Out of Control - Pharmaceutical Executive


Out of Control

Pharmaceutical Executive

Power of the Plan

Again, empirical analysis suggests a very wide range of results across plans for how much impact each step edit or prior authorization really has on brand performance. Dynamic claims lifecycle (DCL) data has been providing manufacturers with measures of how many claims actually get rejected or abandoned for each major national and regional payer. However, this data, while directionally correct, is not necessarily reflective of the true power of the plan. By combining rejection and reversal data with a longitudinal data set, payer analytics groups can actually measure the lagged effect of utilization management techniques. Sure, some plans initially reject many transactions, but how many patients (or their physicians) manage to work their way through the administrative red tape to get their originally prescribed product? The answer can be surprising.

Table 2
In Table 2 we tracked patients through step edits and PAs in both commercial and Part D accounts for a single high-volume product. We were not surprised to see that not all utilization management efforts are created equal. In fact, in that one class [from the table], there are plans where 90 percent of patients have successfully navigated through a step edit or PA and others where more than 90 percent of interventions have stuck in place. A major driver of the differences can be whether continuing patients on a non-preferred brand are grandfathered in. But equally important is whether the plan really has the ability to employ utilization management to its upstream customers. Many employers, unions, and pension plans really don't want to use these measures nor are they willing to accept the irate phone calls from their insured members. In some plans, the PA or step edit may only apply to a small fraction of the customers and formularies under a PBM's control.

By combining these two empirical measures, manufacturers can more accurately estimate the potential loss from having non-preferred status. By capturing patients' longitudinal history at a payer level, brands can get valuable insight as to the economics of a product with or without contract and similarly with or without utilization management. As a way of normalizing these metrics across accounts of different sizes, we have quantified the value of 1,000 new written prescriptions and follow them through the adjudication process and forward for 12 months. When we present these empirical data back to clients they are often shocked by exactly how important it is for them to avoid a PA or a step edit in many of the highest control plans.

Table 3
In Table 3 we have provided one such comparison for a single product. In 2008, United Healthcare had this product on Tier 2 unrestricted, while Humana employed a fairly strong prior authorization on the drug. In our analysis, this manufacturer lost over two-thirds of the potential days of therapy per 1,000 new patients in Humana as a result of the utilization management and the higher out-of-pocket expense for those that did fight their way through the PA. These differences can also be "dollarized" to estimate the opportunity cost of losing a preferred position. Our estimates, using this approach, suggest that manufacturers should have been willing to pay much more to avoid utilization control—usually many percentage points better than their best and final offer. At the same time, however, they may be able to cut back significantly in other plans where PA and/or step edit interventions have little lasting impact.

We believe that the industry needs to use new and better data to accurately measure how much they are willing to invest to improve tier placement or to avoid step edits and PAs. By comparing the dollar value of 1,000 written prescriptions across high control plans, and across those never restricting their formularies, manufacturers can have a true empirical measure of plan control that can be used to calibrate their rebate spending. This index of payer control must be developed and then employed by the industry if the trend in rebate growth is ever to be slowed or—better yet—reversed.

Mason Tenaglia is Managing Director of the Amundsen Group and a Pharm Exec Editorial Advisory Board member. He can be reached at


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