 130 biotechnology drugs and vaccines have been approved by the US Food and Drug Administration, of which more than 70% have been approved within the past 6 years.1 In addition, hundreds of new products are in various phases of clinical trials. This trend has raised complex pharmacoeconomic questions for providers, payers, and patients and has presented society with difficult ethical questions.

As costs for biologics skyrocket and injectable benefits are carved out, managed care organizations (MCOs) are experimenting with radical new cost-sharing approaches for biotechnology therapies. Whereas copayments for typical medications sit in the $15 to $50 range, cost sharing for expensive biologics could exceed $1000 for a single dose. What are the implications for utilization, patient choice, outcomes, and costs? Will payers face increased legal liability, public relations damage, and member defections? What ethical issues are involved? Can copayment and coinsurance policies differentially encourage appropriate versus inappropriate use? And how can health plans hope to manage biologics utilization without increased cost sharing?

During a moderated debate session held during the Academy of Managed Care Pharmacy (AMCP) annual meeting in August 2004, Sean Sullivan, PhD, RPh, of the University of Washington, suggested the use of consensus panels for establishing treatment guidelines for specialty pharmaceuticals, because they are useful mechanisms for developing credible recommendations that incorporate new and narrowly tested technologies. Of particular interest within this second phase of the great debate was Dr Sullivan's observation that a thoughtful approach to consensus guidelines for specialty pharmaceuticals can promote a best practice approach that will lead to the cost-effective use of medical resources.

It is important to note how managed care has responded to the use of guidelines for specialty pharmaceuticals. The implementation of specialty pharmacy networks and patient self-administration of injectables has been used to reduce office visit costs, limit physician billing, and improve patient adherence. Two other MCO responses involve benefit design and copayment structures. As discussed later in this supplement, payers are increasingly shifting injectable and biologic products from the medical or mixed benefit category into the pharmacy benefit category, or at least managing these therapies through traditional pharmacy techniques.

Another technique used to control specialty agents is the set of "use rules" adopted by each MCO for every agent. These rules deal with prior approval from physicians or specialists, how closely the approved uses and dosing match the product labeling, and whether past failure with another class or agent is required. These rules, of course, comprise the utility and practicality of treatment guidelines, the subject of the first debate.

Although 65% of AMCP attendees who participated in the first debate reported that they want more guidelines and less physician preference,2 the gap between evidence-driven medicine and the reality of current guideline usage is wide. In addition to such challenges as insufficient evidence, credibility issues, out-of-date guidelines, and implementation variations, the fact remains that payment criteria for specific treatments vary. Of equal importance is the linkage between treatment guidelines and reimbursement decision making, as seen in 3 of the 5 statements in the Table.

The American Journal of Managed Care

Although many of the medical breakthroughs over the next decade will involve specialty pharmaceuticals, the greatest challenge posed by their use will lie in balancing the medical needs of patients with the economic needs of employers and healthcare administrators. As pointed out by the members on this panel, there is confusion over whether the healthcare system's real motivation is to reduce costs, limit dangerous therapy, or improve care. This supplement to aims to provide a greater understanding of this ongoing dilemma and, in particular, its cost considerations.

Impact, Limitations, and Consequences of Increased Cost Sharing

Overview of Healthcare Costs/Pharmaceutical

Spending in the United States.

According to data released by the Centers for Medicare & Medicaid Services, per capita health spending increased from $5879 in 2003 to $6280 in 2004, accounting for 16% of the gross domestic product (GDP), outpacing growth in the overall economy by 4 percentage points.3 Growth in total publicly funded spending slowed (from 8.2% in 2003 to 7.9% in 2004), as did private sector spending (7.6% in 2004 compared with 8.6% in 2003), whereas out-of-pocket spending grew by 5.5%.3

In terms of healthcare expenditure projections, national health costs are expected to reach $3.6 trillion in 2014, growing at an average rate of 7.1% annually from 2003 to 2014. Healthcare spending is projected to reach 18.7% of the GDP by 2014, an increase from 15.3% in 2003.4 Assuming no changes in the delivery and payment of healthcare, national healthcare expenditures can be expected to outpace GDP by the year 2060 (Figure 1), a clear impossibility. This raises the question, how do we control healthcare costs and still provide high-quality healthcare?3

Cost Versus Quality of Care Concerns.

Disease Management

In a supplement to entitled "The Health of American Healthcare," and sponsored by McKesson Corporation in 2004, Gary Owens, MD, vice president of medical management and policy at Independence Blue Cross (IBC), stated, "Biotechnology innovations are changing the way injectables are used. Instead of being used intermittently for treating short-term, acute illnesses in the office, the new biological injectables are intended for use in treating long-term, chronic illnesses. By 2005, IBC projects that spending for injectables will increase by one third."4 Based on Dr Owens' statement, as well as the overall rapid growth of this segment of the industry, it is clear that specialty pharmaceuticals are becoming more ubiquitous. According to a survey by Pharmaceutical Research and Manufacturers of America, nearly 150 different diseases are being targeted by these products, including 154 for cancer, 43 for infectious disease, 26 for autoimmune disorders, 16 for neurological disorders, and 17 for human immunodeficiency virus/acquired immunodeficiency syndrome. It is apparent that specialty treatments will soon be available for almost every chronic disease.5

In the minds of all healthcare stakeholders–health plan and employer-based administrators, manufacturers, providers, and, in particular, patients–the eventual cost of these therapies are inextricably tied to the quality of care that is offered by them. Confirmation of this belief is found in the eighth annual 2005 health confidence survey cosponsored by the Employee Benefit Research Institute, Matthew Greenwald and Associates, Inc, and grants from 13 private organizations. Findings from this random sample of more than 1000 Americans older than 21 years of age confirm that Americans tend to view cost as one of the least important factors when considering healthcare quality. Simultaneously, however, many Americans believe that cost increases have affected both the way they use healthcare and their financial well-being. Perhaps most telling is that a majority (65%) feel that increased access to information about the effectiveness of treatment options and the quality of healthcare providers (59%) would improve the quality of the healthcare they receive.6

Further data from this study confirm that, despite the increases in cost sharing that employers are asking of their workforces, most Americans appear to value employment- based health coverage above the actual dollar amount that employers pay toward the care. To understand the intricate nature of these findings, an examination of the actions of healthcare stakeholders is needed.

