Realizing the Value of FDA-Approved Therapies
Related Content
This study investigates the impact of new costs of innovative therapies. We focus on costs paid by private payers for their members and present these costs with per capita measures using payer parlance - Per Member Per Month (PMPM). We also show the dollar impact of typical individual cost-sharing coverage options, such as copays and coinsurance.
Our study results point to the need for wise choices of coverage alternatives, choices informed by an understanding of the value that innovative therapies brings to individuals. Insurers, employers and, to some extent, consumers choose coverage options that may affect tens of thousands of available procedures and products. Not surprisingly, new bioscience creates challenges for existing benefit structures.
As with other growing segments of the economy, it is impossible to precisely predict the longer-term impact of the innovative therapy revolution on healthcare costs. Certainly, FDA-approved innovative therapies promise to play an increasingly important role in improving healthcare. We present some of the near-term challenges and opportunities payers face incorporating new innovative therapies into their benefit package.
However, the reader should consider that even the short-term forecasts in this report are based on assumptions and cannot capture impacts such as changes in the regulatory environment or scientific developments, so these forecasts should be reviewed carefully for their applicability for any particular purpose.
This report is based on national average estimates and assumptions as to future events. Actual results for any particular organization will likely differ for many reasons including fluctuation in reimbursement and future events.
The report reflects the authors' findings and does not reflect the endorsement of any particular legislation by Milliman.
FINDINGS
Recent developments in insurance coverage designs include consumer-driven health plans and health savings accounts. One result of double-digit healthcare cost inflation is that payers are shifting more of the costs to their members through coverage changes. These coverage changes may coincide with the arrival of new FDA-approved innovative therapies. Unfortunately, some coverage designs - new and old - do not fit well with the new innovative therapies that treat serious disease.
In this section we present near-term cost estimates and coverage considerations for innovative therapies that are relevant to commercial insurers and employer-sponsored health plans. We start with aggregate population costs and then consider the impact on individuals.
Putting High Costs into Perspective
Current prices for innovative therapies average $5,000 to $20,000 per person per year /1 With trend and the creation of new innovative therapies in the future the average in 2011 will be somewhat higher. To put these costs into perspective, we created two categories: the number of patients with high costs for hospital/medical (non-drug) spending and the number of patients with high drug spending.
The following chart shows, for a typical employer with 10,000 employees /2 (plus covered dependents - a total of about 22,000 people), the number of individuals with relatively high annual claim costs. Consistent with today's cost distribution, by 2011, most expensive patients will still be expensive because of hospital/medical costs and not because of overall prescription drug costs, which include the cost of innovative therapies.
Most individuals with high healthcare costs will receive both hospital/medical care and drug treatments, possibly including innovative therapies. Payers bore the costs for members with very high claims well before the biotechnology era, as they do today, and we expect the new medicines will not fundamentally alter the number of such high-cost patients in 2011.
Estimated Aggregate Cost of FDA-Approved Innovative Therapies for 2011
By 2011, the total cost for all FDA-approved innovative therapies (existing and new) will probably be about 6% of total private commercial payer costs. This compares to about 5% for 2006. Given the current, high annual rates of medical cost inflation, it will be hard for many payers to discern the cost increases directly related to innovative therapies.
Based on the methodology and assumptions described in the Methodology section, we estimate that in 2011:
-
New innovative therapies (FDA approved after 2005) will add a little over 1%, or $5.00 Per Member Per Month (PMPM), to the claim costs of commercial private payers.
-
Existing innovative therapies (available before 2006) will remain at about the current level, close to 5%, of total claim costs for private commercial payers.
