Why Economic Value Analyses Are Important

By David Gregory

Whether or not national healthcare reform occurs in 2010, there are several compelling reasons for your organization to collect and analyze economic data (hospital, physician, pharmaceutical, or other provider billing information) during your product development (clinical trials), launch, and postmarketing business cycles (including registries):

• Comparative effectiveness research is already funded and here to stay (regardless of how the data is utilized by regulators and payers).
• CMS (Centers for Medicare and Medicaid Services) demonstration projects designed to reward cost-efficient providers and drugs/technologies are well under way and may be expanded to the general Medicare population based upon pilot results.
• Commercial plans have already begun to implement global episode-of-care payment programs for integrated providers, programs that will demand new interventions and treatments that promote the delivery of high-quality, cost-effective care.
• Many commercial health plans have formally integrated cost-effectiveness into their pharmacy and therapeutics assessment and formulary placement processes.
• Hospitals are increasingly relying on value analysis committees to assist their P&T (Pharmacy and Therapeutics) committees with cost-benefit assessments for new and even existing pharmacological agents.
• The cost of collecting and analyzing economic data is a fraction of the total cost of a typical clinical study or registry.

In short, economic value is and will continue to be an important part of the market adoption process for a new drug or medical technology as well as existing drugs for which multiple (and comparable) choices exist.

Simply stated, “economic value” derived from drugs and/or biologics can include:

• improved clinical response to an agent, resulting in decreased hospital resources or the need for fewer downstream diagnostics or services
• the delivery of care in a less restrictive (less costly) setting
• fewer complications, readmissions, recurrences, ancillary services, and/or pain management interventions
• less complex modes of administration that lead to shorter infusion times or allow for other increased efficiencies of care.

How To Calculate Economic Value
Of course, quantification of economic value is highly dependent on data, and life sciences companies need to leverage all of the data sources they have available to them, including economic data collected during studies/registries, MedPAR (Medicare Provider Analysis and Review), various state and research databases and registries, and most importantly, commercial claims data sets. In fact, access to commercial claims data sets that include all levels of care and treatment (they are available!) can often provide the longitudinal perspective that is required to derive the true economic value of an agent or intervention.

In addition, these databases can be used for retrospective economic analyses after a formal clinical study has been conducted. Analyses that focus on a per member per month (PMPM) impact can be extremely effective with commercial health plans that track certain aspects of their business performance with this particular metric.

Creative Pricing Arrangements Are Here
Another big reason life sciences companies need to proactively understand the economic impact or value of their agents is the emergence of creative pricing contracts driven by employers and health plans seeking to increase accountability for purported value propositions. Such arrangements include:

• money-back guarantees tied to patient outcomes and agent performance
• greater product discounts tied to increased patient compliance and improved disease management indicators
• payments by the drug maker for care rendered due to an adverse event that the agent was targeting to avoid.

Going forward, the economics associated with improved medication compliance is going to be critical for the life sciences sector. Some experts estimate that the costs associated with medication noncompliance exceed $100 billion annually just in the United States. While remote patient monitoring is on the rise for measures such as blood pressure, weight, and blood sugar, meaningful medication monitoring and compliance remains elusive despite being a goal of all stakeholders. With costly “intelligent pill” technology starting to emerge amongst other possible (and costly) approaches to improving compliance, the life sciences sector must be prepared to be even more accountable for justifying these incremental costs through economic value analyses that governments, employers, payers, and providers can understand and embrace.

David Gregory, FACHE, is executive VP at Presscott Associates, Ltd. He has a diverse background in healthcare, ranging from private health plan operations and underwriting to life sciences reimbursement and hospital administration.