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Insurance Issues and New Treatments
In su ra n c e is s u e s
AND NEW TREATMENTS BY K E V I N N E E L S ,
atients and dentists are predicted to rely more heavily on dental insurance to cover the cost of dental care in the future. As this occurs, the policies of the third-party payers who adm inister those insurance program s will be pivotal to the use and distribution of oral pharm aceuticals and o ther dental care services. T hird-party payers have already begun to transform the m arket for general medical care, changing the criteria for success, and imposing a complex set of new requirem ents on the developers of innovative medical therapies. T hird-party payers concerned about containing rising h ealth care costs are more willing to intervene in therapeutic decision making. They will ask for evidence of economic value before agreeing to fund the new therapies. Thus, developers of new therapies who hope to succeed in th is new m arketplace will have to expand th e scope of their clinical research program s to consider the economic benefits and cost im pact of th eir products. For the companies who m aster these new skills, however, and who are able to direct th eir research efforts toward the development of cost-saving technologies, these changes offer a new basis for commercial success. Such companies will differentiate their products from those of
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A s patients and dentists rely more heavily on dental insurance to cover costs, the policies of third-party payers will be pivotal to the distri bution of oral pharmaceuti cals and other dental services.
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the competition, enjoy the support of powerful new actors in the m arketplace and possess a m eans of justifying a prem ium price, even in an era of cost containm ent. W H Y DO W E H A V E H EALTH IN S U R A N C E?
o u n derstand how trends in insurance coverage and reim bursem ent are likely to shape the m arket for oral pharm aceuticals, it is useful to review the reasons why individuals seek health insurance and why insurers and employers provide health insurance. The factors th a t create the dem and for health insurance have also shaped its evolution. An analysis of those factors will help us to understand and project future trends. M any observers attrib u te the widespread availability of health insurance to its ta x benefits. These benefits perm it employers, in effect, to provide h ealth insurance as tax-free compensation to th eir employees, increasing the value of th eir benefits. Three principles underlie th e dem and for health insurance coverage: • the need for protection against the cost of catastrophic illness; • people’s desire for protection against the cost of the health problems of old age;
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D E N IM BENEFITS Insurance provides econom ical protection against financial catastrophes that are individually devastating, but relatively rare.
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• the more recent effort by T A B L E 1 far-sighted insurance program m anagers to provide generous C H A N G IN G P H A R M A C E U T IC A L funding for preventive care th a t will lower long-term costs. N eed for p r o tec tio n . The T ra d itio n a l E m e rg in g first factor is the fundam ental d e c is io n m a k e rs d e c is io n m a k e rs rationale for insurance. Physicians Physicians Insurance provides economical Pharm acists Pharm acists protection against financial catastrophes th a t are Patients P atien ts individually devastating, but Insurers relatively rare. Risk-averse M anaged care providers individuals will find it Hospital adm inistrators advantageous to m ake m odest P atien t advocate groups periodic paym ents in exchange Legislators for assurances th a t if an expensive health episode strikes, they will not experience a financial catastrophe. Expensively institution th a t bears the financial risk treated catastrophic illnesses fit this of the system faces incentives to extend model. They were the original driving coverage to early diagnosis and force for health insurance. preventive care. Although such care, by P rob lem s o f old age. The desire for its nature, tends not to entail the large protection against the health care costs and unpredictable expenditures th a t associated w ith old age raises some consumers seek to insure against, they conceptual issues th a t are distinctly provide insurers w ith a potentially different from those associated w ith attractive m eans of risk m anagem ent. It catastrophic illness. There’s a clear may be better to spend a small am ount to comparison between health insurance avert a problem th an to spend a large and homeowner’s insurance. People who am ount dealing with the consequences of purchase hom eowner’s insurance do not, its emergence. It m ay even be in general, expect th eir houses to burn worthwhile to pay people to engage in down. In contrast, virtually everyone preventive behavior. expects to grow old and encounter an D en tal in su ra n ce. An exam ination increasing need for medical care. This of dental care in view of these factors fact tu rn s h ealth insurance into a suggests th a t dental insurance will have m echanism for intergenerational more future im pact in the m arketplace transfer—like th a t created by the Social th an a t present. As dental care becomes Security system. more interventional, it encompasses an Older adults draw money out, and increasing m arket for procedures such as younger adults pay money in, in the dental im plants and CAD-CAM expectation th a t w hen they grow old procedures th a t are costly enough and they, too, will be able to draw money out sufficiently random in th eir incidence (which is then paid in by th eir children th a t patients will be interested in and grandchildren). Clearly there are insuring against th em . 1 lim its to this analogy between health With general im provem ents in dental insurance and Social Security. W ithin care and health status, more older adults any age cohort, there are variations in are retaining th eir te e th , 2 and thus, still health sta tu s and in the need for medical need dental care . 3 This tren d is creating care. an age-dependent dem and for dental care P r e v en tiv e care. Once a system of th a t m irrors the age-dependent dem and health insurance is in place, the for medical care.
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DENIAL BENEFITS M eanwhile, a growing am ount of costly high-technology equipm ent increases the value of successful prevention a t the sam e tim e th a t it provides more preventive care and diagnostic services. All of these considerations suggest th a t third-party dental insurance is likely to become more central to the practice of dentistry in the future. TH E C H A N G IN G R EIM B U R SEM EN T EN V IR O N M EN T
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or decades, the price of health care services h as grown a t rates well in excess of inflation ra te s . 4,5 Knowledgeable observers and m em bers of the public have come to describe the situation as “a crisis.” As a result, th e phrase “health care cost containm ent” is on the lips of m ost of the people occupying positions of authority w ithin th e health care industry. Concerns about health care costs are being driven, not ju st by th eir level or rate of growth, b u t also by the sense th a t a sizable fraction of the resources devoted to medical care is being w asted. Research into how physicians actually practice medicine has revealed some surprising findings. How a given p atien t will be treated, we have learned, will depend strongly on w here the patien t seeks treatm ent, or from whom tre a tm e n t is obtained. Practice p a tte rn s vary substantially from one region to an o th er , 6 one comm unity to another and from one physician to another. At the level of th e individual physician, these variations stem , in part, from differences in the conditions, circum stances and needs of the patients. We do not yet fully understand why th e practice of medicine varies so much. This question rem ains the subject of active research. E ver since these v aria tions were first docum ented , 6 however, m any knowledgeable observers speculated th a t a large fraction of the treatm en ts adm inistered to patients were unnecessary and inappropriate. These speculations have generated
concern about the quality of care th a t p atients are receiving. Are patients being subjected to risky procedures of questionable benefit? W hether elim inatng practice variations will in fact reduce the cost of care rem ains to be seen. In m any cases, improving the quality of p atien t care will not elim inate unnecessary procedures, b u t ra th e r encourage more aggressive tre a tm e n t th an is now customary. The pain m anagem ent guidelines recently released by the Agency for H ealth Care Policy Research lean firmly tow ard more aggressive treatm ent. Is it possible th a t by elim inating unnecessary procedures substantial sum s of money could be saved, and the relentless rise in the cost of h ealth care slowed? Recent reports by B ader and S hugars 7 show th a t treatm en t decisions in dentistry also vary widely, th u s raising sim ilar questions about the quality of dental care. Traditionally, decision-making authority was vested alm ost exclusively in physicians. As a result of th eir train in g and professional ethics, they were also expected to m onitor and protect the interests of their patients. In both areas we are now seeing an erosion of the tru s t of physicians. Many physicians are having trouble keeping up w ith the rapid evolution of medical technology. As a result, they are practicing som ething less th a n state-ofth e-a rt medicine. It has also become clear th a t physicians respond to economic incentives. If they are paid to do less, they will do less; if they are paid to do more, they will do more. As a result, m any patients and insurance companies are no longer willing to tru s t physicians w ith exclusive control of therapeutic decisionmaking. The Agency for H ealth Care Policy Research, specialty physician associations and other groups are actively prom oting guidelines regarding the use of new therapies and the tre a tm e n t of patients w ith particularly complex and costly conditions. Increasingly, payers are getting involved
In many cases, improving the quality of patient care will not eliminate unnecessary procedures, but rather encourage more aggressive treatment than is now customary.
