Market Access€¦ · 13 REIMBURSEMENT REGULATIONS IN THE US PHARMACEUTICAL MARKET 13 Tools restricting reimbursement for costly new drugs continue to be popular and widely used 24

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Market AccessMarket Access / Pricing &Reimbursement

Catalyst

Drug prices remain high but comparative effectiveness research is set to play a bigger role inpricing and reimbursement decisions.

Ref Code: DMKC0097051

Author: Mark Belsey and Tijana Ignjatovic

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Report reference: DMKC0097051 Published on: 15/04/2013

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CONTENTS

LIST OF FIGURES

LIST OF TABLES

4 EXECUTIVE SUMMARY4 Pricing in the US4 Reimbursement in the US

6 OVERVIEW OF PRICING AND REIMBURSEMENT IN THE US6 US drug prices are among the highest in the world6 A wide range of primarily reimbursement-focused controls are used to contain costs

8 PRICING REGULATIONS IN THE US PHARMACEUTICAL MARKET8 Few pharmaceutical pricing controls are used in the US; however, there is pressure to use

more10 A number of rebates, discounts, and subsidies have been introduced as part of the ACA11 Private sector rebates have been controversial but the ACA may increase transparency

13 REIMBURSEMENT REGULATIONS IN THE US PHARMACEUTICAL MARKET13 Tools restricting reimbursement for costly new drugs continue to be popular and widely used24 The move towards comparative effectiveness and the crawl towards cost-effectiveness

analysis in the US

29 BIBLIOGRAPHY

10 Figure 1: Different pricing is used at different stages of the supply chain14 Figure 2: Of the 15.2% negative impact on US pharma market growth in 2015, formulary

pressure is the biggest contributor to the loss in sales15 Figure 3: The increase in tier number in employer-sponsored health plans, 2000–1218 Figure 4: Increased focus on prior authorization by health plans going forward19 Figure 5: Tools that large employers are set to use in 201320 Figure 6: PAP popularity in a survey of oncology practices, 200923 Figure 7: Drug companies and US payers have similar views on the effectiveness of risk sharing24 Figure 8: Rise in HSA-qualified high-deductible health plan enrollment, 2006–12

6 Table 1: Range of pricing and reimbursement tools used in the US

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EXECUTIVE SUMMARY Pricing in the US

Historically, few pricing controls have been implemented in the US; however, there is greaterpressure to implement controls to help contain costs associated with the expansion of publichealthcare provision. While the use of pricing controls is relatively simple and there appearsto be a clear link between pricing controls and cutting healthcare expenditure, there issubstantial discussion over the impact of such controls on healthcare access and costcontainment. Determining pricing has been complex in the US, in part because of the range of differenttransaction types between healthcare stakeholders, and the associated variety of pricemeasures. With the move away from healthcare stakeholders using average wholesale price(AWP) due to concerns over its reliability and accuracy, and towards using pricing measuressuch as the average acquisition cost (AAC), it is possible that pricing definitions could becomemore transparent and uniform, and there is also scope for these new pricing mechanismsputting downward pressure on drug pricing. The primary tools used in the US to cut drug prices are a range of rebates, discounts, andsubsidies. The use of such tools is set to increase under the Affordable Care Act (ACA).

Reimbursement in the US Preferred drug lists remain highly important in managing cost. For example, preferred druglists have been a key tool used in Medicaid over the last decade, while two thirds of employerinsurance programs use preferred drug lists. Formulary access is a powerful tool, and by 2015,it is set to be the major restrictor to US pharmaceutical market growth, compared to othercost-containment tools. Tiered co-pays are widely used in controlling costs. Plans with fewer co-pays tend to be moreattractive because they require a lower overall co-payment. Meanwhile, a move from a lowernumber of tiers in a plan to a higher number of tiers reduces use of prescribed drugs, cuttingcosts but potentially leading to further medical complications for enrollees along the line. Themajority of employer plans have a three-tier co-payment structure, while the majority ofMedicare Part D plans have five tiers. Coupons and discount cards are increasingly being used by drug companies to lower orremove patient co-pays for those taking a more costly drug. This is linked to substantiallygreater pharmaceutical spending by insurance plans, likely requiring premiums to rise in thefuture. As a result, they are now the target of the insurance industry. Prior authorization has been widely used, and it can have a major impact on the use of aspecific drug. However, the extent to which this reimbursement tool can control costsdepends on the level of administrative costs – if these are high, then the cost savings fromusing cheaper drugs are lost. A major negative with prior authorization is that its use tends to

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lead to a higher, uncompensated workload for physicians and pharmacists, thus increasingtheir costs. Step therapy remains highly popular in private healthcare provision, given its effectiveness atcontrolling costs. However, its use is not effective in all therapy areas and there are somenegatives associated with its use, with some studies showing that the use of step therapiescreated barriers to filling prescriptions, led to a fall in the amount of time for which patientstook specific drugs, and boosted the level of patients discontinuing medication. Patient assistance programs (PAPs) remain popular among patients (although not necessarilyamong physician practices, due to paperwork burden); however, their use is likely to evolveafter the major ACA provisions have been implemented. For example, once the Medicare PartD coverage gap is closed, programs covering drugs used in Medicare Part D may have toevolve into discount or co-pay schemes. Risk-sharing schemes are increasingly popular in the US, as healthcare providers focus ongaining value and mitigating risk. As such, their greater use is likely to give patients greateraccess to newer (therefore less proven) and more costly drugs. However, like otherreimbursement controls (e.g. prior authorization and PAPs), these schemes increase theadministrative burden. Further, their previous use as a cost-containment tool rather than as apatient access tool means that some healthcare stakeholders are wary of their use. There is an increasing focus on comparative effectiveness research (CER) in the US as part offunding from the American Recovery and Reinvestment Act of 2009 and the establishment ofthe Patient-Centered Outcomes Research Institute under the ACA. Drug companies thereforehave to increasingly focus on generating effectiveness data for regulatory submissions and toaid reimbursement decisions. As such, there are a greater number of innovative deals focusingon the generation of CER data. However, there are concerns over the use of CER data,including issues with study design and difficulties for end users in using these data. In addition to a greater focus on CER data, there is a greater focus on cost-effectivenessanalysis (CEA); however, CEA data remain rare as part of CER, and the US lags Europe in howCEA data are used in reimbursement.

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OVERVIEW OF PRICING AND REIMBURSEMENT IN THE US Pharmaceutical cost-containment tools in the US focus more on reimbursement controls than pricingcontrols, for two main reasons. Firstly, the US is ideologically more in favor of free pricing, which hasdominated the evolution of the US pharmaceutical market, in contrast with the highly regulatedmarkets in Europe. Secondly, the fragmented nature of the US healthcare landscape somewhat limitsthe cost-containment tools that can be used. For example, although reference pricing shouldtheoretically be used, the system may well be too complicated. In this section, we examine pricing andreimbursement controls that are used in the US. US drug prices are among the highest in the world The US has historically been viewed as a more profitable market compared to other major markets likeEurope, in part because of the fewer pricing regulations (Golec and Vernon, 2008). Historically, higherprofitability in the US has been attributed to the fact that prices in the country are higher than inother markets. For example, in a November 2010 study, the authors claimed that drugs like Plavix(clopidogrel; Bristol-Myers Squibb), Lipitor (atorvastatin; Pfizer), and Nexium (esomeprazole;AstraZeneca) were priced 3–6 times higher than in 11 other major markets (IFHP, 2010). In this study,the average actual price paid was reported to be $152 for Plavix, $129–134 for Lipitor, and $186 forNexium. However, there has been some doubt cast over this, with another study in 2010 suggestingthat differences between the prices of drugs were relatively small (up to 25% higher than Europeanprices) and getting smaller over time, because comparisons with US prices in other studies tended toignore discounts (Jack, 2010). The same study also indicated that profitability was only slightly higherin the US. Irrespective of comparative price levels in the US, the pharmaceutical market remains the mostimportant globally, which means that the US pricing and reimbursement regulatory environment is ofhigh importance to the pharmaceutical industry, given that there is an increased focus on justifyingboth how much drugs cost in the US and how much prices rise each year. For example, a 13% rise wasreported in an index of commonly used branded drugs from September 2011 to September 2012(Thomas, 2012). Should drugs fail to demonstrate value, an increase in pricing and reimbursementregulations could substantially hit profitability. Indeed, it has been suggested that if the USestablished pricing controls and negotiations like those in other developed markets, US revenueswould fall by up to 20% (Sood et al., 2009). A wide range of primarily reimbursement-focused controls are used to contain costs US pricing and reimbursement controls are summarized in the table below.

