Concerns Around Budget Impact Thresholds: Not All Drugs Are The Same

Published

In recent years there have been growing concerns about the total dollars spent on health care in the United States, especially biopharmaceuticals. In response to the need to manage health budgets efficiently, numerous value assessment frameworks have been developed. Some of these frameworks, such as the Institute for Clinical and Economic Review (ICER), use budget thresholds for drugs. Budget and value should not be confused, however; the former measures the use of resources, while the latter encompasses the balance of benefits and costs experienced by patients and society over time.

A budget threshold requires some type of action when spending exceeds a predetermined level. In a new study published in Value in Health, we explored the potential impact of using budget thresholds as budget caps (e.g., cannot spend more than a set dollar amount) for individual drugs.

To better understand the potential ramifications of budget caps, we examined a hypothetical budget cap based on the ICER framework’s current budget threshold ($904 million).

Our analysis found the following:

If we were to limit spending on a new drug to an arbitrary cap of $904 million, then roughly one-third of spending on new drugs launched between 2003 and 2014 would have exceeded the cap.

  • This $904 million cap is arbitrary; it is not based on the value of an individual product to a patient’s health outcomes, savings to the health care system as a whole, or other factors. An arbitrary cap on spending for a particular drug means that once the budget cap is reached, we would not be able to spend more on a particular drug, even if there are additional patients who need it. The spending instead might be shifted to a lower cost and/or potentially less effective treatment.  Yet the greatest amount of spending is often on high-value drugs—paradoxically, fixed spending caps have the potential to move health care spending away from its best uses.

If the cap prevents us from spending funds on a particular drug, then how can we ensure that these funds will be used for an efficient purpose, whether it’s for health care or other programs? How could we improve the value that we get from the health dollars that we spend?

There are challenges to addressing these questions:

  • The cost effectiveness of many top procedures and drugs by indication is unknown. This is because many “high spend,” or widely used medications, have multiple indications, but our health system does not track prescriptions based on indication (e.g., was the medication prescribed to treat high blood pressure or stroke risk). This makes it difficult to determine how much is being spent per indication.
  • The potential market for a medication is only as large as the underlying population who could be treated. Having a cost-effective medication does not mean that more people can be treated with it, since the population size is naturally limited. For example, there is a much larger patient population with diabetes than with chronic angina. Shifting resources from a cost-effective diabetes drug that exceeds a budget cap to spending on a cost-effective drug used to treat a particular patient group with chronic angina would not make sense if that population with chronic angina is already being treated.  

These results demonstrate:

  • Fixed spending caps have the potential to lower the value of a health care dollar spent by shifting dollars from high-value drugs and services to lower-value services.
  • To improve health gains, spending needs to be linked to the underlying value of a service/drug.
  • Drug spending caps of any type face significant barriers to improving health care due to cost effectiveness information gaps (both at the drug and indication level) and a rapidly changing market.
  • Increasing the value of a health dollar spent is going to require multiple approaches. For example, indication-based pricing may be an approach to account for multiple indications for drugs.