Payer Insight on Formulary Decision-Making for Prescription Digital Therapeutics

Gary Owens, MD, discusses how payers might develop formularies for prescription digital therapeutics, as well as what metrics may be used to determine their efficacy.

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Welcome back to Pop Health Perspectives, a conversation with the Population Health Learning Network, where we combine expert commentary and exclusive insight into key issues in population health management and more.

In the second part of this podcast, Dr Gary Owens discusses how payers might develop formularies for prescription digital therapeutics (PDTs), as well as what metrics may be used to determine their efficacy.

I'm Gary Owens. I am a former payer medical director, and prior to that, a former primary care physician. For a decade or so, I've been in the consulting world and have my own consulting organization.

Obviously, we can't measure PDTs exactly how we would measure pharmaceutical drugs. So what metrics do you think payers should consider when determining how effective a PDT is?

One of them would obviously be persistence with therapy with the PDT, meaning it's going to be very easy to measure the patient use the digital therapeutic and did they interact with it and complete whatever the module or portion of that therapeutic is.

Maybe another way to look at it would be to have some simple outcomes, looking at one-time events or things that can be measured easily on a monthly or quarterly basis. Weight, for instance, an easy parameter to measure. Hemoglobin or A1C, easy to measure. Blood pressures are easy to measure on a weekly, monthly, or quarterly basis. 

I think there's some simple parameters, and the gathering of those data could be built right into the PDT so it would perhaps eliminate a lot of the data collection that's currently necessary to do in some of our value and outcome-based guarantees around drugs. Those are just a few preliminary thoughts.

What advice would you give those looking to establish a formulary for PDTs?

First of all, you have to decide what benefit category it's going to be covered in. Then the next question is, do you really need a formulary for these? We have formularies in the drug world to encourage utilization of lower cost products because of tiering and lower out-of-pocket costs for lower-tier drugs. So generics are always lower costs because once they're multi-sourced, they tend to be less expensive. Preferred brands are lower cost because of rebates.

It's not yet clear to me whether there are going to be different gradations of prescription digital therapeutics, and will we start playing the rebate strategy with these PDTs? There are pros and cons to rebates and, again, I'm not sure yet whether that should be applied to PDTs and do we need formularies? Or maybe it's just PDTs haven't established ... I don't think they'll get NDC codes. Maybe they'll get CPT or J codes or some new, unique coding methodology that we haven't figured out yet, and we'll pay based on some contractual terms.

I'm not yet sure a formulary will be needed, but if it is needed, it's going to be based on the same things I think that drugs are and that's efficacy. Does the PDT work the way it says it should work? Safety, I don't think there are going to be a lot of safety issues in PDTs. Then cost—what's the cost of PDT, A vs B? Balancing cost vs efficacy to determine a relative value may lead to some formulary placement and, again, perhaps encourage members to use what we deem the more valuable PDTs by offering them to members at a lower out-of-pocket cost.

A lot of details we haven't hammered out yet, but if you had to guess, where do you see the future headed as more PDTs are approved and payers continue to look at this?

Payers are going to have to clearly establish what type of benefit these are going to go into. Will they need to create a new benefit category to add to? It's not defined in the 10 essential health benefits yet, but I think it could be subsumed into that.

I think payers will need to define how member cost responsibility is going to be apportioned out to members. It could be that they're covered 100% after deductibles are met, or it could be because they're analogous in some ways to traditional drugs. Maybe there's a member cost share on a monthly or quarterly basis.

I think ultimately, we probably will see a separate benefit category. I think we'll see better definitions in the evidence of coverage of how these agents will be covered under what circumstances. I think some of them will probably be prior authorized.

Then I guess the final thing is, is there ever a point? In DME, we have it all the time. Expensive DME, we rent. But if the patient uses it long term, we have a rent to ownership arrangement, where we then buy it. Is that going to happen in the PDT world, where most of the output of the PDTs are driven by software which is proprietary?

I guess that brings me to my last point. Unlike drugs, these PDTs don't appear to have a patent life that's finite like drugs. So how long do we keep paying for these things for members? Is there an endpoint beyond which they won't derive additional benefits? So I think we have to determine not only for whom it's going to be covered, how it's going to be covered, how much cost share, but for how long it's going to be covered. Those are all things that I think it's going to take a few more years to work this through.

I think the word of advice to payers is, work on it now because there's a groundswell of these coming. Word of advice to developers, don't expect instant coverage. If you don't have good evidence and meet good evidentiary thresholds of how and on whom your PDT works, it may be difficult to get payer coverage because I think payers are going to put a bar up that looks similar to devices and drugs. Just because you made it and hypothesize it works, until you give me demonstrated evidence in a reasonable trial, payers are probably going to be at least hesitant to cover.

So there's work to do on the payer side and also a fair amount of work to do on the developer side. It's not just about developing the PDT. It's about developing it and providing evidence that it actually works as theorized.

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This transcript has been edited for clarity.