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Table 1: Range of pricing and reimbursement tools used in the US

Pricing tool Used in the US?

Profit controls No

Reference pricing No

Price cuts Beginning to be used

Discounts, rebates Yes

Pricing negotiations Yes

Modifications to different pricing definitions Yes

Reimbursement tools 

Formulary access negotiations Yes

Tiered co-pay Yes

Prior authorization Yes

Step therapy Yes

Risk sharing Beginning to be used

Over-the-counter (OTC) switching Yes

Restricting OTC drug reimbursement Yes

Comparative effectiveness data requirements Yes

Cost-effectiveness data requirements Beginning to be used

Budget caps No

Volume caps No

Source: Datamonitor

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PRICING REGULATIONS IN THE US PHARMACEUTICAL MARKET Few pharmaceutical pricing controls are used in the US; however, there is pressure to usemore PRICING TOOLS ARE COMMON IN EUROPE BUT RARELY USED IN THE US The US is home to the largest free pricing system for pharmaceuticals globally, which means thatprices for branded drugs are among the highest in the world, while the prices charged by multiplemanufacturers of a single generic drug tend to be among the lowest, close to the manufacturer'smarginal cost. Most countries (especially in Europe) use some type of pricing control in regulatingpharmaceutical spending, and there are a number of tools like direct pricing controls and referencepricing used throughout markets like Europe. However, the US has a relatively unrestricted pricing environment, where few pricing regulation toolshave been implemented, with the notable exception of discounts and rebates. Indeed, key pricing toolsused in the US are indirect and overlap with other classes of control on spending. These include thechange in the way that drugs are priced (e.g. from average wholesale price towards using measureslike average acquisition cost), which puts some downward pressure on drug prices in markets likeMedicaid drug spending, together with a range of rebates, discounts, and subsidies used to lower theprice paid on pharmaceuticals. There is some evidence to suggest that pricing controls have a mixedimpact on overall healthcare spending; however, there is increasing pressure in the US to roll outmore pricing controls in the future, given the pressure for cost containment due to major healthcareexpansion following the implementation of Affordable Care Act (ACA) provisions. SIMPLICITY OF PRICING CONTROLS MAKES THEM ATTRACTIVE, BUT THEIR IMPACT ONHEALTHCARE EXPENDITURE IS MIXED Pricing controls are widely used in some markets (e.g. Europe) because of their relative simplicity andthe perception that there is a clear link between their use and cutting healthcare spending. However,it has been suggested that their impact on limiting overall expenditure and improving healthcare canbe mixed. Firstly, one study indicated that pricing regulations that led to cuts in pharmaceutical prices(e.g. reference pricing) could contribute to a delay in product launches, potentially reducing patientaccess to these new drugs (Danzon and Epstein, 2008). Secondly, recent pharmaceutical industry modeling research has suggested that although US patientshave to pay higher pharmaceutical prices, they have access to a greater number of new drugs (Filson,2012). Thirdly, there is evidence that generics can only have a major impact on cutting healthcarespending in markets with limited pricing controls, like the US (Dubois and Lasio, 2012). Thus, althoughthere is rising pressure in the US to increase the use of pricing controls, it can be questioned whethersuch reforms will improve healthcare provision, access, and cost containment. EVOLVING USE AND DEFINITION OF PRICES MAY LEAD TO DOWNWARD PRESSURE ON DRUGPRICES IN THE US Even though the US has the largest free pricing system for pharmaceuticals globally, it lacks a uniform

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transparent pricing system, in part because of the wide variation in types of transaction, leading to anumber of different prices being used. This range of definitions of drug prices used in the calculationof reimbursement in the US increases the complexity of US drug pricing (Berndt and Newhouse, 2010;Carroll, 2012; CMS, 2012; GLG, 2011a; GLG, 2011b; Mattingly, 2012). However, the use of these prices has evolved over the past few years, after the cornerstone ofdetermining a drug's price – the use of average wholesale price (AWP) – fell out of favor following itswidespread use for approximately 40 years. This was because of concerns that it did not represent theactual purchase price for a drug, together with concerns over its reliability (in part because it can bemanipulated), and also because some data providers agreed in 2009 to stop providing the AWP (GLG,2011a; Curtiss et al., 2010). As a result, key medical providers and payers are beginning to shift away from using AWP and towardsusing metrics like the average acquisition cost (AAC). This shift could improve pricing transparencyand help in the development of a more uniform approach to determining pricing. This increasedtransparency makes it possible that use of pricing definitions like the AAC could lead to greaterdownward pricing pressure on pharmaceuticals in the US going forward, since average wholesaleprices were often inflated, meaning that the discounted price that was negotiated was still too high(Carroll, 2012). Of the many different pricing definitions in the US, these are the key measures:

Average manufacturer price (AMP) – This is a composite of what drug companies charge verylarge customers (e.g. a large wholesale distributor) that purchase directly from the drugmanufacturer, after discounts and rebates (GLG, 2011b; Mattingly, 2012). The AMP is used inMedicaid reimbursement, and the ACA redefined the AMP for use in Medicaid as the drugmanufacturer’s average price to retail community pharmacies, and the price to wholesalersfor drugs distributed to retail community pharmacies (Handwerker et al., 2012). Wholesale acquisition cost (WAC) – The wholesaler's net payment made to purchase a drugfrom the manufacturer, net of purchasing allowances and discounts. Average sales price (ASP) – This is a composite of the weighted average for a specific drug forall purchasers, including price adjustments. It is defined by federal law (Mattingly, 2012). Average wholesale price (AWP) – This is approximately 20% higher than the WAC and itrepresents what a pharmacy pays wholesalers for pharmaceuticals (GLG, 2011a; Mattingly,2012). Estimated acquisition cost (EAC) – This is Medicaid's best estimate of the price paid bypharmacists or providers (CMS, 2012). Average actual (or acquisition) cost (AAC) – This represents healthcare providers' actualacquisition costs and is defined as the average cost to the pharmacy of acquiring anddispensing a drug from any source (manufacturer, wholesaler), net of discounts and rebates. It

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includes data from wholesale pharmaceutical invoices paid by pharmacies (Carroll, 2012) Best price per unit – For originator drugs, this is the lowest price at which the manufacturersells the covered outpatient drug to any purchaser (excluding depot prices and single awardcontract prices of any federal agency, prices charged to Department of Veteran Affairs,Department of Defense, Public Health Service, and state [non-Medicaid] pharmaceuticalassistance programs).