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DENTAL BENEFITS
M any new therapies represent incremental im prove m ents over existing treatments, and sponsors often find them selves in the position of arguing w hy the new therapy should be reim bursed at a higher level than that of the treatment that it aim s to replace.
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in the decision-making process TABLE 2 in m anaged health care BURSEM ENT PACKAGE activities by reviewing utilization of medical fE N T S . resources; encouraging greater Proof of efficacy cost consciousness in treatm en t decisions; and, at Proof of cost-effectiveness tim es, restricting the set of C lear guidelines for use treatm en t alternatives from Support from local opinion leaders which physicians can choose. Evidence of need in specific local patients These changes have placed a new class of decisionmakers Evidence on coverage and use nationwide into the tre a tm e n t process. In the past, developers of new therapies concentrated on physicians in im portant issue for novel therapies publicizing th eir products and aim ed a t new indications or based on encouraging more w idespread use. unfam iliar m echanism s of action. Increasingly, the support of physicians— E stablishing a paym ent level for a though still critically im portant—is not new therapy, however, often becomes the enough to assure the success of a new m ost critical elem ent of a reim bursem ent product. New stakeholders are becoming strategy. M any new therapies represent involved in the prescribing process. increm ental im provem ents over existing These new and economically oriented treatm ents, and sponsors often find decisionmakers are dem anding proof of them selves in the position of arguing economic value before they will perm it why the new therapy should be new therapies to come into widespread reim bursed a t a higher level th an th a t of use. the tre a tm e n t th a t it aim s to replace. These new decisionm akers become C overage. Coverage decisions are involved in the process a t the point when ultim ately governed by the contractual a patient or provider seeks third-party or legislative basis of the paym ent plan. paym ent for a new medical or dental C ontractual term s (for private plans) or therapy. O btaining paym ent or legislative provisions and regulations (for reim bursem ent has become a m ilestone public plans) define the benefits significant enough in the economic life of available under the plan and ultim ately a new therapy th a t m any companies now determ ine w hat is reim bursed by the routinely include the developm ent of an plan. The aim of such documents is to explicit reim bursem ent strategy as p art clearly spell out w hat is covered by the of th eir m arketing program. plan. Because of this, coverage decisions are often less problem atic th a n decisions A R E IM B U R S E M E N T P R IM E R regarding paym ent levels. Because of the m any treatm ents nderstanding the im plications of the available and the rapidity w ith which growing role of third-party payers is they change, statem ents about w hat a im portant. I t helps identify the steps plan will cover are, of necessity, w ritten th a t prom oters of new therapies m ust go in general term s. At the core of alm ost through to win reim bursem ent. W inning all such statem ents is a provision stating reim bursem ent is a tw o-part process. th a t the plan will cover treatm en ts th a t The first step consists of w inning are medically necessary and generally coverage. Coverage is won when the accepted as efficacious. It is usually insurers formally agree to pay for a new followed by a list of exclusions. These can medical therapy. The second step be of a general n a tu re (any treatm en ts of consists of establishing the paym ent a cosmetic nature) or a specific nature level for the new therapy. Coverage is an (dental transplants). Purely financial
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DENIAI BENEFITS
provisions (for example, deductibles, copayments, absolute or a n n u al coverage lim its and so forth) can fu rth e r restrict the treatm en ts covered. Inclusion of the word “necessary” elim inates m uch elective care. It is on this basis th a t cosmetic surgery and periodic physical exam inations are often excluded. The qualifying word “m edically,” as it is generally interpreted, places ultim ate judgm ent in th e hands of the medical community. This term leaves a great deal of room for dispute about who speaks for the medical community, b u t it implies th a t ultim ately, the decision will be m ade by a physician or dentist. In practice, “general acceptance” coverage decisions are governed by legally binding standards. They can be m ade neither arbitrarily nor on the basis solely of financial considerations. A blanket refusal to cover an efficacious b u t costly therapy can usually be challenged successfully in court. P a y m en t lev e l. The approaches for reim bursem ent of new therapies can be grouped into two broad categories: those draw ing an analogy betw een th e new therapy and sim ilar existing therapies and viewing the new therapy in isolation. The sim plest way for a payer to deal w ith a new therapy is to declare th a t it is substantially equivalent to an existing therapy already covered, and to base paym ents for the new th erap y equal to those of the existing therapy. This approach has a good deal of conceptual appeal. It provides a simple solution to the question of how to determ ine a price. A dm inistratively, it is also sim plistic as it perm its a payer to work the new therapy into existing coding system s and adm inistrative m echanism s. For a payer struggling to contain cost growth, this approach is also financially advantageous. M any therapies are designed to provide b e tte r outcomes (or in the case of diagnostic procedures, greater accuracy) a t a higher cost. Setting paym ent levels based on existing therapies, therefore, often im parts some downward pressure on costs. If advances
in technology lower the cost of a therapy, acceptance of the existing paym ent level can be highly attractive. HOW P A Y M E N T LEVELS ARE SET
f paym ent levels for a new therapy are based on those for some existing therapy, the question of how the la tte r paym ent levels are set is obviously of some interest. In an earlier and less costconscious era, a payer m ight have been willing to pay w hatever bill the provider subm itted. Such willingness erased all competitive pressures, however, and rew arded providers who increased prices regularly. For this reason, unregulated fee-for-service reim bursem ent has now been all b u t abandoned by th ird-party payers. Payers will now frequently set paym ent a t the “usual and custom ary” charge level, intended to reflect typical charge levels for the service in the community. The details of how it’s calculated m ay vary. A payer can array, for each service (in order of price level), the list prices of all the providers w ith which it deals, and set the paym ent levels a t some prespecified percentile (typically the 90th percentile) of the resulting distribution. Increasingly, paym ent levels for existing services are negotiations betw een payers and individual providers. Such negotiations will s ta rt w ith the provider’s list prices for individual services. For some specified range of services, the payer will press for a discount off list price. Providers m ust generally agree to accept the discounted price as paym ent in full. To encourage providers to offer more generous discounts, a payer m ay agree to enter into a preferred provider arrangem ent in which patients are either encouraged or compelled to use th a t provider. If the payer is large and im portant enough, it m ay be able to extract a discount w ithout having to offer such inducem ents. A m ajor current tre n d of purchasers is to band together to increase th eir negotiating “clout”—or as
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For som e specified range of services, the payer will press for a discount off list price. Providers must generally agree to accept the discounted price as payment in full.
