Impact of Government Cost Controls on Treatment Selection for Clinical Pathways


The Access Group, Berkeley Heights, NJ


Richard Stefanacci: The Access Group; 400 Connell Drive FL2; Berkeley Heights, NJ 07922; Tel: 908.508.6714


Dr Stefanacci is the chief medical officer for The Access Group, a managed markets agency for pharmaceutical companies. He has received speaking fees from Allergan and Pfizer; serves on advisory boards for AbbVie, the ASCP Foundation, and the AMDA Foundation; and has provided consulting services to AstraZeneca, Baxter, Boehringer Ingelheim, Lundbeck, Otsuka, and Leo Pharma. Dr. Guerin is the senior director for Government Policy System and Analytics for The Access Group, a managed markets agency for pharmaceutical companies.

Key Words

Abstract: The increasing emphasis on value-based care has led to the rise of clinical pathways and their use in various health care settings for a number of different disease states. To improve these pathways and ensure that they do not limit patients’ access to treatments, government and private payers are continuing to evaluate how treatment and utilization tactics can be modified to impact the quality of clinical outcomes. In this article, the authors examine some of the different cost control levers the government could use to affect drug pricing and/or utilization, which, in turn, can have an impact on the treatments selected for and placed within clinical pathways. 

Key Words: prescription drug costs, value-based care, clinical pathways, government cost controls, drug pricing

Citation: Journal of Clinical Pathways. 2016;2(2):43-46. 

Received November 3, 2015; accepted January 4, 2016.


The continued importance of value-based care has led to the rise of clinical pathways and their use in various health care settings for a number of different disease states. The clinical pathways being developed today increasingly recommend specific treatments based on their value relative to other treatments, with value being defined by the treatment’s costs, in terms of price and utilization, as well as the quality of life and clinical outcomes associated with the treatment. To improve the development of these pathways and prevent them from prohibiting patients’ access to effective treatments, the government and private payers are continuing to evaluate how treatment and utilization tactics can be modified to improve the quality of clinical outcomes.

In an effort to decrease costs, the government, as lead payer, along with other stakeholders, is examining the application of several levers at their disposal to control costs (Figure 1). These efforts will have a significant impact on which treatments are placed within clinical pathways, affecting patients, providers, and payers.

Examination of where action needs to be taken typically starts where costs are highest. This is often the case with orphan drugs, or drugs that are intended to treat a rate disease or condition. Without competition, payers are forced to pay asking price for these treatments on clinical pathways. Another group of medications that are under cost scrutiny are those that have competition but are still associated with high costs due to pricing, utilization, or both.


In terms of pricing, the government has three main methods to control costs: strengthen buyer pressure on sellers; extend rebates; and increase competition. Adjusting these facets on the price side of the value scale can help to ensure that only preferred drugs at reasonable price points are used in clinical pathways.

Buyer Pressure

Pressure from buyers on pricing can range from minor to substantial. An extreme approach—often referred to as the “nuclear option”—is eminent domain.1,2 Eminent domain is when a government entity, such as a state, is looking to build a road for the public good and needs land in order to do so. A state agency determines the value of land needed to complete the road and, if the land is privately owned, pays that amount to the owners. The land is then used by the state for the public good. However, because it is illegal for private owners to refuse the state, the method can often cause significant backlash. 

In theory, the same principle can be applied to intellectual property. If a company has an asset that could benefit the public good but is blocking access to that asset such that the public good is negatively impacted, the government can step in, determine fair value, and take that asset. One can only imagine the impact of the application—or even the threat of the application—of this principle on pharmaceuticals. In fact, the potential threat of this application may be enough to achieve the desired outcome of lower prices, thus allowing more appropriate access to medication on clinical pathways for medications previously limited because of a perceived high price.

US presidential candidate Hillary Clinton recently proposed another form of buyer/government pressure: allow the government to purchase pharmaceuticals directly.3 This method is currently being used in a number of developed countries that offer a nationalized health system, including Germany, France, and the United Kingdom;4 however, implementation can be extremely difficult. One serious complication is that Medicare does not purchase drugs directly but rather is administered by several hundred individual private plans. Further, while Medicaid was a major buyer in the past, its pharmaceutical purchasing power has since decreased significantly. This change was the result of Medicare taking over the management of pharmaceuticals for Medicaid recipients5 and many states mandating a managed Medicaid plan.

The government could also help influence price standards by allowing re-importation of pharmaceuticals, which would allow US payers and patients to benefit from the buying power of other governments. Re-importation has been used in the United States before when, prior to Medicare Part D, an increasing number of states were allowing provider groups to assist their residents in reducing their out-of-pocket costs by purchasing prescription drugs from other countries.6,7 However, pharmaceutical companies consistently lobby and litigate against this practice primarily on the basis of quality concerns. Early in 2015, a federal judge in Maine struck down a state law allowing patients to purchase drugs outside of the United States. The Maine Pharmacy Act was similar to a federal proposal that has consistently failed to advance through Congress.8 Thus, while direct governmental purchasing may sound promising on a political level, there are many barriers to implementation.

Although legislative measures can greatly influence price, buyer pressure is not limited to the government; it applies to commercial payers as well. Larger payers typically have the ability to negotiate for lower prices of drugs because they represent so many patients. This is also why some payers, such as Humana and Aetna, chose to combine and become larger, and the same argument may be made to the Federal Trade Commission by similar organizations in the future so that they might also merge. Government agencies could act similarly, as they did in the past when states came together to pool their buying power in negotiations with pharmaceutical companies prior to the introduction of Medicare Part D. The promotion of large, group purchasing organizations would be a method for the government or private organizations to indirectly exercise buying strength, though the possible benefits must be weighed against potential negatives, such as decreasing competition and discouraging innovation. 


