Are private insurers in the United States using cost-effectiveness analysis evidence to set their formularies?

theme pic premera

By Elizabeth Brouwer

As prices rise for many prescription drugs in the United States (US), stakeholders have made efforts to curb the cost of medications with varying degrees of success. One option put forth to contain drug spending is to connect drug coverage and cost-sharing to value, with cost-effectiveness analysis being one of the primary measures of drug value.

In 2010, a payer in the Pacific Northwest implemented a formulary where cost-sharing for prescription drugs was driven by cost-effectiveness evidence. This value-based formulary (VBF) had 5 tiers based on cost-effectiveness ranges determining a patient’s copay amount, aka their level of cost-sharing (Table 1). There was allotment for special cases where a drug had no alternatives or treated a sensitive population, however a majority of the drugs fell within each of these categories. Later analysis found that this VBF resulted in a net (including both payer and patient) decrease in medication expenditures of $8 per member per month, with no change in total medication or health services utilization. A 2018 literature review found slightly different (but still optimistic) results, that value-based formulary design programs increased medication adherence without increasing health spending.

TABLE 1. FORMULARY DESIGNTable 1

Given the potential benefits of implementing value-based cost-sharing for prescription drugs, we wanted to know if other private payers in the US were using cost-effectiveness value evidence to set their drug formularies. If private payers were “moving toward value,” we would expect to see cost-sharing for high-value drugs getting cheaper relative to cost-sharing for low-value drugs (Figure 1).

FIGURE 1. OUR HYPOTHESISFigure 1

To test this theory, we used claims data from a large portion of Americans with private, employee-sponsored health insurance to find the average out-of-pocket cost for each prescription drug in each year from 2010-2013. The collapsed claims data were then linked to the value designation (or “tier”) for each drug. We used a random effects model to see how out-of-pocket costs changed each year in each cost-effectiveness category. (For more details on our methods, please check out our paper, which was recently published in PharmacoEconomics journal).

The results revealed a few interesting trends.

Cost-sharing for prescription drugs was trending toward value in those years, but in a very specific way. Average cost-sharing across all “tiers” decreased over the time frame, and drugs with cost-effectiveness ratios below $10,000 per quality-adjusted life-year (QALY) were getting cheaper at a faster rate than those with cost-effectiveness ratios above that threshold. But there was no distinction in cost-sharing for drugs within those two groups, even accounting for generic status.

Additionally, the movement toward value that we saw was largely the result of increased use of generic drugs, rather than an increased use of more cost-effective drugs. Splitting the data by generic status showed that we are not using higher value drugs within generic and brand name categories (Figure 2).

FIGURE 2. AVERAGE ICERs OVER TIME

Figure 2Source

Our results indicate that there is probably space in private drug formularies to further encourage the use of higher value drugs options and, conversely, to further discourage use of lower-value drug options. This is particularly true for drugs with ICERs in the range of $10,000-$150,000 per QALY and above, where payers are largely ignoring differences in value.

One limitation of the analysis was that it was restricted to years 2010-2013. Whether private payers in the US have increased their use of value information since the implementation of the Affordable Care Act in 2014, or in response to continually rising drug prices, is an important question for further research.

In conclusion, there is evidence indicating payers have an opportunity to implement new (or expand existing) VBF programs. These programs have the potential to protect patient access to effective medical treatments while addressing issues with affordability in the US health care system.

 

Published by

Erik Landaas

PhD Student at the University of Washington at the CHOICE Institute. Expert in Health Economics, Data Science and HTA.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s