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Payers have shown a growing willingness to shop among providers for the best possible prices even on individual services.
a skeptical economist m ight describe it, to a tta in “monopsony power.” The more fam iliar term , “monopoly power,” refers to the ability of a producer who controls a disproportionate share of the productive capacity in a m ark et to command prices higher th a n those th a t would be found in a competitive m arket. Describing th e efforts of purchasers to band together to obtain greater
Q u e s tio n s fro m th e flo o r Q: I f new oral pharm aceuticals or diagnostics are effective but not p a rt o f the reim bursem ent scheme, how can dentists p u sh for inclusion o f these services in dental insurance? A: If th ere’s a good medical basis, you can identify an existing diagnostic code and subm it a claim for reim bursem ent. In the course of m aking the case th a t your diagnostic test be added to th e list of reim burs able procedures, you could also generate inform ation th a t would be the core of an educational program. There are panels a t AMA th a t define codes, and essentially declare when a new therapy is accepted. I presum e th a t there are sim ilar bodies w ithin dentistry. Q: How will health care cost containm ent affect dental reimbursement? A: Presently, private payers have been adopting policies th a t had been introduced by the governm ent such as utilization review techniques. As we solve some of th e medical care problems th a t generate cost growth, perhaps dental insurance will be more attractive to employers. Also, the public is going to need and w ant dental care. T h at desire will continue to prod employers in the direction of providing it, particularly if they know th a t costs will not go out of control.
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negotiating clout to obtain monopsony power does not imply th at, in the absence of such joint efforts, we would see a competitive m arket outcome. H ealth care m arkets are too riddled with imperfections to be able to a tta in competitive outcomes unaided. The range of services covered by such agreem ents h as traditionally been relatively broad. Recently, however, payers have shown a growing willingness to shop among providers for the best possible prices even on individual services. For a new therapy with no existing alternatives, paym ent level can be a m a tte r of individual negotiation between the developer of a therapy and those who will pay for it. Economic principles suggest two ways of determ ining a price: • One way is a cost-based approach of calculating a price ju st sufficient to pay the developer of a new therapy a competitive re tu rn on the resources invested. # The other calculates a m arket value of w hat th e therapy is worth to the payer, as reflected in th a t payer’s willingness to pay. If the m arket is in competitive equilibrium, these two approaches should lead to the sam e answ er. A problem w ith a cost-based approach arises because of the inherent difficulty of identifying the full costs of developing and m anufacturing any specific new pharm aceutical product. In sta rk contrast to m ost other industries, the cost structure of the pharm aceutical industry is dom inated not by m anufacturing costs, but ra th e r by research and development costs. It is often h ard to assign such costs to specific products in a precise and unequivocal m anner. The m ost appropriate way to view th e research and development expenditures made by a large, integrated pharm aceutical company is to regard them as a series of investm ents for m aintaining a base of knowledge and capability th a t will fuel th e development of a series of future products. Studies of the drug-development process have shown th a t th e process
D E N IM BENEFITS
whereby scientific discoveries become embodied in new products is Tong, complex and often circuitous . 8 A project th a t is w ritten off as a total failure can contribute to the success of an apparently unrelated effort years later. M any prom ising drugs now under developm ent have im portant clinical applications after lying ignored in compound libraries for years after th eir in itial discovery and synthesis. Even if it were possible to overcome these difficulties, pharm aceutical companies have argued, w ith some justification, th a t it is inappropriate to focus narrow ly on the costs of developing a specific product. D rug developm ent is an inherently risky enterprise, and m any prom ising candidates fail even to reach the m arket, much less achieve com m ercial success. E arnings from the lim ited num ber of successes, companies argue, have to cover the costs of the failures. W hat m atters, they say, is the rate of re tu rn earned on the whole enterprise. A practical difficulty stem s from the fact th a t pu rsu it of a cost-based argum ent for a specific product would require the sponsor to reveal the intim ate details of its research program . Few companies would voluntarily undergo this degree of scrutiny. U T IL IZ A T IO N C O N T R O L S
tilization controls and guidelines complement coverage restrictions and paym ent lim itations as a way of controlling costs. A payer m ay require prior approval or a second opinion for a particularly costly therapy. Payers m ay also develop and prom ulgate practice guidelines to encourage dentists covered by th e ir plans to tre a t patients in a m ore system atic and cost-effective m anner. Payers differ greatly in th eir extent of contact with, and influence over, physicians and dentists, and, thus, also in th eir ability to use practice guidelines effectively. S taff plan health m aintenance organizations are in the best position to
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work w ith physicians and a lte r th eir behavior. Traditional indem nity plans occupy the opposite end of th e spectrum . In between, we find individual practice association HMOs, preferred provider plans and m any other interm ediate forms. V irtually all payers now have some system in place for retrospectively analyzing p attern s of medical resource utilization. These system s are designed to identify outliers (exceptionally costly procedures and tests, or individual physicians who stand out in term s of cost or intensity or treatm ent) and adverse trends (individual procedures w ith rapidly growing utilization rates). Problems identified in this way will then become the targ e t of efforts to reduce cost. Com puterized drug utilization review system s will probably place decisions regarding the use of pharm aceutical therapies under a m uch greater degree of scrutiny th an in the past or th a n other therapeutic m odalities are likely to experience in the near future: • Retrospective system s collect d a ta on prescribing behaviors th a t are analyzed “after the fact.” P a tte rn s of inappropriate or excessive use of drugs are flagged, and then become the targ e t of interventions by the operator of the system designed to alter future behavior. • Concurrent system s review prescriptions a t th e point of dispensation, checking for possible interactions w ith other medications, appropriateness for the stated indication, and possibly the potential for substitution of a less expensive product. • Prospective system s attem p t to intervene a t the point when the prescrip tion is w ritten, giving the provider inform ation and guidance. These system s vary greatly in th eir technical sophisti cation, the am ount of clinical and patient history inform ation they can access, and the extent to which they can compel compliance w ith th eir recom mendations. We can expect to see these system s grow in technical sophistication and use in the years ahead.
