Pharmaceutical costs weighing heavily on formulas, study finds

Drug Store News, Sept 27, 2004 by James Frederick

BOSTON -- Stung by double-digit price increases on prescription medicines, health plans increasingly are taking cost into account when deciding which new drugs to include for third party reimbursement, according to a recent study from the Tufts Center for the Study of Drug Development.

With U.S. pharmaceutical costs rising 13 percent to 17 percent per year, according to Tufts, cost considerations are driving formulary and clinical guidelines more than ever among health plan payers and prescription benefit plans. In turn, those considerations are putting increasing pressure on drug manufacturers to prove their newer, higher-cost medications are worth the price, the research institute noted.

"While drug companies are not required to demonstrate cost effectiveness to win regulatory approval to market drugs, their ability to provide such evidence has emerged as a de facto fourth hurdle to be eligible for third party reimbursement," said Joshua Cohen, senior fellow at Tufts CSDD and the study's author.

"This development may be an indication of things to come," Cohen warned. "Although no formal cost-effectiveness thresholds currently exist in the United States, the recently passed Medicare reform law authorized $50 million in funding to conduct research on, among other things, comparative effectiveness of prescription drugs."

The study examined the role of cost effectiveness in formulary and clinical practice guidelines in the United States and Europe. Among its findings, according to Tufts: The more that drug makers can demonstrate the cost effectiveness of their products, the more likely those drugs will be included in the formularies of health care insurance plans."

The study also found that:

* sixty-five percent of PBMs and managed care organizations now ask drug makers to provide clinical and cost evidence to support the listing of newly approved pharmaceuticals.

* nearly 30 percent of current clinical practice guidelines incorporate or refer to cost analyses. Five years ago, that figure was less than 10 percent.

* cost concerns weigh more heavily on clinical practice guidelines pertaining to preventive care than those relating to life-saving care.