Exploring the uptake of value-based formulary strategies and their application to specialty drugs

Abstract

Background: Value-based formularies (VBF) are a way to implement the overarching idea of value-based insurance design (VBID) by tying pharmacy cost-sharing to value based on cost-effectiveness evidence. Empirical evidence over the last decade has shown that this strategy can reduce patient costs, increase drug adherence, and be cost neutral for payers when applied to many traditional drugs, such as antihypertensive and antihyperlipidemic therapies. It is unclear whether these same outcomes could be achieved if VBF strategies were applied to other drugs, such as specialty drugs. Specialty drugs are broadly defined as expensive, complex, and requiring special handling. Their high costs make them an attractive candidate for cost-containment policies such as VBF, however the potential lack of therapy alternatives to some specialty drugs along with the ubiquitous practice of manufacturer patient assistance programs may undermine the influence of payers’ cost-sharing strategies. Objective: This dissertation seeks to evaluate the potential of value-based formulary strategies to effectively improve access and affordability of specialty medications. Aims: The first aim seeks to estimate the implicit adoption of cost-effectiveness driven value-based formularies in private health insurance (2010-2013) by using a random effects model of the effect of value tier on out-of-pocket costs over time. The second aim seeks to estimate the price elasticity of demand for multiple sclerosis (MS) specialty medications in the Kaiser Permanente Washington system accounting for copay assistance using a two-part model with patient assistance programs as a source of price variation. Study Implications: This dissertation will provide evidence to stakeholders (particularly payers) regarding 1) the potential utility of value-based formularies in the face of diminishing marginal gains from increased generic drug use, and 2) the impact of patient assistance programs on patient demand for specialty drug therapies and the subsequent implications for applying VBID strategies to specialty medications.