The fifth column lists a much broader set of demographic and socioeconomic variables than those found in a typical claims
database. Linking retrospective data from large payer organizations to information of the sort that credit agencies collect
on individuals enables a much more robust analysis of medication-refill behaviors. In particular, income and net worth provide
measures of the ability of consumers to pay.
THE MARKET LOGIC OF BIOLOGICS
Fewer than 5 percent of commercial-health-plan members are treated with biologics. These products are mainly approved for
complex conditions with limited treatment options, such as cancer or multiple sclerosis. However, the importance of biologics
has been expanding rapidly—to the point where they comprise half of all products in late-stage development. And many of these
new drugs are targeted at conditions—diabetes, osteoporosis, rheumatoid arthritis—with much higher prevalence rates.
This flood of costly new biologics has payers very concerned. Despite the potential clinical benefits, it is not obvious how
commercial and government payers will be able to afford them.
Health Economics Made Easy
As a starting point, drugmakers need to work with payers to help them manage their financial risk. From the payers' perspective,
the real problem is how to obtain the maximum clinical benefit for each dollar spent treating a particular patient population.
They do not want to pay, say, $1,000 per month for a novel biologic when a patient would fare just as well on a conventional
pharmaceutical at $90 a month. On the other hand, they may very well be willing to pay $1,000 per month for a treatment that
has no equally effective substitutes.
Because of their high prices, targeted therapies tend to have very high cost-effectiveness ratios when based on a patient's
own healthcare utilization. However, to the extent that a new drug is highly effective compared with already available treatments,
it may be possible to reduce the costs associated with nonresponse. (For example, treatment nonresponse for asthma or depression
can be as high as 50 percent.) New treatments that work in formerly nonresponsive patient groups will raise overall average
response rates. Thus, there is likely to be a mix of large- and small-molecule therapies that is most cost-effective from
the payer's perspective.
A targeted therapy, in this sense, does not necessarily have to be a biologic; it can even be one of those much-maligned me-too
drugs. Drugs whose effectiveness is not demonstrably superior to their competitors' may still work better in certain patients.
All else being equal, more product choices ought to lead to more price competition—and lower costs for payers. When clinical
trials have demonstrated similar average efficacy for alternative drugs, payers are generally skeptical of claims that me-too
drugs can offer value. But if there were biomarkers for a drug's or class's effectiveness, me-toos could offer much more value
than they currently do because the markers would embody the scientific rationale for response differences. Biomarkers would
also help doctors prescribe the right drug for a patient the first time—rather than by trial and error, which is very expensive
for the payer.
The move to consumer-directed healthcare requires knowledge of the drivers of patient-buying patterns. We know remarkably
little about how people make choices regarding their healthcare—and much of what we think we know is probably wrong.
In the early 1990s, commercial payers began introducing two-tiered drug formularies to "guide" patients toward using generic
drugs rather than more expensive, brand-name products. Over the years, payers experimented with how big the differential in
patient co-pays for generics and brands needed to be to induce changes in consumer behavior. The two-tier plans added on a
third tier (distinguishing between preferred and nonpreferred brands)—and, most recently, some payers have introduced a fourth
tier for some biologic products.