Biotechnology Healthcare - November/December 2008 - (Page 32) market will pay for, or can even afford, their products. After the expensive hurdles of clinical trials and U.S. Food and Drug Administration applications, manufacturers must commit even more money to market their products to physicians, hospitals, and patients. They also need to persuade payers, often one at a time, to provide coverage for these new technologies. Unfortunately, the sitNO ONE IS HAPPY uation promises to get Today, most people in worse. Higher costs for healthcare agree that the biotechnology drugs are environment for financing Biotechnology pushing payers to control biologics is problematic. could become Patients worry about af- the flash point for costs through the use of fordability and whether government price specialty-tier benefit designs, where, for example, they will have access to controls, says the patient may pay a 25 lifesaving products. Pa- Milliman’s Bruce percent coinsurance withtients also struggle for Pyenson, FSA, MAAA. out an out-of-pocket limit. guidance in choosing the Because even insured pabest treatment options. Payers (including employers, in- tients may not be able to afford surers, Medicare, and Medicaid) these potentially lifesaving theraface pressure from patients and pies, biotechnology could become providers to cover expensive treat- the flash point for government price ments now. But it is impossible for controls — even if biologics remain any one payer to asses the evidence a minor piece of the pharmaceutical base for or against all the products spend (Medco 2008). that might be prescribed to a patient with a rare or critical illness. Effec- ENTER BIOTECHNOLOGY tive medical management and qual- REINSURANCE Reinsurance programs for highity care depend on that type of expertise. Payers are vulnerable to cost biologics could be funded in unusual concentrations of costly several different ways. A helpful conditions that may be related to model to consider is the federal Vacethnic associations, heredity, or ran- cine Injury Compensation Program. dom fluctuations, or to the excess The VICP was created because vaccosts of non–evidence-based care. cinations — a pillar of public health The periodic rush to embrace un- efforts worldwide — can, on rare proven technologies — witness the occasions, produce adverse reacpremature promotion a few years tions. To mitigate problems and to ago of bone marrow transplants for stabilize the overall vaccination breast cancer patients — can be strategy, VICP asks everyone who wasteful to payers and potentially manufactures vaccines to contribute harmful to patients. to a fund designed to cover costs Producers (biotechnology manu- stemming from the adverse effects facturers) do not know whether the of these products. establish the viability of organ transplant services. As with organ transplants 25 years ago, advancements in biotechnology pose challenges for the nearand long-term future. Can a combination of reinsurance, managed care, and innovative business relationships once again help to develop the market? 32 BIOTECHNOLOGY HEALTHCARE · NOVEMBER/DECEMBER 2008 VICP thus keeps multiple suppliers in the market and socializes the risk, protecting individual companies from lawsuits that could limit the reach of this public good. Of course, the buyers of vaccines bear the ultimate cost. Insurance and reinsurance are not a free lunch. Unless the United States were to move to a single-payer system, reinsurers of high-end biotechnology would operate differently from VICP. Biotechnology reinsurance might work with health plans such that, in exchange for a premium, “bio-re” would adjudicate requests for coverage to ensure that they meet evidence-based standards. It also would manage and train payers to understand the issues, negotiate discounted reimbursement levels, and manage all biologics on a payer’s formulary. Reinsurers would administer and perform medicalnecessity reviews and formulary approvals for new drugs. In some ways, this is classic carve-out reinsurance that also relieves payers of dedicated administrative resources. As a business-tobusiness reinsurance proposition, regulatory considerations are already well understood, although carve-outs can be subject to state regulations. The specialty pharmacy industry that today administers some biologics has largely followed the pharmacy benefit manager model (KFF 2005, Stern 2008). These companies provide consistent pricing and distribution, add some “disease management” patient communication to promote adherence to therapy, and obtain rebates from the manufacturers — in part to make administrative fees appear more competitive. Some manufacturers have exclusive arrangements with a handful of SPs. As cost managers,
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