Drug developm ent is an inherently risky enterprise, and many promising candidates fail even to reach the market, much less achieve com m ercial su cce ss.
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'DENIAL BENEFITS A n y new diagnostic tool or therapy that can be construed as cosm etic has tended to encounter payer resistance. Although m ost payers continue to take a firm stance on cosm etic therapies, we may w ell see changes in this area.
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POTENTIAL REIMBURSEM ENT PRO BLEM S
ituations arise th a t are alm ost certain to invite intense scrutiny, resistance by payers or both. It is useful to keep these “red flags” in m ind w hen developing a reim bursem ent strategy. They can help to identify when som ething is likely to encounter trouble, and when fu rth er “homework” m ay be needed. Some of these red flags are raised by the standard exclusions th a t appear in m ost insurance contracts. C ertainly, any therapy th a t can be construed as experim ental is likely to encounter payer resistance. Because of the regulatory reviews th a t new drugs, biologies and devises m ust undergo before they can be m arketed, this will not be an issue for pharm aceuticals in th eir approved indications. B ut it can and frequently does become an issue for “off-label” usage. It can also easily become an issue for new surgical therapies, such as dental im plants, which rarely undergo th e sam e degree of rigorous scientific testin g th a t is required of a new medicine. Given the aggressive stance FDA has recently tak en tow ard promotion of offlabel uses, it can be difficult for the m anufacturer to m ake such a case directly. Individual dentists or patients, however, need not encounter the same regulatory difficulties. Any new diagnostic tool or therapy th a t can be construed as cosmetic has tended to encounter payer resistance. Although m ost payers continue to take a firm stance on cosmetic therapies, we m ay well see changes in this area. The growing em phasis on quality of life as a valid outcome m easure and goal of therapy m ay blur the line separating cosmetic therapy from other forms of care. The basis for payer resistance in such cases will be the “medically necessary” clause th a t m ost contracts contain, ra th e r th a n any specific exclusion. Such therapies share some characteristics
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w ith experim ental treatm ents, which rem ain experim ental because no one has yet proved th a t they work. However, questions can and have also been raised about therapies th a t have been around for a long tim e b ut were never rigorously studied, or th a t sim ply do not seem to do m uch for the patients who receive them . The term “questionable efficacy” can also m ean “questionable relative effi cacy,” as when an expensive therapy appears to work no better th an a lessexpensive alternative. The use of expensive new antibiotics has also been questioned on this basis. Among potentially high-cost therapies, those w ith poorly defined utilization criteria will alm ost certainly encounter reim bursem ent difficulties. W idespread use of a costly therapy among patients who are unlikely to respond favorably can quickly erase its new economic benefits. Fortunately, such problems can often be effectively resolved, either through clinical research to define more precisely the m ost appropriate targ et patient population, or through a m arketing strategy th a t promotes the therapy to those dentists best suited for deploying it successfully. M arketing periodontal diagnostics initially to periodontists is an example of such targeting. IMPLICATIONS FOR DRUG DEVELOPM ENT
he growing willingness of third-party payers to question th e value of new pharm aceutical therapies, and to withhold paym ent, is creating, in effect, a third hurdle for developers. In the past, the combination of approval by regulatory authorities and acceptance by the health care provider comm unity were enough to assure commercial success. In the environm ent th a t is emerging, this will no longer be enough. In addition, it will become essential to win acceptance and coverage by payers on favorable term s. W inning payer acceptance will place new dem ands on the clinical research
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D E N IM BENEFITS process. Proof of cost-effectiveness rests on analysis of carefully collected data regarding w hat it is th a t these products do for patients. Clinical research provides th e only setting in which the properties of a new medicine or diagnostic te st can be rigorously m easured. Sponsors of new therapies are going to have to learn to look beyond narrow m easures of efficacy, and to consider a product’s im pact on “quality of life,” side effects and complications and use of other medical resources. They will also have to learn to collect th e cost and price data th a t will be needed to value the im pact appropriately. Payers accustomed to receiving hard scientific proof of a product’s efficacy will eventually dem and sim ilar standards of proof on costeffectiveness. Any formal move by regulatory authorities to address questions of cost-effectiveness will only speed this process. A sponsor th a t can provide rigorous evidence of substantial economic benefit will achieve earlier m ark et e n try and more rapid diffusion into w idespread use. Payers can be expected to increasingly and actively promote th e use of such therapies, even w ith the existence of well-entrenched competition. For sponsors of efficient therapies, these changes offer a new basis for product success. For practicing dentists, greater attention to the clinical usefulness of new diagnostic tests and pharm aceutical therapies would provide a m uch needed basis for ultim ately determ ining th e costeffectiveness of oral pharm aceuticals and th eir im pact on patien ts’ health in the routine practice of dentistry.
A B O U T TH E AU TH O R Kevin Neels is vice president for Health Economics at Quintiles, Inc., and head of its Cambridge office in Massachusetts. A fter he received his Ph.D. in economics from Cornell University, he served six years at Rand Corp., two years as an economist for the Urban Institute, two years with Peat, M arwick and Mitchell, and 10 years as Senior Internal Econometrics Consultant at Charles River Associates in Boston.
1. Stillm an N, Douglass CW. The developing m ark et for dental im plants. JADA 1993;124:(4)1516.
2. Douglass CW, J e tte A, et al. O ral h ealth sta tu s of th e elderly in New England. J Gerontol Med Sci 1993;48:M39-46. 3. R einhardt JW , Douglass CW. The need for operative dentistry services: projecting th e effects of changing disease p attern s. Oper D ent 1989;14:114-20. 4. Office of N ational Cost E stim ates, Office of th e A ctuary, H ealth Care Financing A dmini stration. W ashington, D.C.: U.S. D epartm ent of H ealth and H um an Services. 5. F urino A, Douglass CW. B alancing dental service requirem ents and supplies: the economic evidence. JADA 1990;121:685-92. 6. W enburg J, G ittelsohn P. V ariations in medical care am ong sm all areas. Scientific American 1982;120-33. 7. B ader FD, S hugars DA. A greem ent am ong d en tists’ recom m endations for restorative treatm en t. J D ent Res 1993 ;891-6. 8. Spilker B. M ultinational drug companies: issues in drug discovery and development. New York Review P ress 1989.
