Change in health care is constant, and with that change payers expect new stuff — new products, services, evidence, guidelines, regulations, prices, and contract terms. And payers know they need to regularly review this new stuff and make, or at least consider, changes to their formularies and medical policies.
This new stuff is a key driver of medical inflation. Payers expect higher costs and factor cost trends into premiums, which are set annually. Payers’ cost forecasts are sophisticated, regulated, and typically very accurate, but some new stuff can be shockingly disruptive and stressful. Consider the newer hepatitis C cures, where the clinical benefit is significant, but the prices are so high and the unmet need is so great that adoption initially wreaked havoc on carefully crafted pharmacy budgets. Anticipating the cost of new stuff is critically important to payers and their solvency.
Payers have a fiduciary responsibility to manage utilization of new stuff, so they have teams (e.g., clinical pharmacists, pharmacy directors, medical directors) who spend some, most, or all of their time reviewing it. These team members sit on committees charged with reviewing the new stuff (pharmacy and therapeutics, health technology assessment) in a timely manner. These committees have well-established processes, as well as heuristics to guide their decisions to encourage, discourage, or block adoption of new stuff.
Before identifying what new stuff payers love and hate, let’s start with a few obvious conclusions. New stuff may or may not be better, and may or may not be worse; it is simply new. New is unproven in the real world. New stuff may hold the promise of new benefits (better outcomes, lower costs), but these potential benefits are inextricably linked to uncertainty and risk. If all new stuff were loved, hated, or neither loved nor hated, then there would be no need to review new stuff and differentially manage it. As one leading pharmacy director recently said, “If all [new stuff] were the same, I wouldn’t have a job.” Rest assured, new stuff will continue to provide job security to the teams tasked with evaluating and managing it.
The new stuff payers love
Payers love new stuff that adds value. They embrace new stuff that yields significant clinical benefits, even if it is more expensive (e.g., combination antiretroviral therapy for the management of HIV/AIDS). Some of this new stuff addresses an unmet need or improves outcomes by a degree deemed clinically significant. New stuff often costs more, but if it addresses an unmet need or substantially improves efficacy and/or safety, then it is celebrated as a breakthrough. Payers really do love when new stuff effectively addresses a real problem.
The new stuff payers hate
Payers perceive some new stuff as redundant to what already is available. Sometimes, this redundancy is welcomed, as greater competition could result in lower costs. However, payers do not welcome new stuff perceived as “me-toos” that don’t exert any downward pressure on pricing. When new stuff is perceived as simply old stuff in new packaging, such as a new combination or route of administration, payers typically reject it by not covering it or restricting its utilization. Payers’ disdain for new stuff increases as the gap between higher cost and incremental clinical benefit widens. Payers reject solutions to problems they determine to be beyond the realm of medical necessity. And payers have no regard for what they perceive as solutions in search of a problem.
The new stuff payers neither love nor hate
From a payer perspective, most new stuff falls somewhere in the middle on the love-hate continuum. For example, on open formularies, new stuff eliciting neither love nor hate is typically placed on a non-preferred tier with other branded products, along with any restrictions placed on those products. On closed formularies, coverage decisions for new neutral stuff are driven by cost considerations.
The time before love and hate
Before payers can love or hate new stuff, a few things have to happen. First, payers become aware of the new stuff, and effective marketing can help grow awareness. Next, payers become interested in the new stuff, and account managers and medical science liaisons can help to pique payer interest. Payers then evaluate the new stuff, and the strength of the evidence based on clinical trials drives their evaluation of benefits and costs. Later, payers reassess previous formulary and medical policy decisions by studying utilization, outcomes, costs, and real-world data. Promoters of the new stuff then have multiple opportunities to nudge payers toward loving the new stuff, assuming it is not perceived to be fundamentally flawed right out of the gate.
Despite inherent biases and heuristics, payers keep an open mind and are willing to review any evidence of superiority over what is currently available and what will soon be available. Payers are willing to revisit their assumptions, but manufacturers’ challenges to those assumptions should be rigorous and data-driven. That said, they will be critical of both the new stuff and its supporting evidence.
The supply of and demand for new stuff in health care is greater than most other sectors, as medical inflation continues to outpace general inflation. This is neither good nor bad, but a reflection of societal values. Payers have a responsibility to try to manage the utilization of new stuff somewhat rationally within the context of ever-increasing spend. Payers’ love-hate relationship with new stuff is inevitable, but where new stuff falls on that continuum may not be a forgone conclusion.
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