The use of a wide range of these pricing tools means that transparency and uniformity remain limitedin the US pharmaceutical pricing arena. There are even differences in which prices are used betweendifferent states for the same federal programs. For example, although the Centers for Medicare andMedicaid Services (CMS) has had to approve the states' methodology, state agencies have puttogether reimbursement procedures themselves (Utah Department of Health, 2012). Until 2011, moststates were using AWP in a Medicaid calculation of the EAC to reimburse pharmacies for the drugplus dispensation. EAC is the state's best estimate of how much a drug costs a Medicaid-participatingpharmacy. Some states are now switching across to AAC, while others are waiting to see howeffective this move will be. Alabama trialed the use of AAC in 2010, and its switch from EAC to AACallowed the state to save $30m annually. As a result, greater uptake of AAC could increase marginpressure on pharmacies. However, it seems unlikely that pharmacies will try to pass this pressure on topharmaceutical companies, given that if pharmacies achieve a lower price, the AAC will adjust downaccordingly, and they are not better off. One possibility is that the pharmacy dispensing fee will haveto rise from $3–4 to $10–11 (Carroll, 2012). A number of rebates, discounts, and subsidies have been introduced as part of the ACA A range of rebates, discounts, and subsidies are used in the US, in both the public and privatehealthcare markets. In this section, we look first at their use in public healthcare (primarily Medicaidand Medicare Part D) and in private healthcare plans. DISCOUNTS AND REBATES ARE IMPORTANT IN MEDICAID AND THE MEDICARE PART D

Figure 1: Different pricing is used at different stages of the supply chain

Source: Mattingly, 2012

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COVERAGE GAP The most important rebates for public healthcare provision (and those with the greatest amount ofinformation) relate to Medicaid, plus new provisions in the ACA. Drug manufacturers are required topay specific rebates for drugs used in Medicaid; however, Medicare Part D providers negotiate withdrug companies to receive unspecified rebates on a plan-by-plan basis, meaning that there is littleinformation on such rebates (Silverman, 2012a). The Medicaid Drug Rebate Program is a collaboration between the CMS, state Medicaid agencies, anddrug companies that have opted in to the program. Participating drug companies have to sign anational rebate agreement, and then form a pricing agreement for the Section 340B Drug PricingProgram, and also form an agreement with the Secretary of Veterans Affairs for the Federal SupplySchedule (Medicaid.gov, 2012). The amount of rebate depends on the drug type: 1) for branded drugs,the higher of a 23.1% discount to the AMP or the difference between the AMP and the best price perunit adjusted by the Consumer Price Index for all Urban Consumers (CPI-U); 2) for blood clottingfactors and drugs approved purely for pediatric indications, the higher of a 17% discount to the AMPor the difference between the AMP and the best price per unit adjusted by the CPI-U; 3) for generics,13% discount to the AMP. The 23.1% discount for branded drugs and the 13% discount for genericsare the new, higher discounts under the ACA. The ACA also extends the drug rebate to Medicaidmanaged care plans. Meanwhile, there are also a number of ACA provisions that modify existing rebates or introduce newrebates (KFF, 2012):

Expansion of drug discount program – This provision broadens eligibility for the 340B drugdiscount program to cover sole-community hospitals, critical access hospitals, plus somechildren's hospitals. Drug companies participating in Medicaid are required to discountspecific outpatient drugs to specific government-supported healthcare organizations underthe 340B drug discount program, which was introduced in 1992. Closing the Medicare drug coverage gap – This provision requires drug makers to introduce a50% discount on branded drugs used in the Medicare Part D coverage gap. Employer retiree coverage subsidy – This provision removes the tax deduction from employerswho collect Medicare Part D retiree pharmaceutical subsidies.

Going forward, it seems likely that there will be additional pressures on pharmaceutical pricing inMedicare, in addition to these discounts and rebates. The Independent Payment Advisory Board (IPAB)is tasked with restricting Medicare spending growth, and it has been suggested that pharmaceuticalprices in Medicare will be one of the IPAB's targets (Carroll, 2011). In addition, there has been quitesome discussion over letting Medicare negotiate drug prices. In President Obama's 2013 State of theUnion speech, he called for Medicare reform. In January 2013, the Medicare Prescription Drug PriceNegotiation Act (S. 117) was introduced, which is designed to remove the ban on Medicare drug pricenegotiation. However, it is thought that there is only a small chance of this being passed followingearly attempts that failed (Silverman, 2013; Govtrack, 2013).

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Private sector rebates have been controversial but the ACA may increase transparency Rebates given to payers (or in most cases to pharmacy benefit managers [PBMs]) play an importantrole in the pricing and reimbursement dynamic of the US private market, especially in terms offormulary positioning. PBMs administer prescription pharmaceutical programs and put together theformulary, administer and manage prescription benefit programs, and negotiate discounts and rebateswith pharmaceutical companies. There are three types of rebates that drug companies have used toboost market share and formulary access (Carroll, 2002; Parmar, 2012):

An access rebate that results in a drug being included on a formulary. A rebate dependent on negotiations to hinder competitor formulary access, which is used inclosed, tiered, or open formularies, where negotiations are designed to prevent competitorsfrom securing formulary access, or limit them to non-preferred status. A market share rebate (also known as incentive formulary rebates), which is proportional tothe market share of a particular drug. This tends to be more lucrative for the PBMs and theyoften engage in activities with the aim of increasing the market share of relevant drugs,including promoting their use to physicians.

PBMs have faced substantial negative press over the rebates received from drug manufacturers andthe lack of transparency of such deals, which directly reduced transparency over drug prices. Indeed,such rebates have been branded one of the least transparent transactions that PBMs participate in(PharmacyTimes, 2011). In 2008, Express Scripts had to pay a fine of $9.5m to settle state lawsuitsbased on accusations that it illicitly tried to switch patients on to different drugs in order to gainhigher rebates from manufacturers (Hamilton, 2008). In 2011, it was reported that every major PBMhad been prosecuted for switching patients on to a different drug to secure a higher rebate, leading to$370m worth of penalties and fines (Greenberg, 2011). To improve the situation, there aretransparency provisions in the ACA requiring PBMs to provide information to the secretary on the typeof rebates, discounts, or price concessions (Morgan Lewis, 2012). However, it has been suggested thatthese transparency requirements are not material (Fein, 2012a), perhaps in part because these dataare to be kept confidential (Bishop, 2012). Contracts are negotiated individually with each manufacturer, with the rebate level tied to theformulary positioning (as this is linked to expected market share). Historically, manufacturers haveoffered higher rebates in order to switch patients to newer versions of drugs or new treatments aheadof generic entry. Generally, the larger the PBM (more lives covered), the stronger their negotiatingclout and the rebates they can obtain. In addition, PBMs and drug manufacturers often practicebundled rebating or aggregate pricing in which the PBM is obliged to use a number of differentbrands and receives a rebate on the overall utilization. This can often result in more expensive brandshaving preferred formulary placement over cheaper, often generic drugs, leading to difficulty indetermining a drug's cost effectiveness (Carroll, 2002).

