Communicating the Value of Innovation through Health Economics Analysis

By Shaylyn Pike,
Senior Research Analyst

Once upon a time, a brand team’s quest ended at marketing approval; revenues would take care of themselves. Fast forward 20 years, and the industry faces a much more challenging road to brand success. Receiving marketing authorization has become just another stage to complete. The more crucial step now is gaining and keeping the desired level of reimbursement.

A growing reliance on insurance companies and government payers to cover the cost of therapy has led to increased scrutiny of drug and device prices and benefits. With increases in patient populations and disease prevalence, payers no longer turn a blind eye to rising prices necessary to recoup product development costs. To successfully maintain their business model, they must find ways to cut their required expenditures or place more of the burden on patients. With the latter either forbidden (countries such as the United Kingdom and Canada) or severely frowned upon (the United States), they look to trim their expenses. To accomplish this, payers have begun limiting access to and decreasing the payments for new drugs and technologies.

Price has emerged as the easiest measure to determine which drugs and devices to cover. For insurance plans in the United States, price can relegate products to certain tiers of coverage, which specify how much of the cost the payer will reimburse and what percentage of cost must be covered by the patient. The more that a burden gets placed on the patient, the less of a market the company will see for its product. After an intense outcry from manufacturers and patients, payers now attempt to look beyond price to cost-effectiveness on a long-term basis. To help make these decisions, payers require companies to provide an increased level of clinical and economic data. This puts the onus on the drug developer to ensure sufficient levels of health economic and outcomes data make it into submitted Health Technology Assessments (HTAs). Most companies now task their health economics team with aiding the clinical development team in creating endpoints that not only point to efficacy but also relate to long-term outcomes and cost-savings to meet payers’ requirements.

While this has resulted in more work for manufacturers, interviewees from our latest pricing study agree that owning the health economics process has also provided incredible side benefits. Because payers require health outcomes data as early as Phase II – if not earlier – drug and device companies collect it, but they have found that they can also utilize this data strategically. Many companies see these advanced economic models as a way to trim their product portfolios. Instead of wasting money sending products to Phase III that will not prove efficacious enough to receive approval or at a low enough cost to guarantee reimbursement, they reallocate the money to earlier-stage compounds and technologies. Companies have also found uses for health economics within marketing campaigns and business development due diligence.

In this era of intense scrutiny over the cost of healthcare, life sciences companies cannot afford to enter the game ill-prepared. Meeting the ever-changing demands of payers has required dedicated health economics teams, increased spending and the ability to embrace new trends in an effort to communicate drug and device value. Many companies house strategy people internally and outsource health economics modeling work to vendors of varying magnitude and geography. Some companies have experimented with risk-sharing agreements and health outcomes liaisons to better address payers’ concerns over price. Through all of this, health economics teams must remember why their function is vital to the industry as a whole. Though challenging and often downright frustrating, health economics is here to stay. The cost of healthcare must be controlled in order to effectively provide care for all who need it. Payers do not want to outright forbid the best treatments simply because of a price tag. They need help understanding why the price has been set at that level and how reimbursing for the product will eliminate other costs incurred if the patient does not receive that treatment. Companies must find ways to effectively communicate this knowledge or it will be difficult to receive the reimbursement they desire.

One interviewed health economics executive summed up the entire health economics push: “We cannot avoid this debate, and we do not want to avoid this debate. We have good products and technologies, and we want to contribute to showing that they not only work but are also worth the money.” Health economics analysis, though it takes time and money to complete, showcases the value of innovation, which benefits the entire life sciences industry.
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