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Case Study: What Should the Health Plan Executive Do?

Here’s a hypothetical question Roger Longman posed to a panel at the recent Real Endpoints Symposium that is probably worth a little thought from everyone; since the issues raised are intended to be general, I’ve modified this scenario slightly to try to make it as non-specific as possible, so it explicitly doesn’t (and isn’t intended to) apply to a particular disease state or to particular drugs.

Here’s his hypothetical:

Let’s say you are the CMO of a not-for-profit health plan, and are considering costs and reimbursement approaches associated with therapies for a disease that could be treated with Drug A or Drug B. The disease doesn’t cause any symptoms, but if untreated, serious organ damage could occur after many years. Drug A offers a 95% cure rate. Drug B offers a 88% cure rate. The manufacturer of drug B offers a very good economic deal to the payor, saying “If you place our drug first, we’ll offer you excellent pricing and also pay for patients who are failed by our drug to receive drug A.” What would you do?


The CMO in question, a physician, said he’d never been offered such a deal, but would seriously consider it. I asked him (somewhat self-righteously) how could he as a doctor, in good conscience, recommend a therapy he knew was inferior?

He responded that actually, this happens all the time – it’s what step therapy is (when you need to first try a lower-intensity treatment before receiving insurance authorization to get a higher-intensity treatment).

He also reminded the audience that he has a finite amount of money to spend, and if by spending less here, he’s able to provide more care to more people, then wouldn’t this make sense – especially if (as we’ve assumed) there was little harm done in receiving a trial of the slightly less effective drug first.

For good measure, he noted this happens all the time in most other countries – only in the U.S., does this approach seem strange.

Personally, I couldn’t imagine recommending Drug B to a patient in a world where Drug A existed; however, I also understand his arguments and his reasoning.

Perhaps this is an example of the conflict between a doctor who’s focused (appropriately, I’d contend – see here as well) on the health of her specific patient and a payor who’s focused (again, appropriately) on the health of a population.

Or perhaps, as some would contend, this is an example of the sort of problem that could be addressed if patients were on the hook for a greater fraction of the medication cost: as many have pointed out, we make decisions all the time whether to buy something fancy or something that’s just adequate. While everyone would prefer a 95% chance of immediate cure to a 88% chance if the cost was equal and minimal, what if it wasn’t? I suspect many patients would opt for a less expensive medicine that afforded an 88% cure rate if they were the ones directly paying for it. (To be clear: this is intended as an illustrative example only, not a proposal.)

So what do you think? What would you do if you were the payor here? The treating physician? The patient? Would your answer change if Drug B’s cure rate was 75%? 50%? What if the disease was associated with mild symptoms? Severe but not life-threatening symptoms? What if there was a higher chance that the untreated disease could suddenly get much worse?

David Shaywitz is co-founder of the Center for Assessment Technology and Continuous Health (CATCH) in Boston. He is a strategist at a biopharmaceutical company in South San Francisco. You can follow him at his personal website.

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7 replies »

  1. But in the hypothetical there is no difference in efficacy between A & B for 93% of people — B cures 88% of them and neither drug will cure 5% of them.

    Besides “good health” isn’t what health plans sell. What they sell is (roughly) access to doctors and people (usually their employers are their agents here) do look at price. It seems to me that this scheme takes care of 93% of people just fine and puts lots of pressure on Maker A to lower prices. If a doc or patient want to go for “quickest possible cure” or if they want to use a drug as a diagnostic agent, they certainly can, but the insurance plan won’t pay for (all of) it. The only difference I think I have with Barry Carroll (hi Barry) is I’d pay for Drug A minus modest coinsurance on a pre-authorization basis even if it was wildly expensive. Of course, Maker B promised to do this for me, so I’m not sure why it would come up.

  2. Great hypothetical example, thanks for sharing. On one level, I think two very important questions to answer would be (1) How would the payer/manufacturer determine that Drug B had “failed”? If there’s no change in patient condition in one month? 6 months? 1 year? And following, this, (2) What risks does the patient face from delaying treatment of Drug A for that duration of time?

    At a higher level, I would be hesitant to interject (somewhat arbitrary) interference into the patient-doctor decision-making process. Gerome Groopman highlighted this in a New Yorker article when he wrote, “Setting the default option that doctors will present to patients requires us to make value judgments.”–and I’m not sure that health plans should be the ones making that call. I recognize that doctors and patients don’t make decisions in a vacuum anyway, and that cost considerations will sometimes come into play, but when they do, I feel like they should reflect the underlying value of the treatment, and not the result of a business play (such as manufacturer B’s price-for-volume play here). If health plans are in the business of providing “good health” as a product, then any tiered pricing they create should be made to favor more effective treatments, not discourage them (unless there are huge differences in the underlying cost of producing that drug).

    All in all, I’d probably go back to manufacturer A and ask them to match manufacturer B’s offer.

  3. You should always start with the cheapest solution first. You prefer to bankrupt people? The stress involved in that is going to offset anything expensive medications would provide. My doctors pretty much have to treat me with the $4 medication list. You should start there.

  4. The payor is interested in its bottom line, not in population health. The program eliminates the doctors’ creativity in using drugs as diagnostic and therapeutic agents and in case of ambiguity. FLAWED policy.

  5. If the choice were between a 95% and 88% cure rate, I would use reference pricing that covered all of almost all of the cost of Drug B and require the patient to pay the difference in cost between the two drugs if he or she wants Drug A. If the patient fails treatment on Drug B, I would probably pay for Drug A minus modest coinsurance on a pre-authorization basis unless it was wildly expensive. There is obviously some larger difference in efficacy at which Drug B would not be considered “good enough” but then I would look to something like QALY metrics to determine whether Drug A is worth paying for depending on its cost.

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