Understanding the Beliefs of Healthcare Stakeholders From the Cost-sharing Perspective

Rising healthcare costs incurred by both patients and payers have captured national attention. The 2004 Annual Employer Health Benefits Survey, compiled by the Kaiser Family Foundation and Health Research and Educational Trust and based on responses from 3017 employers, found that, in spite of escalating premiums, the percentage of premiums paid by covered workers has remained stable over the past few years, at 16% for single coverage and 28% for family coverage. However, employers have increasingly turned to cost sharing to mitigate cost increases. More than half (52%) of executives at large firms (defined as =200 employees) said they were very likely to increase the amount employees pay for health coverage. Of particular interest regarding specific areas of coverage is that the largest percentage of executives said they were likely to increase the amount employees pay for prescription drugs; 18% said they were very likely to do so, and 37% were somewhat likely.7 In a report of this same study, other findings were more alarming. In 2005, the average worker's share of premiums for family health coverage was $2713, and the average employee contribution has increased by more than $1000 in 3 years.8

In our quick poll during this AMCP session (Figure 2), we realized just how stark the lines of this debate are drawn. On one hand, healthcare costs are skyrocketing, and the cost of biologic therapies represent a small but especially fast-growing component of them. At some level, it seems fair that patients should contribute to the cost of their treatment, and it seems logical that such cost sharing may reduce unnecessary treatment. Payers argue that the current third-party payer system has blinded the average consumer to the true cost of the therapy and that patients cannot remain truly engaged in their healthcare without cost transparency.

Conversely, there is strong evidence, at least from the primary care perspective, that any degree of copayment suppresses demand not only for inappropriate care but also for necessary therapy, with the resultant and potentially negative impact on health outcomes. In many cases, studies have shown that increasing patient cost sharing for necessary medications can actually increase overall healthcare costs by suppressing demand for needed medications. The impact is especially strong in conditions such as diabetes, which often have complicated, expensive comorbidities. However, it is too early to tell what impact increasing copayments may have on biologic therapies, because most are too new for any clear long-term data.

Huskamp et al studied the effect of changing from a 1-tier formulary to a 3-tier formulary on adherence with 2 common drug categories, angiotensin-converting enzyme inhibitors and statins (Figure 3).9 Although the implementation of a 3-tier formulary did accomplish its objective in moving some patients from higher-cost drugs to lower-cost alternatives, it is concerning that some patients discontinued these presumably necessary medications altogether. In fact, payers are acutely aware of the need to balance cost sharing to maintain quality of care. The Zitter Group conducts an annual survey of 104 managed care companies regarding management trends for biologic agents. Sixty-seven percent of respondents in the spring 2005 survey agreed that patient adherence declines as out-of-pocket costs increase (Figure 4).10 Although payers agree that adherence does decline, what is not clear is the impact declining adherence has on overall health outcomes and costs.

Further analysis of the Zitter Group survey illustrates the dynamics in the marketplace. From fall of 2004 to spring of 2005, the ranking of cost-sharing objectives for payers had not changed, but the importance of influencing patient choice and slowing premium growth increased significantly (Figure 5).10

The rapid emergence of specialty biologics has made it difficult for employers and drug benefit managers to obtain a clear picture of how much health plan members are spending on them. In addition, many of these products are single source medications, meaning that generic substitutes for them or other brand medications producing similar effects do not exist. The Zitter Group survey shows that managed care is currently struggling with the management of biologic therapies, with less than 4% reporting differences in cost sharing for short- and long-term care products. This remains problematic for maintaining patient access to needed medications, especially as the majority of payers report no out-of-pocket maximum for biologic agents (Figure 6).10

In a recent guest editorial on Medscape's Neurology and Neurosurgery Web site, Orly Avitzur, MD, of Yale University School of Medicine and the Department of Neurology of New York Medical College, summarized the cost-sharing conundrum from the physician's perspective, stating, "With a reimbursement system that often makes no sense, one that continues to overweigh the rewards for procedures while creating disincentives for cognitive services, and whose policies limit, without any clear logic, the locations in which services will be paid, who would wonder why physicians are becoming increasingly dissatisfied? In the end, of course, it is the patients who will bear the ultimate burdens resulting from the lack of medical consensus, the proliferating bureaucratic roadblocks, and the uncertainties surrounding new drugs."11

Specialty products have transformed the practice of medicine forever, and many more innovative discoveries are on the horizon. The growth of this market will be driven by the ways in which employers and payers exert pressure on vendors to contain costs, new information technologies designed to assist health plans in targeting specific populations for management services, and increased patient education and case management initiatives that serve more patients with long-term conditions.

Address correspondence to: Mark Zitter, MBA, The Zitter Group, 33 Bleeker St, Suite 200, Millburn, NJ 07041. E-mail: