budget

Chicago—In 2019, specialty medications accounted for 65% of all new drug approvals, rising to 74% by 2021. With about 55% of these often expensive specialty medications coming under the pharmacy benefit, anticipating their economic impact is crucial—a process that should start even before the drug is approved, experts noted.

But how do third-party payors and pharmacy directors, for that matter, budget for the unknown? They develop a forecasting model, according to Brian MacDonald, PharmD, RPh, the director of specialty clinical strategy at Magellan Rx Management, in Middleton, R.I. He offered some tips for doing that at AMCP 2022 annual meeting.

“The growing, evolving specialty pipeline presents an opportunity for payors to assess how they anticipate the potential financial impacts brought on by these new-to market drugs,” Dr. MacDonald said.

He compared the process to cooking. First, one needs to plan the menu, then gather the ingredients, cook the meal, and plate or present the food.

The steps in budget modeling are determining the objective of the budget (planning the menu); doing the research to find the components needed to create the model (gather ingredients); building the model when all the research is done (cooking the ingredients); and presenting the forecast (plating or presentation of the meal).

“You have to know what you are cooking, and that’s determining the objective of the budget model that we’re going to try to build. We’re going to gather our ingredients, look at the data, the values and the components that will make up our model. We’re going to cook up those ingredients and build out a model. And then the model will be presented and then adjusted for specific scenarios,” Dr. MacDonald explained.

While one might think it’s just a matter of looking at utilization and cost, there actually are many factors or components that will go into a forecasting model, he said. When looking at utilization, disease or condition prevalence and uptake rate need to be considered.

Many sources of information on prevalence exist, such as the literature, government agencies, state associations, patient advocacy groups, and even the pharmaceutical companies themselves, Dr. MacDonald noted. When researching the prevalence rate, remember that U.S. prevalence, rather than the global one, is the most important rate for the forecasting model.

“Using comprehensive and accurate data sources to understand the drug development pipeline and projected timelines for new drug releases is an important part of accurately forecasting medication expenditures,” said James A. Jorgenson, RPh, MS, FASHP, the CEO of Visante, who was asked to comment on Dr. MacDonald’s model. “Monitoring patent expirations, generic and biosimilar competition releases along with regularly reviewing and modeling these sources are also key components of effective drug budgeting.”

Given the significant impact of drugs on health system expenses along with revenues and margins, “an accurate budget model is a vital component of a successful health system financial system,” Mr. Jorgenson added.

One might think that patients and prescribers would immediately want the new medication, but uptake tends to be low at first and then increase in subsequent years. If there are other medications on the market that are less expensive or have other desirable features—for instance, an oral instead of injectable formulation—uptake might be slower for a new medication.

If the new medication is the only one for a particular disease state or has fewer adverse events or less frequent dosing, it might be more desirable, and therefore uptake might be faster, Dr. MacDonald explained. Those considerations will help anticipate the cost of treatment.

One needs to also think about demographics. Who will use the drug? Will it be used mainly by a Medicare population, children, or a racial or ethnic minority group? These are all important considerations.

“The demographic information of the patients in the clinical trials and interpreting some of these statistics can be tricky,” he warned. Sometimes it is difficult to extrapolate study data to various populations.

“You have to be discerning in terms of your evaluation of the clinical data that are out there,” Dr. MacDonald said, adding that it is also important to consider how social determinants of health could affect clinical trial enrollment, which “could really impact how the future [economic] models turn out.”

The cost of treatment may be one of the hardest ingredients to get. “This is an important factor and a crucial component of the model,” he said. “So, tying back to what we we’re just talking about regarding prevalence, sales estimates can give us an idea of how much a treatment may cost per patient. If we have a good feeling about how many patients may be treated, we want to know what an annual cost of treatment might be for each patient.

“Having put all this together, we can say the meal is ready to serve and we’re all ready to be expert modelers,” Dr. MacDonald quipped.

He admitted it takes some practice, but insisted that modeling is something that many people can do. However, there also are several companies and services that specialize in modeling and projections for specialty medications.

Although this is a budget “recipe” that pharmacy directors could follow, too, it is not a process that is only done once a year. Pharmacy directors need to always have their eyes on the bottom line, Mr. Jorgenson warned.

“An effective budgeting model for medications within a health system should be a continuous process and not just a one-time event each year at budget time,” he explained. “Understanding potential shifts in patient populations and demographics, strategic organizational initiatives that may emphasize different disease states, provider recruitment plans, shifts in payors or payor policies, manufacturer price changes, the impact of new therapy on total cost of care and the net cost of the drugs are a few of the elements that should be considered well in advance of the release of a new drug to the market.”

Brian MacDonald, PharmD, RPh, the director of specialty clinical strategy at Magellan Rx Management, in Middleton, R.I., offered additional tips for forecasting a budget. 1 Seek out solid data. Specifically, look to market forecasts, potential sales data or sales projections, as well as the price of any competitors that might be on the market. 2 Think about duration of treatment and safety. Will the specialty drug be used for one treatment, a short course or for long-term maintenance therapy? Determine the adverse event profile of the product and how that will affect clinical and financial outcomes. 3 Think about adherence. “The yearly cost of a drug assumes that the patient will get all of their doses, get all their refills, get all their injections, whatever it might be,” Dr. MacDonald said. “Obviously we all know this rarely happens.

Adherence is something that we have continued to chase as clinicians and managed care experts for years and years, [and will continue to do so for years] to come. So, it’s important to account for potential missed doses or lapses in adherence when we’re estimating the cost per patient per year,” he said. 4 Keep in mind the “side dishes.” These additional considerations include drug administration fees, laboratory fees and other costs that will be required as patients begin using the new medication.