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REIMBURSEMENT REGULATIONS IN THE US PHARMACEUTICALMARKET Tools restricting reimbursement for costly new drugs continue to be popular and widelyused Historically, popular reimbursement tools in the US have included formulary controls, priorauthorization, step therapy, discount coupons, and patient assistance programs. However, thereimbursement regulation environment is evolving (particularly with the Affordable Care Act [ACA])and some newer reimbursement mechanisms are set to become increasingly important, including theuse of pharmacoeconomic data to determine an upper cut-off on pricing (e.g. cost per quality-adjusted life year as used by the National Institute for Health and Clinical Excellence in the UK, orcost-benefit analysis data in Germany) and risk-sharing schemes (where the drug company enters intomoney-off and pay-for-performance deals with public health payers) (Hirschler, 2012). FORMULARY ACCESS REMAINS HIGHLY IMPORTANT FOR DRUG COMPANIES, ALTHOUGHFORMULARIES HAVE EVOLVED Formularies, which are also known as preferred drug lists, are lists of drugs that have been reviewedand approved by the payer's pharmacy and therapeutics (P&T) committee, which often consists ofnon-employee physicians, pharmacists, and academics. The P&T committee decides formulary statusfor a drug, with the overall aim to create a list of drugs that gives enrollees access to a high quality ofcare but which also helps to contain costs. Formularies are a commonly used tool for the containmentof pharmaceutical expenditure in the US for both private and public payers. Two thirds of typicalemployer health insurance programs use a formulary for branded drugs (Pyenson and Scammell,2011). P&T committees use drug utilization reviews to keep the formulary up to date. The P&Tcommittee bases its decisions primarily on comparative clinical efficacy, safety, drug interactions,pharmacokinetics, pharmacology, and drug acquisition costs. A number of other stakeholders also impact formularies, including the Academy of Managed CarePharmacy (AMCP), the P&T committee, and bodies that contribute to drug cost/benefit analysis, suchas the Agency for Healthcare Research and Quality (AHRQ). The AMCP has 5,700 members, whichrepresent more than 200 million US citizens covered by a managed care pharmacy benefit (Corbitt etal., 2009), and can therefore exert significant influence. Formulary design has evolved over a number of years and now a range of different types exist, withmost insurers offering a choice of different (more or less restrictive) formularies. Enrollees can gainaccess to any drug under an open formulary system, although this system may have a preferred druglist, with drugs on the formulary exclusion list still available to the patient with prior authorization.With an incentive administration, enrollees can receive any drug, but there are financial incentives forenrollees to use specific drugs, using lower co-pays in a tiered structure. In closed formularies, drugsnot included on the list can only be obtained if the physician asks for a medical exemption, otherwisethe patient has to bear the full cost of the medication. Closed formularies are rare, but can be used insituations requiring high formulary compliance (Medco, 2010).

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Plans often change their formularies in order to reflect changes in patent status, new drug approvals,or new price negotiations. Preferred drug formulary positioning has a significant positive impact on adrug’s prescribing and sales, and it is thus highly desirable for a manufacturer to achieve this status.Indeed, the use of preferred drug lists has been the primary way that states have controlledpharmaceutical costs under Medicaid (Bowe, 2011). To secure optimal formulary positioning,pharmaceutical companies offer formulary access rebates (see "Private sector rebates have beencontroversial but the ACA may increase transparency" previously). However, there are a number of issues facing drug manufacturers when they offer rebates. Forexample, a rebate to incentivize prescription volume can lead to a lower co-pay; however, restrictionsin place like step therapy and prior authorization requirement mean that drug usage is relatively low(O'Leary and Gallwitz, 2010). In addition, formulary pressure from factors like therapeutic substitutionand formulary tightening represents a major threat, as it has been forecast to be the biggestcontributor to a 14% reduction in US pharma market growth in 2015 (which comprises a 15.2%negative impact and a 1.2% increase from coverage expansion, see figure below; Behl et al., 2011). It has been proposed that greater use of electronic health records and computer-based prescription aspart of the ACA is set to provide more information to providers and payers. Firstly, this could shapethe way that formularies are put together and how patients adhere to them (Leavitt Partners, 2012).Secondly, it could help improve patient compliance with treatment regimes, making substantialsavings in costs: for example, improving adherence in diabetic patients could save the US$4.7bn–8.3bn (Young, 2013).

Figure 2: Of the 15.2% negative impact on US pharma market growth in 2015, formulary pressure is the biggestcontributor to the loss in sales

Source: Behl et al., 2011

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TIERED FORMULARIES ARE USED TO CONTAIN PHARMACEUTICAL EXPENDITURE RISES When US healthcare insurance was first introduced, patients tended to pay the same co-pay rate forall drugs. However, this has evolved as drugs with expired patent protection (which becomesubstantially cheaper) and newer, more expensive drugs, sometimes termed "specialty drugs," wereintroduced. As a result, "tiering" was introduced, where drugs were put into different co-pay tiers.When tiering was first introduced, there were only two tiers: a lower co-pay tier (tier 1) and a higherco-pay tier (tier 2); however, this has expanded such that there are now 3–5 tiers. Plans with a lowernumber of tiers are more attractive to patients (Feldman, 2010), presumably as they tend to requirepatients to pay a lower amount of overall co-pays. Two thirds of Medicare Part D prescription drugprograms have five tiers (Fein, 2012b), while two thirds of typical employer healthcare plans havethree tiers (Pyenson and Scammell, 2011). The figure below highlights the evolution of the use of agreater number of tiers in employer-sponsored health plans. The number of tiers included in a drug benefit package varies by plan, with those with fewer tiers andrestrictions generally being more expensive. There are data to suggest that a move from a two-tier toa three-tier system leads to lower use of prescribed drugs and lower net costs (Gilman and Kautter,2008; Motheral and Fairman, 2001). Clearly, this is beneficial in helping to lower overall healthcareexpenditure, provided it does not impact future health outcomes. Studies have shown that increasedco-payments may lead to increased rates of hospitalization, and payers therefore have to carefullybalance any formulary changes so as to not offset any savings with increased hospitalization costsresulting from poor adherence. Moreover, it has also been shown that more generous drug coveragecan lead to reduced overall Medicare costs by lowering hospitalization costs (Chernew et al., 2013).

Figure 3: The increase in tier number in employer-sponsored health plans, 2000–12

Source: Claxton et al., 2012

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The different tiered co-pay levels include:

Tier 1 – Mostly generics (with occasional branded drugs), which are low cost. Tier 2 – Preferred branded drugs, where the insurance provider has successfully negotiated afavorable price – these tend to cost more than tier 1 drugs. Tier 3 – Non-preferred branded drugs, where the insurance provider has not successfullysecured a sufficiently favorable price – these tend to include costly drugs. Tier 4 – Specialty drugs, which are high-cost branded drugs.

