Life Science Compliance Update

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January 06, 2017

Analysis Shows Health Care Cost Predictions Grossly Incorrect


The Partnership for Health Analytics Research (PHAR, LLC), a leading health services research consultancy, recently conducted a study analyzing predictions of health care costs, compared to actual costs. This study, once again disproves the misleading claims that pharmacy benefit managers and insurers (among others) make about spending on new innovative medicines. The report found that predictions of health care costs made prior to the introduction of new medicines were often dramatically overstated.

The study points to the example of new cholesterol-lowering medicines, also known as PCSK9 inhibitors. The Institute for Clinical and Economic Review (ICER) predicted that the one-year cost of the two PCSK9 inhibitors would be $7.2 billion. However, in reality, based on reported sales, the actual cost will be approximately $83 million. The difference between the predicted cost by ICER and the actual cost based on reported sales is a difference of over $7.1 billion.

Unfortunately, it wasn’t just those PCSK9 inhibitors where the predictions were far off-base. PHAR studied a total of fourteen medicines, launched since 2012, that treat various forms of cancer, hepatitis C, obesity management, cystic fibrosis, heart failure, psoriasis, and diabetes. The researchers found twenty-four published predictions for the fourteen drugs and compared them to actual sales. On average, predictions for the drugs analyzed were eleven times higher than actual sales. That means that for every $11 of predicted costs, there was only $1 of actual cost to the health care system.

Such a gross overestimate may have a negative impact on patient access – payers may be more likely to impose utilization management restrictions or require high cost-sharing for new medicines. Such moves make it harder for patients to access clinically appropriate therapies. When you consider higher cost-sharing for medicines as compared to other health services and complicated coverage rules, patient access gets even more restricted.

According to Michael S. Broder, MD, President of PHAR, “Overestimating drug costs by so much cannot lead to good decision making. In fact, it is likely that patients feel the negative effects of such prediction sin the form of early access restrictions and higher copayments.”

These findings are consistent with other recent research. An article in the New England Journal of Medicine predicted that the PCSK9 inhibitor class alone would raise annual health care premiums by $124 per person. Yet, a report by the advisory company Avalere Health showed that all prescription drugs accounted for a $3.29 average increase in per member per month premiums.

PricewaterhouseCoopers and Bloomberg both predicted drug costs to the health care system for Viekira Pak and Opdivo. Predictions for Viekira Pak were over $2.9 billion – actual first year sales were 28% of the prediction. The predicted cost for Opdivo was $1.7 billion – actual sales were 48% of predicted.

Dr. Brodner noted the significance of this research, saying, “Drug usage predictions are used to inform pharmacy policy. Our goal in pointing out these discrepancies is to help improve predictions and decision making. Ideally, payers and policymakers would be able to use them as planning tools. In their current form, I’m afraid these predictions are so far off that they may just be scaring people into making bad decisions about limiting access to new drugs.” 

The PHAR report has been submitted for presentation at the Academy of Managed Care Pharmacy NEXUS meeting, October 3-6, 2016, at National Harbor, MD.

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