Drug Utilization Management Overhaul

As the cost of drugs continue to soar, specifically for specialty drugs, drug utilization strategies designed to contain costs to payers and ultimately make drugs more affordable and accessible to patients are instead increasingly blocking providers and patients from getting the drugs they need. For payers, strategies like excluding or limiting drug availability on formularies, prior authorization and step edit requirements, all designed to contain cost, have actually added to the cost burden by driving up administrative fees necessary to implement these drug utilization strategies.

A recent study in Health Affairs¹ estimated the cost to payers—$6 billion for administering drug utilization management. Manufacturers spend about $24.8 billion supporting patient access to their drugs. For physicians, the time spent navigating utilization management every year costs nearly $26.7 billion. And patients, the end user for whom this whole system is ostensibly designed to help, spend approximately $35.8 billion every year in drug cost-sharing even with financial support from manufacturer and philanthropic support.

When totaled, $93.3 billion is spent yearly to support a system that by all accounts is broken, and experts believe this is a conservative number. When examining the $6 billion yearly cost for payers, the Health Affairs study only included the costs of administering prior authorization and did not include other costs such as those for step edits or quantity limits, given the lack of relevant studies nor the cost of administering patient cost-sharing programs or the cost of setting up utilization management policies.

In an associated podcast regarding the study, Scott Howell, chief strategy officer of US Pharmaceuticals at Novartis, and lead author, explained that on its own, the $93 billion is a sizable number to care about but even when looking at it from a relative perspective the number remains large. “In 2019, we spent $409 billion on branded medications, and almost all utilization management is on branded medications,” he said. “We think it is a big waste and we can do better.”

Calling it a war of all against all, Howell said the current system incentivizes higher prices and often hidden rebates that don’t result in reducing the drug costs to patients. The vision, he said, is for both sides to lay down their arms and stop the war.

“I think it takes the courage to try,” Mr Howell said during the podcast. “We are in this complex locked in game and each side has perfected their stance and each side is afraid to being the first to step back and give something away. We stick to what we know and think we are winning in the short run but lose sight of the long run.”

Making Improvements: Resetting a Broken System

“I think everyone understands the dysfunction [of this system],” said James Robinson, MD, professor of health economics in the School of Public Health at the University of California Berkely, and senior author of the study. “The payers want the manufacturers to reduce their prices, the manufacturers want the payers to reduce their prior authorizations, doctors want prior authorization to go away, and patients want cost-sharing to go away.”

What is needed, says Dr Robinson, is a first step toward making the system work. This step is to bring the two main players to the table—the manufacturers and payers—to reset a system in which manufacturers agree to reduce the prices for their drugs using a benchmark such as the Institute for Clinical and Economic Review (ICER). and payers agree to reduce utilization management strategies such as prior authorization.

This market solution to the problem is based on an enlightened self interest bargain between manufacturers and payers. “The alternative is government regulation of price and government regulation of prior authorization, and government regulation of cost sharing and the elimination of it,” said Dr Robinson.

For a market solution to work, it is critical to bring both manufacturers and payers to the table in a new way, one in which manufacturers are willing to use a value-based models to set their drug pricing and payers are willing to use value-based patient access criteria.

For manufacturers, this means voluntarily setting prices using a benchmark proposed by an independent health technology assessment organization such as ICER. For payers, this means linking these prices to value-based access through limiting utilization management based on clinical evidence and social values developed by independent organizations.

“Manufacturers should use ICER pricing as benchmarks for their pricing, and then the quid pro quo is that payers should eliminate onerous prior authorization and cost-sharing to make sure patients are getting the drugs they need,” said Dr Robinson.

What Does This Look Like?

The authors cite an example of collaboration between a manufacturer and payer that resulted in the type of deal described above. In 2018, Regeneron and Sanofi² agreed to lower the net price of its cholesterol-lowering drug alirocumab in exchange for more affordable patient access from Express Scripts that agreed to simplify their criteria for prior authorization and reduce cost-sharing requirements.

Although a good example of what can occur, Dr Robinson underscored that this type of arrangement has not been adopted widely.

Angus Worthing, MD, Vice President of the Alliance for Transparent & Affordable Prescriptions (ATAP), is in favor of any arrangement that lowers drug prices and preserves patient access, but he thinks scaling up these kinds of agreements will be challenging without addressing the high revenues from rebate payments that pharmacy benefit managers (PBMs) make.

Elephant in the Room: PBMs

For Dr Worthing, a practicing rheumatologist for whom ensuring access to affordable drugs for his patients is an everyday goal, a market-based solution could be possible, but he does not think it will be a bilateral solution as discussed. “That is because this kind of solution does not take into account the elephant in the room in the problem of drug utilization management—PBMs,” he said.

PBMs, he explained, use utilization management to create formularies of preferred drugs on behalf of payers through a strategy in which they auction off the preferred status on formularies to drugs that pay the highest rebates to the PBMs. “Manufacturers can pass on the cost of higher list prices to patients and payers, so it’s unclear to me how this process hurts them,” he said. “And since payers have merged interest with PBMs in an era of record-breaking profits, it is unclear to me how exactly payers and PBMs are hurt by the process.”

For Dr Worthing, more government regulation of the drug distribution industry will most likely be needed particularly to ensure more transparency around PBM practices. Citing his work at ATAP, he said that the more all stakeholders, including payers, understand the abuses of PBMs in the drug distribution system, the more likely there will be effective regulation or a more effective marketplace.

“More transparency could allow market-based solutions such as companies like Caterpillar, the entities who pay insurance premiums, saving money on health care costs by firing the PBM,” he said.

Alternatively, he said that innovative PBMs could offer flat, transparent fees for their services rather than creating formularies through opaque rebates. “These kinds of solutions are more likely to be successful in truly lowering US specialty drug prices,” he said.

In his podcast, Mr Howell said he is optimistic that a remedy can be found and said some PBMs are showing interest, as are employer groups and advocacy groups. “We need the courage to do this,” he reiterated. 

References:

1. Howell S, Yin PT, Robinson JC. Quantifying the economic burden of drug utilization management on payers, manufacturers, physicians, and patients. Health Affairs. 2021;4(8). https://www.healthaffairs.org/doi/pdf/10.1377/hlthaff.2021.00036
2. Regeneron. Regeneron and Sanofi to lower net price of Praluent® (alirocumab) injection in exchange for straightforward, more affordable patient access for express scripts patients. May 1, 2018. Accessed September 4, 2021. https://newsroom.regeneron.com/news-releases/news-release-details/regeneron-and-sanofi-lower-net-price-praluentr-alirocumab?ReleaseID=1065605