The co-pay for tiers 1 and 2 tends to be low, and quoted in absolute dollar terms. In a recent study(2011), the average tier 1 co-pay was $10, while the average tier 2 co-pay was $29 (Keckley, 2012).In most cases when a generic version of a drug becomes available, the brand would be moved fromtier 2 to tier 3, with the generic version available under tier 1. It has been argued that lowering theco-pay in tier 1 to drive up generics usage could result in substantial savings. One study estimatesthat every 10% rise in the use of generics in Medicare Part D programs instead of branded statinswould cut Medicare costs by $1bn per year (Hoadley et al., 2012). Tier 3 co-pays tend to be quoted in absolute dollar terms or a percentage co-pay. The average tier 3co-pay in 2011 was $49 (Keckley, 2012), while the average percentage co-pay in a study looking atPart D co-payments was 50–75% (American Cancer Society, 2012). Insurers or pharmacy benefitmanagers (PBMs) often negotiate prices for branded drugs and can obtain high discounts that alsolead to formulary shifts, with branded medications shifting from tier 3 to tier 2 as a result. Lastly, tier4 co-pays tend to be quoted as a percentage co-pay. The average percentage co-pay is 25%(American Cancer Society, 2012); however, the average 2011 co-pay was $91 (Keckley, 2012). COUPONS COUNTER TIERED CO-PAY-DRIVEN HEALTHCARE INSURANCE COST CONTAINMENT Coupons and discount cards are sometimes used by drug manufacturers with non-preferred drugs onhigher tiers to maintain market share by lowering or removing patient co-pays for a specific drug. Theuse of such coupons and discount cards is rising: in 2011, they were available for 395 drugs, upsubstantially from 86 drugs in 2009 (Schultz, 2012). The rise of such discounts is believed to beleading to an increase in pharmaceutical spending by $32bn over the next 10 years (Staton, 2012b).There have been some measures to limit the use of coupons, since they have been claimed toincentivize patients to use higher-cost branded drugs and fewer cheaper generics, making coveragemore expensive for insurance companies and ultimately potentially increasing premiums for patients(Schultz, 2012). In one study, it was demonstrated that Pfizer's Lipitor (atorvastatin) had a typical $30co-pay (compared to generic simvastatin co-pay for $10 per month), which fell to $4 with a couponfrom Pfizer (Grande, 2012; Schultz, 2012). Counter-coupon measures have included healthcare providers suing drug companies. For example, in2012, four trade union health plans (these included healthcare plans for the American Federation ofState, County and Municipal Employees District Council 37; the Sergeants Benevolent Association;

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Plumbers and Pipefitters Local 572; and the New England Carpenters) sued eight drug manufacturers(Silverman, 2012b; Sell, 2012). Also in 2012, CVS Caremark, another major PBM, decided to blockcoverage for 34 products after co-pay discounts were provided by their manufacturers (Staton,2012b). Additionally, coupons were banned in Massachusetts (the only state to ban them); however,this was repealed in 2012. Furthermore, coupons are banned for use with Medicare Part D. There areparticular concerns over using coupons to boost federal healthcare costs. According to theCongressional Budget Office, Medicare pays $76 more whenever a patient uses a branded druginstead of a generic. However, the US Department of Health and Human Services has indicated thatthere have never been any prosecutions for coupon use with federal health programs (Staton, 2012a),and a survey of Part D enrollees indicated that 6% were using coupons (Schultz, 2012). PRIOR AUTHORIZATION BOOSTS PREFERRED BRAND USE, BUT ADMINISTRATIVE COSTS CUTDOWN COST CONTAINMENT Prior authorization refers to a process whereby a patient must ask their physician (who may not knowthat the drug is subject to a prior authorization requirement, given the heterogeneous nature ofcoverage under different plans) to tell the patient's healthcare insurance company that the drug inquestion is medically necessary. This process can lengthen the time before a patient receives a specificdrug. An insurance plan may implement a prior authorization plan to limit the use of drugs that: 1) arecostly (particularly if there are other drugs that are equally effective); 2) are new and therefore notwholly characterized in a real-world setting; 3) are only effective for a certain amount of time; or 4)have toxicity or safety issues (Lennertz and Wertheimer, 2008; American Cancer Society, 2012).Examples of drugs that commonly require prior authorization include cancer and nausea drugs(American Cancer Society, 2012). The use of prior authorization can have a big impact on the use of a specific drug. For example, datafrom one study looking at Medicaid prescriptions indicated that the use of prior authorization instates with preferred drug lists led to a 31% reduction in the use of Lipitor compared to stateswithout preferred drug lists (Bowe, 2011). However, the extent to which prior authorization can help generate cost savings is less certain,because increased administrative costs mitigate positive benefits of lowering use of non-preferredbrands and boosting the use of preferred brands. For example, a recent study indicated that requiringprior authorization for new topical psoriasis drugs is not cost effective for a managed careorganization (Balkrishnan et al., 2010). Meanwhile, another study showed that only minimal costsavings to health drug plans were possible (0.4%) when prior authorization was used with pregabalin(Bazalo et al., 2010). In addition to questions over whether prior authorization saves health insurance plans and healthcareproviders money, its use tends to lead to a higher, uncompensated workload for physicians andpharmacists, thus increasing their costs (Lennertz and Wertheimer, 2008). For example, involving apharmacist to fix reimbursement-related problems (including those caused by prior authorization)

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meant the pharmacist took 3.4 times more time compared with dispensing a prescription that had nocoverage problems. Furthermore, it can take hours to a couple of days for the prior authorizationprocess to take place, hitting patient satisfaction with their pharmacy (Lennertz and Wertheimer,2008). Going forward, it seems likely that the use of prior authorization will increase, in common with otherpharmaceutical expenditure controls, given the substantial expansion of patient coverage under theACA. The use of prior authorization will most likely continue to focus on new and costly drugs, makingit likely that this tool will be used in therapy areas like oncology. Indeed, in a recent survey, half of health plans surveyed thought that prior authorization withintravenous oncology drugs would increase (see figure below). Despite the likely rise in use of priorauthorization in a post-ACA world, prior authorization is not a focus in the ACA, although there islegislation that prevents limits on access to emergency services based on prior authorization for allhealthcare plans except grandfathered health plans (Dailey, 2010).

STEP THERAPY REMAINS HIGHLY POPULAR IN PRIVATE HEALTHCARE PROVISION, GIVEN ITSEFFECTIVENESS Step therapy (also known as "fail first") is used to restrict a patient's access to a costly drug throughlimiting reimbursement unless cheaper drugs (often generics) have been tried first. As a result, steptherapy is commonly used in treatment-naïve patients. Step therapy is often used for commonlyprescribed drugs like proton pump inhibitors (PPIs), antidepressants, oral diabetes drugs, cholesterol-lowering drugs, and blood pressure treatments. An example of the use of step therapy is where

Figure 4: Increased focus on prior authorization by health plans going forward

Source: Wang et al., 2012

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patients only receive coverage under their plan for a costly PPI drug like AstraZeneca's Nexium(esomeprazole) if cheaper generic drugs like generic omeprazole are used first (Capital Health, 2012). Step therapy has been shown in a range of studies to be effective at containing costs, primarily byencouraging greater use of lower-cost drugs, but also lowering drug use (Motheral, 2011). Althoughcost containment has been demonstrated across a range of drug classes (including antidepressants,antihypertensives, nonsteroidal anti-inflammatory drugs, and PPIs), cost savings from the use of steptherapy with antipsychotics have not been demonstrated. For example, one study compared Medicaidprogram spending on antipsychotic medication in Georgia, which has applied step therapy for itsatypical antipsychotic use (first use of typical antipsychotics), and Mississippi, which does not havesuch a policy. Results showed that while the state of Georgia Medicaid made savings in terms ofantipsychotic drug expenditure, these were offset by a higher cost of outpatient visits toschizophrenia patients (Farley et al., 2008). In addition to the fact that cost effectiveness has not been established for drug classes likeantipsychotics, there are additional negatives with the use of step therapies. Firstly, step therapy isonly appropriate for certain illness types, and would not for example be used in cancer treatment(American Cancer Society, 2012), even though costly biologics are common treatment choices. This isbecause there is often a gold-standard treatment paradigm used for treating a specific cancer, andtrialing patients on a cheaper non-gold-standard therapy before switching them onto the gold-standard therapy if the gold-standard therapy is very expensive is unlikely, given the higher risk ofmortality. Instead, utilization management tools for biologics focus more on prior authorization,higher co-pay levels, and sometimes limiting the quantity used, instead of step therapy (Tu andSamuel, 2012). Secondly, in some studies, it has been shown that the use of step therapies: 1) createdbarriers to filling prescriptions; 2) led to a fall in the length of time for which patients took specificdrugs; and 3) boosted the level of patients discontinuing medication (Mark et al., 2009). These issuescan also be linked to prior authorization. Due to its negative impact on patient access to specifictherapies, a Californian bill (AB369) was introduced to limit the ways that health plans can use steptherapy (Toussaint, 2012). However, this was vetoed by the Governor of California in September 2012(Govtrack, 2012). Despite the lack of suitability of step therapy in treating a number of indications, either because ofthe characteristics of the indication (e.g. cancer) or because step therapy has not been shown to beeffective for drug classes in the indication (e.g. antipsychotics), its use is increasingly popular. Arecent survey indicated that it was set to be the leading cost-containment tool of choice for largeemployers looking to manage pharmacy benefits going into 2013, as shown in the figure below.Furthermore, due to the rise in enrollees in managed care plans under the ACA, it seems likely thatthere will be a rise in the use of tools like step therapy to manage pharmacy costs (Managed CareDigest, 2012).