Sponsors of new therapies are going to have to learn to look beyond narrow m easures of efficacy, and to consider a product's im pact on "quality of life," side effects and com plications and use of other m edical resources.
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AND NEW TREATMENTS BY K E V I N N E E L S ,
atients and dentists are predicted to rely more heavily on dental insurance to cover the cost of dental care in the future. As this occurs, the policies of the third-party payers who adm inister those insurance program s will be pivotal to the use and distribution of oral pharm aceuticals and o ther dental care services. T hird-party payers have already begun to transform the m arket for general medical care, changing the criteria for success, and imposing a complex set of new requirem ents on the developers of innovative medical therapies. T hird-party payers concerned about containing rising h ealth care costs are more willing to intervene in therapeutic decision making. They will ask for evidence of economic value before agreeing to fund the new therapies. Thus, developers of new therapies who hope to succeed in th is new m arketplace will have to expand th e scope of their clinical research program s to consider the economic benefits and cost im pact of th eir products. For the companies who m aster these new skills, however, and who are able to direct th eir research efforts toward the development of cost-saving technologies, these changes offer a new basis for commercial success. Such companies will differentiate their products from those of
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A s patients and dentists rely more heavily on dental insurance to cover costs, the policies of third-party payers will be pivotal to the distri bution of oral pharmaceuti cals and other dental services.
PH.D.
the competition, enjoy the support of powerful new actors in the m arketplace and possess a m eans of justifying a prem ium price, even in an era of cost containm ent. W H Y DO W E H A V E H EALTH IN S U R A N C E?
o u n derstand how trends in insurance coverage and reim bursem ent are likely to shape the m arket for oral pharm aceuticals, it is useful to review the reasons why individuals seek health insurance and why insurers and employers provide health insurance. The factors th a t create the dem and for health insurance have also shaped its evolution. An analysis of those factors will help us to understand and project future trends. M any observers attrib u te the widespread availability of health insurance to its ta x benefits. These benefits perm it employers, in effect, to provide h ealth insurance as tax-free compensation to th eir employees, increasing the value of th eir benefits. Three principles underlie th e dem and for health insurance coverage: • the need for protection against the cost of catastrophic illness; • people’s desire for protection against the cost of the health problems of old age;
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D E N IM BENEFITS Insurance provides econom ical protection against financial catastrophes that are individually devastating, but relatively rare.
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• the more recent effort by T A B L E 1 far-sighted insurance program m anagers to provide generous C H A N G IN G P H A R M A C E U T IC A L funding for preventive care th a t will lower long-term costs. N eed for p r o tec tio n . The T ra d itio n a l E m e rg in g first factor is the fundam ental d e c is io n m a k e rs d e c is io n m a k e rs rationale for insurance. Physicians Physicians Insurance provides economical Pharm acists Pharm acists protection against financial catastrophes th a t are Patients P atien ts individually devastating, but Insurers relatively rare. Risk-averse M anaged care providers individuals will find it Hospital adm inistrators advantageous to m ake m odest P atien t advocate groups periodic paym ents in exchange Legislators for assurances th a t if an expensive health episode strikes, they will not experience a financial catastrophe. Expensively institution th a t bears the financial risk treated catastrophic illnesses fit this of the system faces incentives to extend model. They were the original driving coverage to early diagnosis and force for health insurance. preventive care. Although such care, by P rob lem s o f old age. The desire for its nature, tends not to entail the large protection against the health care costs and unpredictable expenditures th a t associated w ith old age raises some consumers seek to insure against, they conceptual issues th a t are distinctly provide insurers w ith a potentially different from those associated w ith attractive m eans of risk m anagem ent. It catastrophic illness. There’s a clear may be better to spend a small am ount to comparison between health insurance avert a problem th an to spend a large and homeowner’s insurance. People who am ount dealing with the consequences of purchase hom eowner’s insurance do not, its emergence. It m ay even be in general, expect th eir houses to burn worthwhile to pay people to engage in down. In contrast, virtually everyone preventive behavior. expects to grow old and encounter an D en tal in su ra n ce. An exam ination increasing need for medical care. This of dental care in view of these factors fact tu rn s h ealth insurance into a suggests th a t dental insurance will have m echanism for intergenerational more future im pact in the m arketplace transfer—like th a t created by the Social th an a t present. As dental care becomes Security system. more interventional, it encompasses an Older adults draw money out, and increasing m arket for procedures such as younger adults pay money in, in the dental im plants and CAD-CAM expectation th a t w hen they grow old procedures th a t are costly enough and they, too, will be able to draw money out sufficiently random in th eir incidence (which is then paid in by th eir children th a t patients will be interested in and grandchildren). Clearly there are insuring against th em . 1 lim its to this analogy between health With general im provem ents in dental insurance and Social Security. W ithin care and health status, more older adults any age cohort, there are variations in are retaining th eir te e th , 2 and thus, still health sta tu s and in the need for medical need dental care . 3 This tren d is creating care. an age-dependent dem and for dental care P r e v en tiv e care. Once a system of th a t m irrors the age-dependent dem and health insurance is in place, the for medical care.
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DENIAL BENEFITS M eanwhile, a growing am ount of costly high-technology equipm ent increases the value of successful prevention a t the sam e tim e th a t it provides more preventive care and diagnostic services. All of these considerations suggest th a t third-party dental insurance is likely to become more central to the practice of dentistry in the future. TH E C H A N G IN G R EIM B U R SEM EN T EN V IR O N M EN T
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or decades, the price of health care services h as grown a t rates well in excess of inflation ra te s . 4,5 Knowledgeable observers and m em bers of the public have come to describe the situation as “a crisis.” As a result, th e phrase “health care cost containm ent” is on the lips of m ost of the people occupying positions of authority w ithin th e health care industry. Concerns about health care costs are being driven, not ju st by th eir level or rate of growth, b u t also by the sense th a t a sizable fraction of the resources devoted to medical care is being w asted. Research into how physicians actually practice medicine has revealed some surprising findings. How a given p atien t will be treated, we have learned, will depend strongly on w here the patien t seeks treatm ent, or from whom tre a tm e n t is obtained. Practice p a tte rn s vary substantially from one region to an o th er , 6 one comm unity to another and from one physician to another. At the level of th e individual physician, these variations stem , in part, from differences in the conditions, circum stances and needs of the patients. We do not yet fully understand why th e practice of medicine varies so much. This question rem ains the subject of active research. E ver since these v aria tions were first docum ented , 6 however, m any knowledgeable observers speculated th a t a large fraction of the treatm en ts adm inistered to patients were unnecessary and inappropriate. These speculations have generated
concern about the quality of care th a t p atients are receiving. Are patients being subjected to risky procedures of questionable benefit? W hether elim inatng practice variations will in fact reduce the cost of care rem ains to be seen. In m any cases, improving the quality of p atien t care will not elim inate unnecessary procedures, b u t ra th e r encourage more aggressive tre a tm e n t th an is now customary. The pain m anagem ent guidelines recently released by the Agency for H ealth Care Policy Research lean firmly tow ard more aggressive treatm ent. Is it possible th a t by elim inating unnecessary procedures substantial sum s of money could be saved, and the relentless rise in the cost of h ealth care slowed? Recent reports by B ader and S hugars 7 show th a t treatm en t decisions in dentistry also vary widely, th u s raising sim ilar questions about the quality of dental care. Traditionally, decision-making authority was vested alm ost exclusively in physicians. As a result of th eir train in g and professional ethics, they were also expected to m onitor and protect the interests of their patients. In both areas we are now seeing an erosion of the tru s t of physicians. Many physicians are having trouble keeping up w ith the rapid evolution of medical technology. As a result, they are practicing som ething less th a n state-ofth e-a rt medicine. It has also become clear th a t physicians respond to economic incentives. If they are paid to do less, they will do less; if they are paid to do more, they will do more. As a result, m any patients and insurance companies are no longer willing to tru s t physicians w ith exclusive control of therapeutic decisionmaking. The Agency for H ealth Care Policy Research, specialty physician associations and other groups are actively prom oting guidelines regarding the use of new therapies and the tre a tm e n t of patients w ith particularly complex and costly conditions. Increasingly, payers are getting involved
In many cases, improving the quality of patient care will not eliminate unnecessary procedures, but rather encourage more aggressive treatment than is now customary.
