What is the economic burden of drug utilization management?

By Kathryn Schwarzenberger, MD, FAAD, January 1, 2022

In this month’s Clinical Applications column, Physician Editor Kathryn Schwarzenberger, MD, FAAD, talks with Scott Howell, MD, MBA — chief strategy officer of US Pharmaceuticals at Novartis Pharmaceuticals Corporation — about his Health Affairs paper "Quantifying the economic burden of drug utilization management on payers, manufacturers, physicians, and patients."

DermWorld: Your recent paper in Health Affairs compiled some estimates of the costs of various drug utilization management processes. Why did you choose to study this topic, and can you briefly describe some of the drug utilization management methods that you looked at?

Now, as chief strategy officer of Novartis Pharmaceuticals Corporation, I believe a better solution is needed and am advocating for an approach that encourages lower prices in exchange for better patient access. In other words, “value-based price for access.” With this approach, much of the intense drug utilization management that creates so much friction for patients and physicians could be eliminated. This raises a question about how much economic burden drug utilization management currently places on patients, physicians, and the health care system. No studies in the literature had quantified this and so we examined the peer-reviewed and professional literature related to implementing, contesting, and navigating drug utilization management. This included both administrative forms of drug utilization management such as formulary restrictions, prior authorizations, and step edits as well as financial mechanisms such as deductibles, copayments, and coinsurance.

DermWorld: You and your co-authors found that physicians, patients, payers, and drug manufacturers collectively spend about $93.3 billion annually on implementing, navigating, and contesting drug utilization management programs. What factors do you think contributed to this staggering economic burden?

Dr. Howell: This burden stems from what we call the “war of all against all.” For years, payers and manufacturers have been entrenched on opposite sides, with payers trying to reduce the cost of care and manufacturers seeking to provide innovative medicines to as many patients as possible.

The misalignment has accelerated in recent years due to genericization of large primary care drug categories. As a result, these days, drug manufacturers focus more and more on the development of specialty medicines and curative therapies that target smaller patient populations and have higher per patient list prices. In response, pharmacy benefit managers, seeking to limit prescription drug costs, are increasingly using very restrictive formularies and extensive utilization management tactics that have expanded beyond their original purpose of protecting patient safety. As these restrictions have intensified, manufacturers have countered with programs that help patients and physicians navigate the system, which, in turn, have been met by further payer restrictions. Ultimately, this escalation puts a significant cost and time burden on patients and their physicians.

DermWorld: In your paper you state that the U.S. pharmaceutical system would benefit from a de-escalation of utilization management, combining lower drug prices with lower barriers to patient access. Tell us more about what these de-escalation efforts could look like in practice.

Dr. Howell: In our proposed system of value-based price for access, individual manufacturers could voluntarily set drug prices with reference to independent health technology assessments completed by a variety of organizations trying to determine a price that represents the drug’s value. If accepted, this price would then be linked to value-based access, where individual commercial payers would reduce administrative and financial barriers to patient use. In practice, this could include rapid formulary review and addition, no or simple prior authorizations, no step-edits behind products that are not priced in accordance with their value (but have large rebates), and lower patient cost-shares. Such a system would result in lower prices, less need for intense and costly utilization management, less friction for physicians, and better access for patients.

In this framework, price benchmarks would not dictate the final price but rather serve as a basis for price negotiations. Similarly, value-based criteria for drug utilization management would not be mechanically imposed on payers, but rather serve as benchmarks for determining appropriate levels of drug utilization management. If both sides agree, the lower price would be implemented, and the restrictions eased. If they do not agree, our current higher-price, higher-friction system would still apply.

DermWorld: Your study found that physicians devote approximately $26.7 billion in time spent navigating drug utilization management processes, and that patients spend approximately $35.8 billion annually in drug cost sharing. You’d likely agree that this is unsustainable for both patients and physicians, so what can dermatologists do to advocate for improvements to drug utilization management to reduce this burden?

Dr. Howell: I strongly agree that the current system is unsustainable for patients and their physicians. I would ask dermatologists to engage in two ways to help us move toward a more sustainable system. First, continue to recognize how challenging it has become for many patients to get on and continue taking their medicines. As such, do everything in your power to help patients navigate the system. In fact, the Academy has already taken a leadership role in this regard, providing their members with tools that help them advocate for patients during the prior authorization and appeals process. Second, engage other stakeholders and help advocate for change. As the Academy has recognized in their advocacy priorities around access and affordability, this issue is bigger than any single actor in the health care marketplace and we need to work together to reach a solution.

Overall, I strongly believe that we are standing at the precipice of change, and it is the responsibility of like-minded leaders from all parts of the health care system to speak up and get involved. I appreciate the opportunity to highlight this exciting work and discuss how we can advocate for change.

Scott Howell, MD, MBA, is the chief strategy officer of US Pharmaceuticals at Novartis Pharmaceuticals Corporation. His paper appeared in Health Affairs.

Disclaimer: The views and opinions expressed in this article do not necessarily reflect those of DermWorld.

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