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PAPS ARE SET TO EVOLVE IN THE POST-ACA ENVIRONMENT A patient assistance program (PAP) provides access to branded pharmaceuticals from themanufacturer to low-income patients by lowering the cost of the pharmaceuticals or by making themfree. Although eligibility criteria vary, in general the program applies to individuals below 200% of thefederal poverty level lacking any prescription coverage, and in some cases applies only to those whohave no health insurance (RXassist, 2012). Individuals have to apply to the manufacturer toparticipate in the program. In addition, states can run their own PAPs and discount programs (NCSL,2012). PAPs are designed to improve patient access to pharmaceuticals for those with access problems;however, there are potential issues with their use. For example, it has been suggested that theyencourage the use of branded drugs when there are cheaper alternatives, which could be an issuewhen patients taking these drugs gain coverage under ACA provisions and want to remain on themore costly drug (Felder et al., 2011). Furthermore, there have been some studies indicating that PAPsare not popular in some medical practices. For example, in a survey of community oncology practices,more practices had a negative impression than a positive impression of PAPs because of the burdenassociated with complex paperwork and delays (see figure below).

Figure 5: Tools that large employers are set to use in 2013

Source: Managed Care, 2012

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At the 2012 Center for Business Intelligence conference on PAPs, a number of speakers suggested thatthe ACA would modify how PAPs are paid for and used (Looney, 2012). There are a number of waysthis is set to happen. The ACA is set to help close the Part D coverage gap, where PAPs have been usedin the past. In addition, the ACA is designed to improve access to healthcare insurance for theunderinsured, particularly low-income groups, by expanding Medicaid coverage. These groups havehistorically taken advantage of PAP schemes. It seems likely that PAP schemes will therefore have toevolve in the post-ACA environment into discount or co-pay schemes. This is a potential issue sincediscount coupon schemes have in the past run into substantial problems when used with federalprograms (see "Coupons counter tiered co-pay-driven healthcare insurance cost containment"previously), potentially limiting their use in this setting. In addition to those who are currentlyuninsured/underinsured receiving coverage due to the ACA, there will likely be some underinsuredpeople remaining, who will likely find paying for branded prescription drugs tough(PharmaManagedCare, 2012). It seems likely that PAPs will be used in this setting. RISK-SHARING SCHEMES ARE BECOMING MORE POPULAR IN THE US Risk-sharing schemes have a number of subjective definitions, but are broadly agreements where apharmaceutical company guarantees a drug's efficacy to healthcare providers in exchange forreimbursement. As such, the pharmaceutical company is aiming to mitigate clinical and commercialrisk, while the payer is looking to mitigate healthcare financing decision risk. Although risk-sharingagreements are still relatively new, such deals are relatively common in Europe – for example, in2007, Novartis signed a deal with two German sickness funds to refund the cost of Aclasta (zoledronicacid) for patients who suffered a fracture while taking the drug (Pugatch et al., 2010). Due to the

Figure 6: PAP popularity in a survey of oncology practices, 2009

Source: Buell and Gesme, 2009

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complexity of the private insurance market and managed care in the US, risk-sharing agreements havebeen less widely used compared to other markets like Europe. However, the first risk-sharing schemein the US was in 1998, and involved Merck & Co and Zocor (simvastatin) (Pugatch et al., 2010). Thisscheme was designed such that Merck would refund both patients taking Zocor and insurers payingfor the drug for up to 6 months of drug costs, should the drug not lead to a reduction in patient low-density lipoprotein cholesterol levels down to target levels. Both the number and variety of risk-sharing agreements have increased in the past few years. DuringJanuary 2010 to June 2011 there were 45 risk-sharing deals globally, almost twice the number for2009 (Ando et al., 2011). The number is rising most likely because of rising pressures to contain costswithin the comparatively highly priced US pharmaceutical market. A recent survey indicated that 60%of drug companies believed that cost-sharing deals with payers will become more common in the next5 years (Quintiles, 2012). Meanwhile, the increasing variety is likely because there are a wide varietyof healthcare payers. There are four key types of agreement (Rauland, 2011):

Financial-based, patient population – The agreement is designed around the drug salesforecast, based on drug prescription volume. If the volume cap is breached, the drugmanufacturer then has to pay a rebate. Financial-based, patient-specific – The agreement is designed around how much a drug costsper patient. Performance-based, patient population – The agreement is based on how effective the drug is(commonly in terms of cost effectiveness) following launch in a real-world setting. Performance-based, patient-specific – This agreement is based on whether individual patientsshow a response to the drug (the instance above with Novartis's Aclasta is an example of thistype of deal).

Of the risk-sharing deals during January 2010 to June 2011, most were financial deals; however, 13%were performance-based (Ando et al., 2011). A recent survey indicated that a greater percentage ofUS payers (84%) supported population-based risk-sharing deals than drug companies (56%)(Quintiles, 2012). Meanwhile, from the same study, a similar percentage (67–69%) of bothstakeholders supported individual performance guarantees. Lastly, a greater percentage of US payerssupported coverage with economic development (84%) than drug companies (69%). There are a number of advantages with risk-sharing agreements. Principally, risk-sharing deals can behighly effective at providing patient access to new and costly drugs using effectiveness-basedevaluation, while also protecting healthcare payers should the drug not prove as effective as initiallythought. In addition, they are thought to improve outcomes, as shown in the figure below. However, there are a number of factors restricting uptake of risk-sharing agreements in the US.Firstly, they carry substantial administrative burden. Secondly, they have been inappropriately used inthe past as a cost-containment tool rather than as a patient access tool (Pugatch et al., 2010). Centralto establishing an effective risk-sharing agreement is to understand why the drug was not reimbursed

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without such an agreement; an issue which is clouded if the scheme was implemented to containcosts. Thirdly, the range of healthcare stakeholders in the US and the lack of transparency in healthcarepayment make the picture less transparent, making it tougher to implement effective schemes (as theobjective and scope of the agreement needs to be clear and transparent), and tougher to assesswhether the agreement is effective. It has been suggested that risk-sharing schemes are mostappropriate for new, novel drugs in high-priority indications (particularly if there are concerns overthe longer-term safety or efficacy of the drug) in which it is possible to assess health gain over aspecified time period (Adamski, 2010).