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M any new therapies represent incremental im prove m ents over existing treatments, and sponsors often find them selves in the position of arguing w hy the new therapy should be reim bursed at a higher level than that of the treatment that it aim s to replace.
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in the decision-making process TABLE 2 in m anaged health care BURSEM ENT PACKAGE activities by reviewing utilization of medical fE N T S . resources; encouraging greater Proof of efficacy cost consciousness in treatm en t decisions; and, at Proof of cost-effectiveness tim es, restricting the set of C lear guidelines for use treatm en t alternatives from Support from local opinion leaders which physicians can choose. Evidence of need in specific local patients These changes have placed a new class of decisionmakers Evidence on coverage and use nationwide into the tre a tm e n t process. In the past, developers of new therapies concentrated on physicians in im portant issue for novel therapies publicizing th eir products and aim ed a t new indications or based on encouraging more w idespread use. unfam iliar m echanism s of action. Increasingly, the support of physicians— E stablishing a paym ent level for a though still critically im portant—is not new therapy, however, often becomes the enough to assure the success of a new m ost critical elem ent of a reim bursem ent product. New stakeholders are becoming strategy. M any new therapies represent involved in the prescribing process. increm ental im provem ents over existing These new and economically oriented treatm ents, and sponsors often find decisionmakers are dem anding proof of them selves in the position of arguing economic value before they will perm it why the new therapy should be new therapies to come into widespread reim bursed a t a higher level th an th a t of use. the tre a tm e n t th a t it aim s to replace. These new decisionm akers become C overage. Coverage decisions are involved in the process a t the point when ultim ately governed by the contractual a patient or provider seeks third-party or legislative basis of the paym ent plan. paym ent for a new medical or dental C ontractual term s (for private plans) or therapy. O btaining paym ent or legislative provisions and regulations (for reim bursem ent has become a m ilestone public plans) define the benefits significant enough in the economic life of available under the plan and ultim ately a new therapy th a t m any companies now determ ine w hat is reim bursed by the routinely include the developm ent of an plan. The aim of such documents is to explicit reim bursem ent strategy as p art clearly spell out w hat is covered by the of th eir m arketing program. plan. Because of this, coverage decisions are often less problem atic th a n decisions A R E IM B U R S E M E N T P R IM E R regarding paym ent levels. Because of the m any treatm ents nderstanding the im plications of the available and the rapidity w ith which growing role of third-party payers is they change, statem ents about w hat a im portant. I t helps identify the steps plan will cover are, of necessity, w ritten th a t prom oters of new therapies m ust go in general term s. At the core of alm ost through to win reim bursem ent. W inning all such statem ents is a provision stating reim bursem ent is a tw o-part process. th a t the plan will cover treatm en ts th a t The first step consists of w inning are medically necessary and generally coverage. Coverage is won when the accepted as efficacious. It is usually insurers formally agree to pay for a new followed by a list of exclusions. These can medical therapy. The second step be of a general n a tu re (any treatm en ts of consists of establishing the paym ent a cosmetic nature) or a specific nature level for the new therapy. Coverage is an (dental transplants). Purely financial
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provisions (for example, deductibles, copayments, absolute or a n n u al coverage lim its and so forth) can fu rth e r restrict the treatm en ts covered. Inclusion of the word “necessary” elim inates m uch elective care. It is on this basis th a t cosmetic surgery and periodic physical exam inations are often excluded. The qualifying word “m edically,” as it is generally interpreted, places ultim ate judgm ent in th e hands of the medical community. This term leaves a great deal of room for dispute about who speaks for the medical community, b u t it implies th a t ultim ately, the decision will be m ade by a physician or dentist. In practice, “general acceptance” coverage decisions are governed by legally binding standards. They can be m ade neither arbitrarily nor on the basis solely of financial considerations. A blanket refusal to cover an efficacious b u t costly therapy can usually be challenged successfully in court. P a y m en t lev e l. The approaches for reim bursem ent of new therapies can be grouped into two broad categories: those draw ing an analogy betw een th e new therapy and sim ilar existing therapies and viewing the new therapy in isolation. The sim plest way for a payer to deal w ith a new therapy is to declare th a t it is substantially equivalent to an existing therapy already covered, and to base paym ents for the new th erap y equal to those of the existing therapy. This approach has a good deal of conceptual appeal. It provides a simple solution to the question of how to determ ine a price. A dm inistratively, it is also sim plistic as it perm its a payer to work the new therapy into existing coding system s and adm inistrative m echanism s. For a payer struggling to contain cost growth, this approach is also financially advantageous. M any therapies are designed to provide b e tte r outcomes (or in the case of diagnostic procedures, greater accuracy) a t a higher cost. Setting paym ent levels based on existing therapies, therefore, often im parts some downward pressure on costs. If advances
in technology lower the cost of a therapy, acceptance of the existing paym ent level can be highly attractive. HOW P A Y M E N T LEVELS ARE SET
f paym ent levels for a new therapy are based on those for some existing therapy, the question of how the la tte r paym ent levels are set is obviously of some interest. In an earlier and less costconscious era, a payer m ight have been willing to pay w hatever bill the provider subm itted. Such willingness erased all competitive pressures, however, and rew arded providers who increased prices regularly. For this reason, unregulated fee-for-service reim bursem ent has now been all b u t abandoned by th ird-party payers. Payers will now frequently set paym ent a t the “usual and custom ary” charge level, intended to reflect typical charge levels for the service in the community. The details of how it’s calculated m ay vary. A payer can array, for each service (in order of price level), the list prices of all the providers w ith which it deals, and set the paym ent levels a t some prespecified percentile (typically the 90th percentile) of the resulting distribution. Increasingly, paym ent levels for existing services are negotiations betw een payers and individual providers. Such negotiations will s ta rt w ith the provider’s list prices for individual services. For some specified range of services, the payer will press for a discount off list price. Providers m ust generally agree to accept the discounted price as paym ent in full. To encourage providers to offer more generous discounts, a payer m ay agree to enter into a preferred provider arrangem ent in which patients are either encouraged or compelled to use th a t provider. If the payer is large and im portant enough, it m ay be able to extract a discount w ithout having to offer such inducem ents. A m ajor current tre n d of purchasers is to band together to increase th eir negotiating “clout”—or as
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For som e specified range of services, the payer will press for a discount off list price. Providers must generally agree to accept the discounted price as payment in full.
