Linking Opportunity Costs and Value Assessments for State and Commercial Payers

May 20, 2020
Allison Inserro
Allison Inserro

When deciding which treatments to cover, states and commercial payers must wrestle with opportunity costs as new therapeutics come to market. A panel at Virtual ISPOR 2020 discussed some of the factors that go into those decisions.

How should payers, primarily states and commercial payers, weigh the benefit of an innovative treatment or therapy against the opportunity cost of what may then go without funding? And is the United States different from the rest of the world when decisions about what to pay for are made?

These are tradeoffs that have consequences, not only for patients but also for public budgets and for commercial payers and their policyholders. At the Virtual ISPOR 2020 conference, health economists and policy experts discussed how value assessments can be used to minimize opportunity costs for high-need patients and public health programs.

Those opportunity costs could include budget constraints on spending on social determinants of health, such as housing, education, or job training, or preventive public health and primary care that could reduce the need for high-cost therapeutic services or technologies in the first place.

Opportunity costs are a signal of value to developers, according to the panel moderator, Mark Sculpher, PhD, a professor of health economics at York University in the United Kingdom.

By opportunity costs, he meant the additional population health gained, either by increasing or possibly reducing the budget without harming health. Sculpher, who is also team leader of the Programme on Economic Evaluation and Health Technology Assessment as well as codirector of the Policy Research Unit in Economic Evaluation of Health and Care Interventions (EEPRU), was quick to point out the apparent differences in the United States. However, in his opinion, he said it is not possible that there is something unique about the United States that renders opportunity cost “irrelevant.”

He did acknowledge, however, that the United States is a complex environment with different systems—some of which are budget constrained and some which are not. And different regions of the country mean that opportunity costs are different.

However, he noted, even the Institute for Clinical and Economic Review is incorporating opportunity costs, he said, citing its report last month on cystic fibrosis treatments, which said a health-benefit price benchmark “is the top price range at which a health system can reward innovation and better health for patients without doing more harm than good.”

As a concrete example, David Vanness, PhD, of The Pennsylvania State University, presented a series of calculations that measure US opportunity costs by examining the loss of health insurance coverage.

For example, to cover the cost of a new therapy, commercial payers traditionally might be limited to increasing premiums or cost sharing or reducing coverage or profits; it is more likely that they would pass on the higher costs, causing individuals who are more price sensitive with elastic demand to drop coverage, he said.

That has health consequences and mortality costs, he said.

William Vincent Padula, PhD, MS, MSc, assistant professor of pharmaceutical and health economics in the School of Pharmacy at the University of Southern California, reviewed the role of the National Institute for Health and Care Excellence, which recommends to the National Health Service which treatments to cover based on clinical effectiveness and a willingness-to-pay threshold based on cost-effectiveness analysis. That results in a range of UK£20,000 (US$25,000) per quality-adjusted life-year (QALY) for the majority of drugs and could go as high as UK£30,000 per QALY for therapeutics for the most serious conditions.

“The willingness-to-pay thresholds represent 2 interests, the first being value for money, or what we think of as value-based purchasing in the US, and the second having to do with budget constraints,” Padula said.

The “sweet spot,” he said, is when clinical effectiveness and economic efficiency align for the best health outcomes, as in the case of Japan and the United Kingdom. The United States, on the other hand, outspends for little benefit, he said, “despite an implicit understanding of value for money in the US health care system.”

Instead, the country spends just $190 billion to $280 billion on health care solutions and $700 billion to $900 billion on waste, taking the form of overtreatment, pricing failures in drugs and in hospital services, and a lack of care coordination.

Opportunity costs also come from the decision about which patient treatments to cover and which products to develop and bring to market, and these 2 decisions are linked, according to the final presenter on the panel, Rena Conti, PhD, an associate research director of biopharma and public policy at Boston University.

As someone who specializes in analyzing the access and affordability issues that arise with the development of potentially curative treatments for diseases such as sickle cell and hemophilia, which largely affect a Medicaid population, liquidity constraints affect both payers and patients, she said.

Insurance mandates are one way of dealing with liquidity constraints, she said. But the innovative therapies coming out for these diseases are pushing more payers to pass on costs, largely to a population that is underinsured.