Society of Actuaries Analyzes Pharmacy Ecosystem in New Study
March 13, 2024, Chicago, IL — The Society of Actuaries (SOA) Research Institute developed a new study to explore pharmacy financing. The goals of the SOA related to this research are to identify opportunities to increase transparency, encourage competition, align stakeholder incentives and mitigate increases in total cost of care (TCOC). The research uses a value-based methodology and offers an alternative to policy solutions tackling prescription drug costs.
This report is a continuation in the SOA’s discussion on pharmacy financing and the role of actuaries in helping employers, health plans, providers, pharmacy benefit managers, pharmaceutical manufacturers and the public on the topic of addressing pharmacy costs.
The study examined various methods to compare the TCOC for patients of various prescription drugs. The authors examined the impact of certain drugs on TCOC for two disease states: diabetes and hypercholesterolemia, using claims data from the Health Care Cost Institute from 2016-2021, which includes about one-third of all U.S. commercial health insurance members. The hypothesis was that newer, more expensive drugs are often clinically superior to existing treatments and should produce lower TCOC for their patients than the existing treatments. However, the authors found that the impact on TCOC did not outweigh the amount of higher prices for these newer therapies over the one-year period for which TCOC was evaluated.
In interpreting these results, it is important to consider not only the advantages and disadvantages of the applied methodologies, but also to understand that measuring TCOC does not reflect other value elements, such as productivity and quality of life. Future studies should consider evaluating TCOC impact over longer time periods than just one year. Additional insight could also be gained by incorporating differences in adherence levels when comparing the TCOC impact of these drugs.
“This research report serves as an important beginning point. We need deeper analysis over a longer time period. The SOA Research Institute and the report authors look forward to discussing the findings with various industry leaders, working together to help transform the pharmacy ecosystem,” said Greg Warren, FSA, report author and partner and consulting actuary at Axene Health Partners.
A key question in developing a value-based reimbursement system is measuring the net value. Value-based reimbursement methodologies for physicians and hospitals rely heavily on scorecards. Measures in the scorecard may include financial elements of value such as net costs and nonfinancial measures such as provider accreditation. A “value stack” model could serve as an alternative to scorecards for pharmacy financing, in which elements of value are monetized through proxy measures so that a return-on-investment (ROI) can be calculated. The ROI compares incremental value (incorporate financial and nonfinancial forms of value) to incremental cost over various timeframes for each of the stakeholder types throughout the pharmacy ecosystem. Access the full report.
About the SOA
With roots dating back to 1889, the Society of Actuaries (SOA) is the world’s largest actuarial professional organization with more than 32,000 actuaries as members. Through research and education, the SOA’s mission is to advance actuarial knowledge and enhance actuaries’ ability to provide expert advice and relevant solutions for financial, business and societal challenges. The SOA’s vision is for actuaries to be the leading professionals in measuring and managing risk. To learn more, visit soa.org.