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Payers have shown a growing willingness to shop among providers for the best possible prices even on individual services.
a skeptical economist m ight describe it, to a tta in “monopsony power.” The more fam iliar term , “monopoly power,” refers to the ability of a producer who controls a disproportionate share of the productive capacity in a m ark et to command prices higher th a n those th a t would be found in a competitive m arket. Describing th e efforts of purchasers to band together to obtain greater
Q u e s tio n s fro m th e flo o r Q: I f new oral pharm aceuticals or diagnostics are effective but not p a rt o f the reim bursem ent scheme, how can dentists p u sh for inclusion o f these services in dental insurance? A: If th ere’s a good medical basis, you can identify an existing diagnostic code and subm it a claim for reim bursem ent. In the course of m aking the case th a t your diagnostic test be added to th e list of reim burs able procedures, you could also generate inform ation th a t would be the core of an educational program. There are panels a t AMA th a t define codes, and essentially declare when a new therapy is accepted. I presum e th a t there are sim ilar bodies w ithin dentistry. Q: How will health care cost containm ent affect dental reimbursement? A: Presently, private payers have been adopting policies th a t had been introduced by the governm ent such as utilization review techniques. As we solve some of th e medical care problems th a t generate cost growth, perhaps dental insurance will be more attractive to employers. Also, the public is going to need and w ant dental care. T h at desire will continue to prod employers in the direction of providing it, particularly if they know th a t costs will not go out of control.
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negotiating clout to obtain monopsony power does not imply th at, in the absence of such joint efforts, we would see a competitive m arket outcome. H ealth care m arkets are too riddled with imperfections to be able to a tta in competitive outcomes unaided. The range of services covered by such agreem ents h as traditionally been relatively broad. Recently, however, payers have shown a growing willingness to shop among providers for the best possible prices even on individual services. For a new therapy with no existing alternatives, paym ent level can be a m a tte r of individual negotiation between the developer of a therapy and those who will pay for it. Economic principles suggest two ways of determ ining a price: • One way is a cost-based approach of calculating a price ju st sufficient to pay the developer of a new therapy a competitive re tu rn on the resources invested. # The other calculates a m arket value of w hat th e therapy is worth to the payer, as reflected in th a t payer’s willingness to pay. If the m arket is in competitive equilibrium, these two approaches should lead to the sam e answ er. A problem w ith a cost-based approach arises because of the inherent difficulty of identifying the full costs of developing and m anufacturing any specific new pharm aceutical product. In sta rk contrast to m ost other industries, the cost structure of the pharm aceutical industry is dom inated not by m anufacturing costs, but ra th e r by research and development costs. It is often h ard to assign such costs to specific products in a precise and unequivocal m anner. The m ost appropriate way to view th e research and development expenditures made by a large, integrated pharm aceutical company is to regard them as a series of investm ents for m aintaining a base of knowledge and capability th a t will fuel th e development of a series of future products. Studies of the drug-development process have shown th a t th e process
D E N IM BENEFITS
whereby scientific discoveries become embodied in new products is Tong, complex and often circuitous . 8 A project th a t is w ritten off as a total failure can contribute to the success of an apparently unrelated effort years later. M any prom ising drugs now under developm ent have im portant clinical applications after lying ignored in compound libraries for years after th eir in itial discovery and synthesis. Even if it were possible to overcome these difficulties, pharm aceutical companies have argued, w ith some justification, th a t it is inappropriate to focus narrow ly on the costs of developing a specific product. D rug developm ent is an inherently risky enterprise, and m any prom ising candidates fail even to reach the m arket, much less achieve com m ercial success. E arnings from the lim ited num ber of successes, companies argue, have to cover the costs of the failures. W hat m atters, they say, is the rate of re tu rn earned on the whole enterprise. A practical difficulty stem s from the fact th a t pu rsu it of a cost-based argum ent for a specific product would require the sponsor to reveal the intim ate details of its research program . Few companies would voluntarily undergo this degree of scrutiny. U T IL IZ A T IO N C O N T R O L S
tilization controls and guidelines complement coverage restrictions and paym ent lim itations as a way of controlling costs. A payer m ay require prior approval or a second opinion for a particularly costly therapy. Payers m ay also develop and prom ulgate practice guidelines to encourage dentists covered by th e ir plans to tre a t patients in a m ore system atic and cost-effective m anner. Payers differ greatly in th eir extent of contact with, and influence over, physicians and dentists, and, thus, also in th eir ability to use practice guidelines effectively. S taff plan health m aintenance organizations are in the best position to
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work w ith physicians and a lte r th eir behavior. Traditional indem nity plans occupy the opposite end of th e spectrum . In between, we find individual practice association HMOs, preferred provider plans and m any other interm ediate forms. V irtually all payers now have some system in place for retrospectively analyzing p attern s of medical resource utilization. These system s are designed to identify outliers (exceptionally costly procedures and tests, or individual physicians who stand out in term s of cost or intensity or treatm ent) and adverse trends (individual procedures w ith rapidly growing utilization rates). Problems identified in this way will then become the targ e t of efforts to reduce cost. Com puterized drug utilization review system s will probably place decisions regarding the use of pharm aceutical therapies under a m uch greater degree of scrutiny th an in the past or th a n other therapeutic m odalities are likely to experience in the near future: • Retrospective system s collect d a ta on prescribing behaviors th a t are analyzed “after the fact.” P a tte rn s of inappropriate or excessive use of drugs are flagged, and then become the targ e t of interventions by the operator of the system designed to alter future behavior. • Concurrent system s review prescriptions a t th e point of dispensation, checking for possible interactions w ith other medications, appropriateness for the stated indication, and possibly the potential for substitution of a less expensive product. • Prospective system s attem p t to intervene a t the point when the prescrip tion is w ritten, giving the provider inform ation and guidance. These system s vary greatly in th eir technical sophisti cation, the am ount of clinical and patient history inform ation they can access, and the extent to which they can compel compliance w ith th eir recom mendations. We can expect to see these system s grow in technical sophistication and use in the years ahead.