Recent success with Cigna's outcome-based payment scheme that it signed with Merck & Co in 2009involving Januvia (sitagliptin) and Janumet (sitagliptin/metformin) indicates that such contracts aremaking inroads into the US. The deal represents an innovation, as it guarantees efficacy as well ascompliance. Under this scheme, Cigna receives a discount on the drug if a patient’s blood sugar falls,while Merck & Co got a better placement for Januvia and Janumet on Cigna’s formulary. In April 2013, Cigna reported that diabetes medication compliance increased from 61% to 84% afterthe agreement was signed, while the number of hospitalizations for Cigna-covered patients withdiabetes fell by 18% in addition to a 13% reduction in emergency room visits during the first year ofthe contract (Jackson, 2013a). With payers already in possession of large amounts of data that can enable them to assess whatsavings drugs can derive in terms of reduced doctor visits, hospitalizations, and other treatments,

Figure 7: Drug companies and US payers have similar views on the effectiveness of risk sharing

Source: Quintiles, 2012

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more payers are expected to take on outcome-based payment approaches in the future. This in turn isprompting drug developers to generate such data during drug development to support reimbursementdecisions (Jackson, 2013b). PRESCRIPTION TO OTC SWITCHING Payers in the US generally refuse to reimburse prescription drugs once they switch from prescriptionto over-the-counter (OTC) status. Occasionally, instead, they move the drug to a higher tier, withhigher co-payment acting as a deterrent to obtaining the drug through the drug benefit plan ratherthan paying the generally lower cost of the OTC drug. OTC DRUG REIMBURSEMENT RESTRICTION UNDER ACA INCREASES COSTS AND PHYSICIANBURDEN Since January 2011, OTC drugs need a prescription to be reimbursed using most savings accounts,including Health Savings Accounts (HSAs), Flexible Spending Accounts, and Health ReimbursementArrangements, as part of ACA provisions (Benefit Resources of Iowa, 2011). Given the rising popularityof programs like HSAs (see figure below), the resulting increased prescription burden has addedconsiderably to physician workloads, meaning higher costs and delays in patient treatment, and as aresult, lawmakers are now being urged to repeal the provision (Fiegl, 2012).

The move towards comparative effectiveness and the crawl towards cost-effectivenessanalysis in the US A NUMBER OF BODIES INFLUENCE DRUG UTILIZATION IN THE US

Figure 8: Rise in HSA-qualified high-deductible health plan enrollment, 2006–12

Source: AHIP, 2012

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A broader assessment of new drugs involving analyzing their effectiveness has become increasinglyimportant for regulators and reimbursement authorities, instead of a more narrow focus on efficacy(Schneeweiss et al., 2011). In addition to an increasing focus on comparative effectiveness analysis,there is also an increasing focus on the importance of generating cost-effectiveness data. Ifcomparative effectiveness tells us whether one drug is more effective than another in a real-worldsetting, then cost-effectiveness analysis additionally brings in cost, allowing us to analyze what weare willing to pay to achieve an increase in effectiveness (Wright, 2010). There are a number of bodies in the US that are active in the field of evidence-based medicine. Thekey body is the AHRQ, which is made up of a number of components (including policy analysis,management, research review, healthcare, technology assessment, outcomes research, primary careresearch, organization and delivery, cost and financing studies, and quality measurement andimprovement). AHRQ research is mandated by the Medicare Modernization Act (MMA) and involvesoutcomes research, comparing clinical efficacy, and determining the appropriateness of specifictherapies (Neumann et al., 2005). As part of this remit, the AHRQ has set up the National GuidelineClearinghouse, a database of evidence-based clinical practice guidelines created by professionalorganizations, health plans, hospitals, and state and federal agencies. The AHRQ is therefore a keystakeholder to target in securing reimbursement, particularly since the relationship between the AHRQand the US Food and Drug Administration (FDA) is set to grow. Furthermore, Section 1013 of the MMA requesting the AHRQ to conduct research intoappropriateness and effectiveness of treatments is designed to improve understanding of formularyconstruction, medicine over-use, inappropriate prescription, and safety issues, together with yieldingcost-effective information. As part of these measures, the AHRQ has set up the Effective Health CareProgram, which is tasked with reviewing, promoting, and translating scientific findings. However, theAHRQ’s powers are limited to some extent by the fact that the Centers for Medicare and MedicaidServices (CMS) is not allowed to use data obtained from the AHRQ to withhold coverage of a specificdrug. However, this may well change under the support for comparative effectiveness researchfollowing healthcare reform. Other bodies, such as the National Committee for Quality Assurance (NCQA) and the Council forAffordable Quality Healthcare (CAQH), support decision-making. The NCQA is an independent bodythat audits the quality of the nation’s managed care plans, while the CAQH is an alliance of healthplans, networks, and trade associations, which has been set up to promote quality interactionsbetween plans, providers, and other stakeholders. As part of its remit, the CAQH has developed aFormulary DataSource to facilitate electronic access to formulary information. In 2000, the AMCP introduced the Format for Formulary Submissions, a template that manufacturerscan use for formulary submissions on a voluntary basis. The aim of this system is to provide aconsistent comprehensive template for data submission for reimbursement, and it pro-activelyrequests specific information from manufacturers. Thus it helps P&T committees to more accuratelydetermine the total value of a drug brought to the covered population and enables more informed andfaster decisions for accepting or rejecting a drug on a formulary by streamlining the acquisition ofdata and information for the review process. The format also serves to stimulate manufacturers to

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submit their dossiers in a more standardized format, including data not only on the drug’s safety andefficacy, but also its overall clinical and economic value compared to alternative therapies (AMCP,2010). DRUG DEVELOPERS NEED TO FOCUS ON GENERATING CER EARLY IN CLINICAL TRIALDEVELOPMENT A greater reliance by reimbursement bodies on data that demonstrate effectiveness will still allowinnovative drugs to be successfully reimbursed; however, me-too drugs demonstrating minorincremental improvements will find it tougher to demonstrate high levels of effectiveness anddifferentiation from competitors. To determine whether drugs have a competitive comparativeeffectiveness research (CER) profile, it is important that CER data are generated by drug developers asearly as possible in the clinical development process (Schneeweiss et al., 2011). There is some evidencethat such changes are being implemented. The generation of CER data is already critical indetermining the outcome of go/no-go decisions in clinical development, with increasing numbers ofdevelopment programs terminated if drugs fail to generate strong enough effectiveness data(Shimmings, 2011). This is likely due to concerns that a lack of strong CER data may make it tougherfor the pipeline drug to gain approval and/or reimbursement. As a result of this increased focus on CER data and their heightened importance, insurance bodies arereleasing guidelines on CER and disease bodies are recommending that drug developers generate CERdata. In 2010, the managed care organization WellPoint became the first healthcare benefits companyto provide CER guidelines – it has been suggested that such guidelines are a prelude to using CERdata in future reimbursement decisions (Ali et al., 2012). Supporting this are CER-drivencollaborations between this kind of stakeholder and drug companies. For example, in 2011,AstraZeneca entered into a deal with HealthCore to conduct CER studies (AstraZeneca, 2012). Lastly, there is greater focus on the importance of CER as part of the ACA, which helped to establishthe Patient-Centered Outcomes Research Institute (PCORI). The PCORI is in charge of coordinatingfederal spending in CER going forward (Ali et al., 2012). As part of its remit, the PCORI carries outresearch to build up patient-centered outcomes research evidence to aid healthcare decision-making,including funding patient-centered CER. However, the impact of the analysis generated is restricted asUS public healthcare providers (including CMS) cannot make healthcare coverage decisions using justPCORI analysis (Miller, 2012). Despite this progress towards greater use of CER data, Datamonitor flags that there are issues withtheir use. Historically, CER research has had a limited impact on shaping healthcare provision, in termsof patient care and clinical practice, for a number of reasons (Fleming, 2012; Timbie, 2012):

Financial incentives that go against the uptake of new clinical practices. Issues with study design, in terms of unclear results and intrinsic biases in interpreting results. Difficulties for end users, in terms of the design of CER analysis and limited decision support.

