How Can We Rightsize Treatment Costs? Last Week’s Hangout Participants Address Unanswered Questions

Last week, a diverse panel of experts joined us for a Great Challenges live online event to discuss how we can work towards rightsizing the business of healthcare to achieve the delicate balance between treatment innovation, accessibility, and affordability. Moderated by New York Times Senior Writer Elisabeth Rosenthal, the group explored what it takes to innovate in drug development, how we evaluate long-term treatments versus cures, and what new approaches can make novel treatments more accessible to patients while reducing healthcare system costs. If you were unable to join us, check out the recast below.

We had a so many questions come in via social media (thank you!), that we were not able to get through all of them during our one-hour event. So, we gathered the unanswered questions and  invited James Chambers, Vineet Arora, and Josh Fangmeier to weigh in and continue the conversation. Here’s what they had to say:

How does the insurance industry weigh long-term treatment versus a one-time cure? What other elements besides cost need to be taken into account?

Josh: Due to the fragmentation of the American healthcare financing system, insurers do not always have aligned incentives when it comes to paying for certain services. For example, private insurers could pay for a cost-effective therapy that reduces long-term costs for a medical condition, but Medicare, not private insurers, may capture the savings from this therapy as the patient ages. This has also been an issue for patients enrolled in both Medicare and Medicaid (dual eligible), where interventions by one program lead to savings captured by the other.

James: This is certainly a timely question given the introduction of Sovaldi. It asks questions not just of cost-effectiveness (i.e., value for the money) but also of affordability. As a cure is taken only once (or over a relatively short period of time) there is an incentive for the manufacture to charge a high premium. Even if over the life of the patient the drug represents good value for money, the high upfront cost may prove prohibitive to many patients and providers. We may have to move to alternative payment models in which the cost of a cure is spread over the period that the patient experiences the clinical benefit, i.e., to amortize payment of the drug. However, this is complex and raises many questions, e.g., who pays for the drug, and what happens if the patient shifts between plans?

Is flooding the market with more practitioners an economic strategy to lower healthcare costs?

Vineet: If practitioners means doctors, it takes over ten years to train a doctor, so its hard to “flood the market” with them, especially given the projected doctor shortage. If it means others such as nurse practitioners, there’s also a shortage there so feasibility would be hard. I don’t know how that would impact drug costs per se. Flooding the market also assumes that there is price transparency at the level of patients, and they can choose to go to the best value care – which we know does not exist. So as of yet, in my opinion this strategy would not work without these other things.

Do pharmaceutical companies have any ethical obligation to provide treatment to those who cannot afford it? Why or why not?

James: This is a very difficult question! I believe that if a patient who would benefit from a treatment does not receive it because of its cost, then as a society we have not maximized the benefit of available technology. I believe the healthcare system has the responsibility to offer a “base” level of care to everyone.

Vineet: I believe they do. We have created a healthcare system where anyone can get emergency care regardless of their ability to pay. So, as long as that exists, it means that we will be in a cycle of emergency care for chronic diseases that could be treated with medications unless we can figure out a way to cover the cost of the drugs to keep people healthy. The issue often is who is going to benefit.

How can we accurately and consistently evaluate the right approach to treatment based on the cost of a saved life or improved quality of life?

James: Other countries have national agencies/institutes that evaluate the costs and benefits of new technologies. This provides information to the healthcare system of the value of medical technology and helps prioritize the use of scarce healthcare resources. While PCORI is tasked with evaluating the comparative effectiveness of treatments (although to date it has performed very few head-to-head studies), it does not consider cost in its research. Only if we have information of the costs and benefits of alternative treatments can we use our technology most efficiently. Ironically, many of the leading methodologists on the economic evaluation of medical technology reside in the U.S., but the U.S. is somewhat unique to the limited extent that it uses these techniques.

How much stock can we put in cost-effectiveness studies? Is there a better way we could measure this?

James: There are many different types of analysis to evaluate medical technology, e.g., budget impact analysis to examine the financial impact on introducing a technology to a plan, or comparative effectiveness research to evaluate which of two treatments is most effective. Cost-effectiveness analysis is, however, the only approach that quantifies the VALUE of a technology, i.e., is the additional costs of a treatment worth its additional benefits. While some may argue that cost-effectiveness should not be the sole determinant in drug coverage policy, I believe that decision-makers should have access to this information if they are expected to make value and cost conscious decisions. Without this information, they have a hugely difficult (and maybe an impossible) task.

Might a system in which unused medicines can be returned to pharmacy (and reimbursed) help contain costs?

James: Absolutely.  A huge source of waste!  A very difficult policy to implement, though.

How much is affordable and are caps on out-of-pocket spend in ACA too high?

Josh: Increasing cost-sharing through co-pays, deductibles, and other forms of out-of-pocket spending has been a concern, especially for low-income populations. However, this has been a trend that pre-dated the passage of the Affordable Care Act (ACA). According to the Commonwealth Fund, from 2003-2011, single worker deductibles rose by 117 percent.

The ACA includes minimum value and out-of-pocket spending caps that limit the sale of insurance plans that provide little financial protection. For 2015, the out-of-pocket caps are $6,600 for an individual and $13,200. Although this is a considerable amount for many families, the ACA provides financial assistance, in the form of cost-sharing reductions, to those who enroll in marketplace plans. Cost-sharing reductions increase the value of a silver plan. For example, a Detroit resident making $20,000 would see the out-of-pocket maximum for the cheapest silver plan fall from $6,350 to $1,450, due to cost-sharing reductions.

What can we learn about drug pricing or drug coverage from looking at systems outside of the American one?

James: We can learn from other countries’ systematic approaches to evaluating medical technology. While each country takes a unique approach (some focus on comparative effectiveness, others cost-effectiveness), each formally evaluates new technology before it is introduced to the health care system. This provides information that can be used to implement value-based coverage of medical technology, and in some cases negotiate a price that is commensurate with the health benefits offered by the drug.

We can also learn that cost and cost-effectiveness can be accounted for, but not be the sole determinant in decision-making. France and Germany were previously hugely resistant to accounting for drug cost in national policy but now consider economics (while decisions are primarily driven by comparative effectiveness) in their assessment.

What new approaches can make novel treatments more accessible to patients while reducing healthcare system costs? Do we need to change our drug development models or is there change to be made elsewhere?

James: In theory, using cost-effectiveness evidence to guide coverage of medical technology will result in more efficient use of scarce resources and allow more patients access to effective technology.  However, such an approach is unlikely to be soon embraced in U.S. healthcare.

Maybe the most promising approach is value-based insurance design (VBID).  This approach aligns co-pays in a manner consistent with a drug’s value, i.e., a lower (or no) copay for cost-effective drug, and a higher copay for a cost-ineffective drug.  This approach provides an incentive for the patient to use more cost-effective care . This approach is arguably the most palatable for U.S. healthcare, as cost-effectiveness is not being used to deny or ration care, rather to encourage the use of high-value care.