Anticipating Health Care Technology’s
Impact Is Wise, But Hard To Do

Tracking new medical interventions as they appear the horizon – and forecasting what existing treatments they may supplant – is critical for health care payers. In this market, smart strategy requires identifying and selectively preparing for the likely consequences of burgeoning technologies and other changes in the industry that may affect health care costs and, ultimately, member premiums.

However, monitoring the status of medical innovations and making premium adjustments based on the latest intelligence are not easy tasks, and missing or misinterpreting an important trend can lead to a cycle of underpricing and overpricing. “Health plans can’t assume that they can generalize about the future based exclusively on past experience,” said Nancy Walczak, senior consultant for Reden & Anders, an Ingenix company. “If they do, they are likely to end up underpricing, because their premiums will not account for the impact of new technology.

“If payers are late to recognize a trend, by the time the technology moves through the pipeline, they often respond with overpricing,” she continued. “This ‘lagging and leading’ cycle is hard to break, and payers are almost never where they want to be.” Walczak observed that appropriately estimating the financial impact of new market developments can help insurance companies step out of the pattern and respond proactively rather than reactively.

Market intelligence plays a key role in planning ahead

Simply knowing about a breakthrough that is headed for the market or a fresh use for an existing technology can make a big difference in how health plans estimate future costs. For example, consider the impact to health plans from the introduction of arthritis treatment Enbrel®, which sold $951 million in its first quarter on the market. “If you say to a payer that a new compound is likely to be the ‘next Enbrel,’ they know what that means and they know that they need to be prepared,” Walczak commented.

Another example is the launch of Gardasil®, the first vaccine to prevent a virus that has been linked to cervical cancer. The vaccine is expensive, running approximately $390 per series, and some states have considered adding Gardasil to the list of immunizations required for enrollment in public schools. “Even without state mandates, the vaccine has been very popular in some regions of the country, and the potential cost to private insurance plans is large,” Walczak explained. “Gardasil could easily cost some mid-sized employers close to half a million dollars.”

Advances in technology and treatments are not the only cause of rising costs. Sometimes the key factor may be an updated recommendation from a medical society, trade group or government entity regarding the use of technology. In March 2007, the American Cancer Society issued new guidelines advocating annual magnetic resonance imaging (MRI) screening as an adjunct for routine mammograms for women considered at high risk of developing breast cancer. These guidelines identified 1.4 million to 1.7 million women between the ages of 30 and 70, who would benefit from the MRI screenings.

“A health plan covering a high percentage of female members should make proactive adjustments for the financial impact of these guidelines, which we estimate could cost between $1.10 and $2.20 per member, per month, in 2009,” Walczak said. “Plans that do not prepare for this change are at risk of underpricing.”

Plans also suffer financially, she explained, if they do not take into account innovations or market developments that actually allow them to keep premiums competitive. For example, as a result of the 2007 Food and Drug Administration announcement that it had approved Zyrtec® products to be sold over the counter (OTC), plans expect to see savings in their in pharmacy benefits, estimated at approximately $237,600 for an employer with 25,000 employees, according to Walczak.

These savings could help slow the pace of premium increases by offsetting rising costs in other areas. Equally important, payers should not assume they will benefit from these kinds of cost-saving developments every year. “Prescription drug plans have benefited from an unusually large number of new generics and OTC releases in the last two years. But we are reaching the end of this pattern, and payers shouldn’t project that these levels will continue indefinitely. If payers make this mistake, they will be caught short,” she said.

Monitoring landscape and forecasting costs is not easy

Accounting for this type of market intelligence may seem like common sense, but procuring the necessary information can be a daunting task. It requires unearthing and tracking data for hundreds of upcoming and current products and technologies on an ongoing basis. “For a payer, staying on top of the market horizon realistically would require hiring a dedicated team of experts, at considerable expense,” Walczak remarked. “Because plans often cannot afford to do this research independently, they may end up responding late – or not at all – to market shifts, which can negatively impact their bottom line.”

One solution to help payers stay on top of new technology and its potential cost implications is the Ingenix Health Technology Pipeline (HTP). This subscription service combines clinical information for emerging products with financial forecasts, in an easy-to-access web portal. The concept for the HTP evolved from consulting services Reden & Anders consultants provided to clients to assess the financial impact of disruptive events in the health care industry.

“It became very clear that the payer space required intelligence about significant events affecting their business,” Walczak explained. “Payers need information about the way that limited health care resources are utilized, and the expected outcomes and overall financial impact of market alterations.”

The HTP includes single-topic articles, financial intelligence and product profiles that include the following fields:

• Manufacturer/distributor
• Indication/regulatory status
• Affected population
• Clinical use
• Safety and efficacy results
• Competitive environment
• Pricing/related health care costs/reimbursement
• Current status

“From the Health Technology Pipeline, payers can quickly learn about new treatments, make more proactive coverage decisions, and develop sound disease-management strategies for members,” said Walczak. Subscribers access the quarterly updates at their convenience and may drill down into the materials or refine search results.

Payers also can select from other products in the HTP suite, including HTP Snapshot, which provides the clinical content without forecast information, and HTP Alerts, which cover late-breaking events in layman’s terms for benefits managers.

Companies that rely on Health Technology Pipeline products or other centralized intelligence to track and interpret market events have a vital opportunity to prioritize the issues they will respond to in a given quarter. To realize maximum value, Walczak emphasized the importance of both constant and expert monitoring, plus strategic focus. “It is essential to vet the massive amounts of information out there, but also to place the data in the proper context, identify the questions that will likely come from management and design a considered approach to dealing with upcoming change,” she said.

“We monitor major news outlets, track industry policies, analyze company press releases and are up to date on major position papers from specialty societies and federal agencies, such as Medicare, the Centers for Disease Control and Prevention, the FDA and other players,” Walczak concluded. “Our clinical and actuarial staff can highlight which events matter and which events can cause good forecasting to go bad. Our goal is to prevent the next disruptive event from damaging payers’ bottom lines.”

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