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THE FOCUS ON COST-EFFECTIVENESS ANALYSIS IS RISING GLOBALLY; HOWEVER, ITS ROLLOUTIN THE US IS SET TO BE SLOW A common cost-effectiveness analysis tool is the cost per quality-adjusted life year (QALY; a measureof health gain). This measure is used in the incremental cost-effectiveness ratio (ICER), which iscommonly used to assess new drugs that are both more effective but also more costly. QALYs are used by health technology assessment bodies around the world, including in the UK,Australia, and Canada (PMLive, 2013), to help decide whether patients can receive a drug. However,their use in the US has been very limited; instead, reimbursement is primarily based on the efficacy ofthe drug, with reimbursement mechanisms like tiered co-pay bringing in drug cost impacts. Part ofthe reason for this is that there are ideological and legislative barriers that are likely to restrict awider uptake. The ACA specifically prohibits the newly established PCORI from funding and carryingout cost-per-QALY analysis in determining which medical interventions are cost effective (Miller,2012). Despite this, the US Panel on Cost-Effectiveness in Health and Medicine has endorsed cost-per-QALYs, and there has been some support of QALYs by US government agencies and medicalsocieties (Neumann, 2011). As a result, QALY analysis seems to be used semi-informally in the US in arange of applications, including shaping clinical guidelines and public health resource allocation.Although there is no specific mandate for its use, it is steadily gaining traction and will influencedecisions in the future. However, use is increasing only slowly, and it is unlikely to be used byreimbursement stakeholders or major policy bodies any time soon. Despite the prohibition of the use of QALYs in PCORI assessments, the cost of a medication is playingan increasing role in shaping patient access to drugs in the US. For example, the high price ofDendreon's Provenge (sipuleucel-T) is thought to have delayed the CMS's coverage decision. Provengewas approved by the FDA in April 2010 for the treatment of advanced prostate cancer. However,regional Medicare carriers asked the CMS to carry out a CMS National Coverage Analysis shortlyfollowing approval to determine whether the CMS would cover the drug, following concerns over thedrug's cost of $93,000 for a course of three treatments (Goozner, 2011). In November 2010, theMedicare Evidence Development and Coverage Advisory Committee gave mild support to Provenge. InJune 2011, the CMS issued its final decision memo, indicating that the drug would receive coveragefor patients with asymptomatic or minimally symptomatic metastatic castrate-resistant prostatecancer (Mulcahy, 2011). Other examples where cost has played a major role in shaping patient access to drugs and payerwillingness to pay for drugs include Sanofi's Zaltrap (aflibercept) and Roche's Lucentis (ranibizumab).In November 2012, Sanofi decided to halve the price of its colorectal cancer drug Zaltrap after theMemorial Sloan-Kettering Cancer Center in New York said that it would not use the drug because itwas twice the cost of Roche's Avastin (bevacizumab), even though it was not more effective (Pollack,2012). Meanwhile, many US physicians have been using Avastin off-label to treat wet age-relatedmacular degeneration as it was much cheaper, despite having similar efficacy, prompting the NationalEye Institute to run a trial comparing Lucentis with Avastin. It has been reported that a dose ofAvastin costs $50 for this, while a Lucentis dose costs $2,000 (Silverman, 2011).

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It is being argued that because there is a movement towards broadening the way that drugs areassessed (including the greater use of comparative effectiveness), together with assessing costs whileexamining health outcomes, this opens the door to greater use of cost-effectiveness analysis. Carryingout cost-effectiveness analysis is argued to increase transparency and efficiency of scarce resourceallocation. Transparency is particularly important if healthcare payers want to avoid charges thatdecisions are being made primarily with cost containment in mind. Furthermore, incorporating cost-effectiveness analysis in CER is argued to make it easier for healthcare purchasers and insurers tonegotiate prices on an effectiveness basis (AcademyHealth, 2009). However, arguments againstgreater use of cost-effectiveness analysis include: 1) lack of political and patient support (in partbecause patients are less happy allowing cost-effectiveness bodies to make healthcare provisiondecisions rather than allowing physicians to make these decisions); 2) intrinsic biases against newerdrugs with less data; and 3) issues with effectively measuring all aspects of patient and societalbenefit (AcademyHealth, 2009).

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BIBLIOGRAPHY AcademyHealth (2009) Incorporating Costs into Comparative Effectiveness Research. Available fromhttp://www.academyhealth.org/files/publications/ResearchInsightsCER.pdf [Accessed  January 17,2013]. Adamski J (2010) Risk sharing arrangements for pharmaceuticals: potential considerations andrecommendations for European payers. BMC Health Services Research; 10:153. AHIP (2012) Health Savings Accounts and Account-Based Health Plans: Research Highlights. Availablefrom http://www.ahip.org/hsacensus/ [Accessed January 17, 2013]. Ali R, Hanger M, Carino T (2012) Comparative Effectiveness Research in the United States: A Catalystf o r I n n o v a t i o n . A m e r i c a n H e a l t h & D r u g B e n e f i t s . A v a i l a b l e f r o mhttp://www.ahdbonline.com/feature/comparative-effectiveness-research-united-states-catalyst-innovation [Accessed January 17, 2013]. AMCP (2010) AMCP Format for Formulary Submissions Version 3.0 Explanation. Available fromhttp://www.amcp.org/amcp.ark?p=0F6E1295 [Accessed August 11, 2010]. American Cancer Society (2012) Medicare Part D: Things People With Cancer May Want to Know.A v a i l a b l e f r o mhttp://www.cancer.org/treatment/findingandpayingfortreatment/managinginsuranceissues/medicare/medicarepartd/medicare-part-d-formularies-and-drug-coverage [Accessed January 15, 2013] Ando G, Reinaud F, Bharath A (2011), Global Pharmaceutical Risk-sharing Agreement Trends in 2010and 2011, IHS Global Insight. Available from http://ihsinc.files.wordpress.com/2011/11/global-pharmaceutical-risk-sharing-agreement-trends-2011-2012.pdf [Accessed January 16, 2013]. A s t r a Z e n e c a ( 2 0 1 2 ) 2 0 1 1 A n n u a l R e p o r t . A v a i l a b l e f r o mhttp://www.annualreports.com/HostedData/AnnualReports/PDF/azn2011.pdf [Accessed January 17,2013]. Balkrishnan R, Bhosle MJ, Fleischer AB Jr, Feldman SR (2010) Prior authorization for topical psoriasistreatments: is it cost-beneficial for managed care? J Dermatolog Treat.; 21:178–84. Bazalo G, Weiss RC, Joshi AV (2010) Impact of a prior authorization for pregabalin on health plan drugexpenditures. Am J Manag Care; 16):S154–9. Behl S, Hisey T, Marcello R (2011) Life sciences, health care reform and the new marketplace, MovingT a r g e t , D e l o i t t e . A v a i l a b l e f r o m h t t p : / / w w w . d e l o i t t e . c o m / a s s e t s / D c o m -UnitedStates/Local%20Assets/Documents/Deloitte%20Review/Deloitte%20Review%209%20-%20Summer%202011/US_deloittereview_Moving_Target_Jul11.pdf [Accessed January 19, 2013].

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