Drug developm ent is an inherently risky enterprise, and many promising candidates fail even to reach the market, much less achieve com m ercial su cce ss.
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'DENIAL BENEFITS A n y new diagnostic tool or therapy that can be construed as cosm etic has tended to encounter payer resistance. Although m ost payers continue to take a firm stance on cosm etic therapies, we may w ell see changes in this area.
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ituations arise th a t are alm ost certain to invite intense scrutiny, resistance by payers or both. It is useful to keep these “red flags” in m ind w hen developing a reim bursem ent strategy. They can help to identify when som ething is likely to encounter trouble, and when fu rth er “homework” m ay be needed. Some of these red flags are raised by the standard exclusions th a t appear in m ost insurance contracts. C ertainly, any therapy th a t can be construed as experim ental is likely to encounter payer resistance. Because of the regulatory reviews th a t new drugs, biologies and devises m ust undergo before they can be m arketed, this will not be an issue for pharm aceuticals in th eir approved indications. B ut it can and frequently does become an issue for “off-label” usage. It can also easily become an issue for new surgical therapies, such as dental im plants, which rarely undergo th e sam e degree of rigorous scientific testin g th a t is required of a new medicine. Given the aggressive stance FDA has recently tak en tow ard promotion of offlabel uses, it can be difficult for the m anufacturer to m ake such a case directly. Individual dentists or patients, however, need not encounter the same regulatory difficulties. Any new diagnostic tool or therapy th a t can be construed as cosmetic has tended to encounter payer resistance. Although m ost payers continue to take a firm stance on cosmetic therapies, we m ay well see changes in this area. The growing em phasis on quality of life as a valid outcome m easure and goal of therapy m ay blur the line separating cosmetic therapy from other forms of care. The basis for payer resistance in such cases will be the “medically necessary” clause th a t m ost contracts contain, ra th e r th a n any specific exclusion. Such therapies share some characteristics
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w ith experim ental treatm ents, which rem ain experim ental because no one has yet proved th a t they work. However, questions can and have also been raised about therapies th a t have been around for a long tim e b ut were never rigorously studied, or th a t sim ply do not seem to do m uch for the patients who receive them . The term “questionable efficacy” can also m ean “questionable relative effi cacy,” as when an expensive therapy appears to work no better th an a lessexpensive alternative. The use of expensive new antibiotics has also been questioned on this basis. Among potentially high-cost therapies, those w ith poorly defined utilization criteria will alm ost certainly encounter reim bursem ent difficulties. W idespread use of a costly therapy among patients who are unlikely to respond favorably can quickly erase its new economic benefits. Fortunately, such problems can often be effectively resolved, either through clinical research to define more precisely the m ost appropriate targ et patient population, or through a m arketing strategy th a t promotes the therapy to those dentists best suited for deploying it successfully. M arketing periodontal diagnostics initially to periodontists is an example of such targeting. IMPLICATIONS FOR DRUG DEVELOPM ENT
he growing willingness of third-party payers to question th e value of new pharm aceutical therapies, and to withhold paym ent, is creating, in effect, a third hurdle for developers. In the past, the combination of approval by regulatory authorities and acceptance by the health care provider comm unity were enough to assure commercial success. In the environm ent th a t is emerging, this will no longer be enough. In addition, it will become essential to win acceptance and coverage by payers on favorable term s. W inning payer acceptance will place new dem ands on the clinical research
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D E N IM BENEFITS process. Proof of cost-effectiveness rests on analysis of carefully collected data regarding w hat it is th a t these products do for patients. Clinical research provides th e only setting in which the properties of a new medicine or diagnostic te st can be rigorously m easured. Sponsors of new therapies are going to have to learn to look beyond narrow m easures of efficacy, and to consider a product’s im pact on “quality of life,” side effects and complications and use of other medical resources. They will also have to learn to collect th e cost and price data th a t will be needed to value the im pact appropriately. Payers accustomed to receiving hard scientific proof of a product’s efficacy will eventually dem and sim ilar standards of proof on costeffectiveness. Any formal move by regulatory authorities to address questions of cost-effectiveness will only speed this process. A sponsor th a t can provide rigorous evidence of substantial economic benefit will achieve earlier m ark et e n try and more rapid diffusion into w idespread use. Payers can be expected to increasingly and actively promote th e use of such therapies, even w ith the existence of well-entrenched competition. For sponsors of efficient therapies, these changes offer a new basis for product success. For practicing dentists, greater attention to the clinical usefulness of new diagnostic tests and pharm aceutical therapies would provide a m uch needed basis for ultim ately determ ining th e costeffectiveness of oral pharm aceuticals and th eir im pact on patien ts’ health in the routine practice of dentistry.
A B O U T TH E AU TH O R Kevin Neels is vice president for Health Economics at Quintiles, Inc., and head of its Cambridge office in Massachusetts. A fter he received his Ph.D. in economics from Cornell University, he served six years at Rand Corp., two years as an economist for the Urban Institute, two years with Peat, M arwick and Mitchell, and 10 years as Senior Internal Econometrics Consultant at Charles River Associates in Boston.
1. Stillm an N, Douglass CW. The developing m ark et for dental im plants. JADA 1993;124:(4)1516.
2. Douglass CW, J e tte A, et al. O ral h ealth sta tu s of th e elderly in New England. J Gerontol Med Sci 1993;48:M39-46. 3. R einhardt JW , Douglass CW. The need for operative dentistry services: projecting th e effects of changing disease p attern s. Oper D ent 1989;14:114-20. 4. Office of N ational Cost E stim ates, Office of th e A ctuary, H ealth Care Financing A dmini stration. W ashington, D.C.: U.S. D epartm ent of H ealth and H um an Services. 5. F urino A, Douglass CW. B alancing dental service requirem ents and supplies: the economic evidence. JADA 1990;121:685-92. 6. W enburg J, G ittelsohn P. V ariations in medical care am ong sm all areas. Scientific American 1982;120-33. 7. B ader FD, S hugars DA. A greem ent am ong d en tists’ recom m endations for restorative treatm en t. J D ent Res 1993 ;891-6. 8. Spilker B. M ultinational drug companies: issues in drug discovery and development. New York Review P ress 1989.
Sponsors of new therapies are going to have to learn to look beyond narrow m easures of efficacy, and to consider a product's im pact on "quality of life," side effects and com plications and use of other m edical resources.
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