EP426: Cost Containment Versus Value-based Drug Purchasing, With Nina Lathia, RPh, MSc, PhD

For a full transcript of this episode, click here.

Here’s something Randy Vogenberg, PhD, wrote the other day; and I made some light edits: Research has documented the unintended impacts of poor pharmacy benefit strategy. Examples include increasing costs of care, bankruptcies, and member satisfaction declines.

And, yeah … agreed. Also, probably health problems if we’re talking about a member unable to access a drug they really need. I heard the other day about how so many patients who have had organ transplants have a hard time getting their transplant rejection meds. What?! I just can’t even with that one. On the other hand, you could have a plan that pays for all manner of drugs, cost-effective or not, appropriate or not.

And now we have premiums that no one can afford, and everybody loses for the exact opposite reason. These are the downsides that happen when pharmacy purchasing gets itself into a suboptimal place. And this can happen for many reasons, but one of them is when there is not a concerted effort to buy pharmaceuticals in a value-based way.

Now, here’s some reasons why employers may have a rough time paying for value (ie, paying a fair price for drugs that work).

Here’s one reason: Most employers do not have the power to influence the price of a medication. So, any given employer could decide, based on some cost-effectiveness analysis, that the price of a drug is too high. But it’s not like they can march into Pharma HQ and haggle. It’s more of a take-it-or-leave-it kind of thing.

Here’s a number two reason why value-based pharmacy purchasing can be tough: Pharmacy spend is siloed a lot of times from medical spend. So, the pharmacy vendor is only concerned about cost and denies access to even drugs that are proven to reduce medical spend.

Why wouldn’t they do that? The PBM (pharmacy benefit manager) was hired to reduce pharmacy spend. The end. Who cares how many ER visits or disease exacerbations transpired? That’s the medical director’s problem, not theirs.

Here’s the number three reason why value-based purchasing is rough: The time horizon an employee is with an employer, which is not one day—and it’s not a lifetime. Why did I say one day? I have heard more than once that the actuarial time horizon that some pharmacy plans use to determine if a drug is cost-effective is one day. If the drug doesn’t accrue any benefits in one day, well then, it’s a cost. It’s not effective.

On the other hand (and also problematic in the real world), sometimes cost-effectiveness analyses are done with a timeframe of the patient’s lifetime. And, yeah … there aren’t many employers who have employees for a lifetime—like, they’re 85 years old and still on the employer’s dime—so the time horizon can’t be too short.

But if it’s a really expensive med that will, at most, prevent something that’s not gonna happen anytime soon (heart failure, kidney failure, a stroke), these are things that an employer may pay for but likely is never gonna see the cost benefit of because that benefit will happen 30 years from now when the patient is on Medicare.

And here’s a fourth reason why value-based purchasing is tough: The FDA is approving drugs based on evidence from one study (ie, not a ton of evidence). And these drugs are also really expensive.

So, some of the above issues are solvable; some are less solvable. With this in mind, let’s tick through some advice that my guest today, Nina Lathia, suggests if you want to offer members a value-based formulary.

1. Have a stated goal. And maybe that stated goal is to meaningfully improve health of plan members while maintaining access, satisfaction, and affordability for said plan members and the plan.

2. Think holistically about healthcare spend, not just pharmacy spend.

3. Know what the value-based price of a drug has been calculated to be. I talked about this at length in the show with Anna Kaltenboeck (EP303). Also, Bryce Platt, PharmD, has written about this a lot.

4. Look into risk-based deals with Pharma and/or installment payments and/or some of these other interesting payment mod