Forced rebates, such as Medicaid’s 23.1% required rebates,9 Medicare’s coverage gap rebate,10 and the application of 340B pricing,11 already exist within market, but the Centers for Medicare and Medicaid Services (CMS) can extend their reach to further lower drug prices. These programs can offer relief from high drug prices either by increasing the percentage of the rebate or by altering the program’s pricing structure. Attempts have been made to expand government-mandated Medicaid rebate to all Medicaid beneficiaries, as these rebates are currently required for Medicaid fee-for-service and Medicaid managed care beneficiaries separately but are currently not applied to the 8 million dual-eligible beneficiaries. Currently, dual-eligible beneficiaries have no forced rebates because they do not have a Medicare coverage gap or coverage through Medicaid. Expanding to this demographic would allow all Medicaid beneficiaries including those that are dually covered by Medicare and Medicaid to access the rebates. A similar application could be used in 340B pricing so that more drugs and patient populations would be eligible for the Medicaid rebate. All of these activities would expand Medicaid rebates to additional populations, significantly affecting the prices of drugs. 


In the context of a capitalist market such as the United States, competition among different organizations are generally the main force by which drug prices are held in check. The expansion of generics and the recent promotion of biosimilars are examples of some of the ways in which competition has effectively managed costs. In the past there have been attempts to expand patents—either through official research in pediatrics or the development of patent-preserving follow-on agents—but these applications may face significant restrictions going forward in an effort to increase competition and reduce medications’ patent lives. This would allow generics to become available sooner at lower costs and then be added to clinical pathways in preferred positions, leading to improved value for patients.


While price controls are an effective method of managing costs, careful attention must also be paid to how treatments are being utilized. Ineffective or inappropriate utilization of medications can severely inflate costs. Utilization has always been managed by payers in an attempt to control costs. Today, many payers are expanding their use of utilization management (UM) methods to control costs, such as prior authorizations (PAs), step edits, and quantity limits. In addition, UM methods are often being implemented automatically on the basis of drug price increases by flagging PAs if they rise to certain levels.12 These efforts are reaching new heights in addition to an increased emphasis on comparative effectiveness. Utilization is also being managed to ensure that patients are receiving the right treatment through the implementation of screeners, such as genetic testing, to avoid payments for inappropriate treatments.

There are tools that the government can exercise on the utilization side of the value equation as well. Through limiting access and utilization, the government can restrict use to only labeled indications, study inclusion/exclusion criteria, national coverage determinations, and Medicare payer guidance on coverage. Interestingly, the Medicare Payer Guidance program provided direction to Part D prescription drug plans, indicating they did not have to cover Lexapro® (escitalopram), despite being in a protected class, simply because CMS believed it was not worth forcing coverage.13,14 Here again, clinical pathway inclusion was based on perceived treatment value.


Utilization control is also being applied to prescribers directly as well as to payers, with some prescribers receiving bonuses based on their use of generic products. In addition, this control is being applied through sophisticated and complex programs, such as the oncology bundled payment model, or at-risk models such as accountable care organizations (ACOs). A number of tools have since been developed to assess which products have the greatest value, such as the American Society of Clinical Oncology (ASCO) Value Framework, which aims to make it easier for prescribers to make value-based treatment decisions.15 It is important to note that, currently, Medicare ACOs only share the risk for utilization of Part B medications and not Part D medications. However, the extensions, as they currently exist with most commercial ACOs, could force inclusion of all medications. These efforts would encourage utilization reductions through prescribers and could be applied within clinical pathways.


The final consumer of pharmaceuticals is, of course, the patient. As such, patients can be incentivized to make decisions that impact utilization in specific ways. This comes in the form of what was originally termed as a patient’s “skin in the game,” a reference to the Medicare donut hole. The principle is based on the idea that, by increasing patients’ out-of-pocket (OOP) costs, they will be more inclined to manage their own treatment utilization. Of course, we see this applied daily through the implementation of tiered insurance plans with varying patient OOP costs to encourage decreased utilization of nonpreferred agents. The most radical of these applications would be the elimination of Medigap insurance. Medigap insurance, which eliminates OOP costs for the majority of Medicare beneficiaries, results in zero OOP costs for Medicare Part B. As such, it is argued that as a result, utilization is inappropriately high.

This lever is probably the least likely to be adjusted though, as patients’ OOP costs have actually seen decreases, such as those applied through the filling in of the Medicare coverage gap.16 While this approach will not affect the placement of specific treatments in a clinical pathway, it could impact patient adherence to clinical pathways. 


It seems just a matter of time before government stakeholders adjust one or more of these cost control levers in the value scale. The more interesting question will be which levers are in need of development and to what extent they should be changed. And will changing one element of the value scale be enough to create lasting impact, or will a complete overhaul of the health care system need to be made? Would doing so harm pharmaceutical innovation? To avoid such a fate, proactive and careful management of pharmaceutical pricing and utilization, and thus costs, will be needed to prevent potential negative outcomes to patients because of limits on innovative medications being available to patients. Clinical pathways will certainly play an important role in how these changes are made because they favor treatments deemed to have high value—which may be increased as a result of levers being applied by stakeholders on costs. The hope is that these manipulations will not adversely impact access to innovative products, but rather improve outcomes for patients today and in the future.  



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