Brown bottles in manufacturing plant; payer systems concept

Modeling Complex Payer Systems in Specialty Pharmaceutical Therapies

The United States has a highly complex healthcare system, and one of its primary sources of complexity is the number of payers and payer systems. Private insurers for medical or pharmaceutical care, public sources like Medicare and Medicaid, and other sources of payment all exist within the system — but which sources are available to which patients is nearly as personalized as the patient’s medical needs themselves.

Consequently, popular economic models often fail to shed light on the role of payers within specialty pharmaceutical development, distribution and use. Consolidating data to a single platform offers one possible solution.

The Complexity of U.S. Pharmaceutical Payer Systems

Writing in Health Affairs, Alan M. Lotvin and fellow authors note that the high costs of specialty pharmaceuticals can be traced to the interaction of several factors, including:

  • The growth of patient populations who need specialty medications.
  • The high costs of clinical trials and drug development.
  • Complexities and lack of coordination in the pharmaceutical payer and delivery system.

“Fully realizing the potential value of the expanding universe of specialty medications will require collaborative efforts to reduce waste and promote value,” they explain.

The relationship between specialty pharmaceuticals, patients and payers is complex even when patients find the right medication, dosage and formulation easily. When patients need to change the drug they take, the amount or type, or their provider, however, they face an added layer of complexity — as do manufacturers, distributors and clinicians.

For example, “the route of medication administration often determines whether the patient will be charged through their medical or pharmacy insurance benefit,” write Autumn D. Zuckerman and fellow researchers in a 2019 article in Pharmacy. Changing insurers, pharmacies or healthcare providers can also create complexities in pharmaceutical payer processes that resist analysis by standard economic models.

Restricted drug distribution systems, often a necessary part of risk evaluation and mitigation strategies, also add complexity to pharmaceutical distribution and payer systems, writes Bonnie E. Kirschenbaum in the American Journal of Health-System Pharmacy.

“To craft a win-win policy, it is important to recognize how the market for prescription drugs currently fails Americans,” write Rena Conti, Richard G. Frank and Jonathan Gruber in an article at the Brookings Institute. The authors identify three primary areas of breakdown:

  • New specialty medications are often released at price points that put them out of reach for rare disease patients, even those who have insurance or other payer sources.
  • Prices for new specialty drugs may be only loosely correlated with value, giving patients little additional benefit when compared with existing, less costly medications.
  • A lack of medications for present threats to individual and community health, such as treatments for antibiotic-resistant tuberculosis.

“These shortcomings can be readily addressed using evidence-based approaches,” the authors write. To address them, access to centralized data regarding pharmaceutical payers’ relationships to distributors and patients is essential.

Healthcare professional working in lab; payer systems concept

When Existing Economic Models Don’t Fit

Specialty pharmaceuticals are expensive to research and produce — much more so than many drugs for common conditions. As a result, prices for specialty medications have risen at higher rates, making standard payer models a poor fit.

To address the problem, some pharmaceutical payers create special rules for rare disease medications. The result is a patchwork of payer responses to these medications, leading to additional confusion. These on-the-fly measures often resist analysis by standard economic models — or by the time the analysis is complete, the stopgap measure has been abandoned in favor of another approach.

Yet another source of complexity baffling economic models is an increase in efforts to improve patient access to medications without unduly disturbing the legion of players in the current system.

“We really do need a meaningful structure that incentivizes these life-saving medical innovations without allowing the high price of advanced therapies to fall on the patient or overwhelm the healthcare system,” says Justine Handelman, former senior vice president of policy and representation at Blue Cross Blue Shield Association.

Any solution to this problem must address several challenges inherent to the specialized pharmaceuticals market. An Aspen Institute white paper co-chaired by physicians Scott Gottlieb and Margaret Hamburg identified several of these challenges. They include:

  • Difficulties assessing accurate prices for new specialty pharmaceuticals, especially over the potential projected course of patients’ lifetimes.
  • Market sensitivity to high prices on specialty drugs, as well as to the high costs of research and development.
  • Lack of data regarding the long-term effects of new medications.
  • Potential uses of new specialty medications outside their initial reason for development, which could also affect the drugs’ long-term profitability and demand.

In short, specialty pharmaceuticals create a host of unknowns that make traditional economic models unworkable. Ideally, efforts to improve pharmaceutical access without unduly burdening any one system participant with the cost of specialized drugs will take advantage of the current pharmaceutical distribution and payer infrastructure to offer value to patients. Attempts to find an elegant solution continue.

People in white lab coats working in pharmacy; payer systems concept

How to Find and Analyze Data for Better Insights

Understanding the complexities of specialty pharmaceutical distribution and payment — and the ways in which this system may break down — requires better data in addition to better modeling.

Personalized medicine provides one example. Personalized medicine tailors treatments to patients’ genotypes. While the cost of such treatment can be quite high, so too can be the benefits. Currently, lack of data regarding the benefits of personalized medicine hinders the creation of economic models to analyze financing and reimbursement for these medications, write Rositsa Koleva-Kolarova, et al. in a 2022 article in Applied Health Economics and Health Policy.

Similarly, assessing pricing for new medications is difficult because confidentiality agreements often protect information surrounding price negotiations, write Dominik J. Wettstein and Stefan Boes in a 2022 article in Health Policy. Similar confidentiality agreements often protect the work of payers in setting and analyzing payment data, leading to similar challenges in understanding how these participants make economic decisions.

One way to better understand the payer position within rare disease treatment is to centralize the collection of data. Pulling data together into a centralized location reduces costs associated with analyzing that information. It also allows for privacy and security tools to protect confidentiality concerns for the parties involved.

Within a centralized platform:

  • Patients can better understand and manage their health. They can report information, including cost data and treatment effects, more effectively.
  • Payers can coordinate their efforts to ensure paperwork is completed and payments are released in a timely manner.
  • Researchers can examine data on costs, payment, distribution and treatment effects to model better approaches to pricing for specialty medications.

Insurance companies have started turning to similar one-site methods. “Many insurers have begun focusing on the site that care is provided as a means to reduce costs,” write Zuckerman and fellow researchers in Pharmacy. Centralizing care can help reduce insurers’ costs, and it can also simplify payer relationships, resulting in better outcomes for patients and pharmaceutical distributors.

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