“Pay no attention to that man behind the curtain!” But perhaps we should…

“Pay no attention to that man behind the curtain!” But perhaps we should…

By Wayne Cancro, Director of Market Access Strategy, Cross & Wild

Children growing up watching The Wizard of Oz remember the first time they saw little Toto pull the curtain back, exposing the Great and Powerful Oz as just a man. And even though he exhorted, “Pay no attention to that man behind the curtain!”—from that day forward, the gig was up.

Today, if Toto were to expose how healthcare is paid for in the United States, we would realize that it’s the employer who is “that man behind the curtain.” And although pharmaceutical manufacturers still need to focus their attention on the intermediary companies—like UnitedHealth and Aetna, for example—it is becoming extremely important that they understand the pressure that employers are placing on these companies.

The first thing we must understand is that there are only three “true” payers in this country: the patient, the government, and the employer. We have already shifted so many costs to the patient via tiered copays, high deductibles, and ever-increasing premiums that it is getting harder for many to afford healthcare, even if they are employed. 

The pressure for employers, especially for small companies, to control healthcare costs is so intense that some have had to choose between not covering certain therapies and medications and keeping their doors open.

Regarding the government, the two largest segments are Medicaid and Medicare, which combined cover ~100M lives. Medicaid is a joint program run by an individual state and the federal government, so the rules vary from state to state. Since people on Medicaid cannot afford to pay large copays and deductibles, patient cost-sharing is not an option to control costs for this channel. Therefore, many states have turned to commercial companies to run their Medicaid prescription drug benefit programs and have come up with strict Prescription Drug Lists (PDLs) that limit the choice of available medications when a generic alternative is available. They also have strict prior authorization processes for members to follow to gain access to branded products that do not have any acceptable alternatives.

For Medicare, which is mainly for patients 65 and older and is run by the federal government, it is important to know your ABC’s and D’s, literally: 

• Part A provides inpatient/hospital coverage

• Part B provides outpatient/medical coverage

• Part C is a program, also referred to as Medicare Advantage, that is run by commercial companies and combines Parts A, B, and D into one program, and can include vision, dental, hearing, and prescription drugs

• Part D provides prescription drug coverage

It is critical for manufacturers to understand whether their product will be covered as a Medical Benefit (Part B) or a Pharmacy Benefit (Part D), and what the different challenges are with each. For example, with Medical Benefit (Part B) drugs, there are no patient out-of-pocket maximums for Medicare. So, for very expensive products, the patient cost-sharing could be prohibitive. Note that many Medicare beneficiaries have “supplemental Medicare coverage” that picks up these additional costs—but not all of them do, and this varies from patient to patient. With Pharmacy Benefit (Part D) products, the individual formularies are controlled by commercial companies that don’t care about reducing downstream costs, such as those associated with increased hospitalization, because they cover only the outpatient medication costs.

The employer is “that man behind the curtain,” and it is becoming extremely important that pharmaceutical manufacturers understand the pressure that employers are placing on intermediary companies.

Whether a manufacturer’s drug falls under Part B or Part D also depends upon who administers it. For Medical Benefit (Part B), the drug is administered by a healthcare practitioner and is usually an intravenous or hospital-based product. If the product is an oral or patient self-injectable drug, then it falls under Pharmacy Benefit (Part D). Medicare Part D formularies are run by commercial companies, the largest of which are UnitedHealth and Humana. The formularies these companies create for Medicare are not linked to hospitalizations or other downstream healthcare costs. Because of this, the discussions that take place between companies that run Medicare Part D formularies and manufacturers trying to get their products on those formularies is heavily price driven. In short, a health economics and outcomes research (HEOR) argument does not resonate with Medicare Part D formulary decision makers because they are not concerned with avoiding additional downstream costs, such as increased hospitalizations.

Regarding employers, especially small employers, the pressure to control healthcare costs is so intense that some have had to choose between not covering certain therapies and medications and keeping their doors open. Who’s to say that in an effort to control costs, pharmacy and medical directors discussing benefit design as a last resort are not considering excluding gene therapy and drugs costing more than $500,000 a year? This thinking should send chills down manufacturers’ spines. And not unlike that first time we got a peek behind the curtain at the Great and Powerful Oz, there’s a bit of foreshadowing alerting the healthcare industry to ask, “How far from the financial breaking point are we? And what can we do about it?”

This leads us to the importance of understanding benefit designs and who drives them. The true drivers of benefit designs are employers, and they are continuing to pressure traditional “payers”—UnitedHealth, Anthem, Aetna, etc—to compete to either maintain or win their business by offering innovative ways to save them money. Examples include:

• Creating benefit designs that no longer cover entire classes of products, such as proton pump inhibitors (PPIs), once they go over the counter (OTC) 

• Using copay accumulator programs that essentially negate manufacturer copay card programs, allowing payers to save, in some cases, millions of dollars annually

• Including the cost of drugs in a member’s annual deductible, thereby making it a cash market until the deductible is reached

• Drawing a line in the sand at an arbitrary number, as in the above example of the regional payer who may no longer cover any drug over $500,000 a year

The elected officials who run our government are also under a tremendous amount of pressure from the people who elected them to reduce the cost of healthcare—the same people who are paying more and more money for healthcare. Many people believe it’s not if but when the government is going to step in and play a more active role in controlling healthcare costs. Given the complexities of the current political environment, it’s anyone’s guess as to when this is most likely to happen, and if and when it does, what impact it’s going to have.

Although our healthcare environment is admittedly complicated and faces many uncertainties, it is important for manufacturers to develop and maintain close relationships with traditional payers who are interacting with employers and governments directly in order to keep their fingers on the pulse of what’s driving healthcare cost containment. We should pay attention to who’s behind the curtain, because we need to be prepared to play a role in helping shape healthcare’s future.