New Drug-Pricing Concept

Published on: Aug 16, 2018
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Which is more expensive, paying for a maintenance/preventive medicine or paying to treat a condition that subsequently arises from not taking preventive measures?

The health care industry is grappling with this question as it struggles to pay for increased preventive care services, as mandated by the Patient Protection and Affordable Care Act, or ACA. A recent study compared the costs of these two scenarios.1


A new trend in insurance is “value-based insurance design,” which essentially means medical care is paid for based on the overall outcome of patient health rather than via payments for each a la carte service rendered. This new study explored the idea of providing high levels of coverage for certain drugs that are effective at preventing certain conditions. The idea is that, ultimately, the patient will incur lower overall health care costs by not developing the condition, or experiencing a less severe version, if he or she adheres to a preventive drug treatment plan.2


The problem is many patients don’t see the point of taking an expensive medicine for a condition they may or may not develop in the future. Given all of life’s competing priorities, paying for a medication of this nature can take a back seat to daily household expenses, or simply saving money.


However, this study found that when a recommended prescription drug was fully or largely covered by their insurance plan, patients were more likely to fill and take those prescriptions. The general conclusion was that, given increased patient compliance, an insurer’s increased drug spending was offset by decreased spending in other areas, such as costly hospitalizations. Ultimately, the increase in drug coverage did not drive up the total cost of insuring those patients.3

The ACA legislation authorized pilot programs to explore the cost/reward impact of value-based insurance design. The goal is to provide enough preventive care to as many people as possible to prevent the onset of chronic conditions later in life, which can be more expensive to treat. With enough participation, such value-based insurance design plans could be key in reducing health care expenses on a larger scale.4

1Institute for Healthcare Policy and Innovation at the University of Michigan. July 9, 2018. “Pay Less, Take More: Success in Getting Patients to Take Their Medicine.” Accessed Aug. 16, 2018.
2 Ibid.
3 Ibid.
4 Ibid.


What Are Drug Formulary Exclusions?

Most health insurance plans publish a drug formulary, which is a list of prescription drugs covered by that plan. The insurer may periodically add and remove drugs on the formulary to help control expenses. When a drug is not covered, this is referred to as a “formulary exclusion.” 1

Often, patients must try a variety of drugs to find the most effective option for their situation. Therefore, eliminating coverage for a particular drug can disrupt an ongoing treatment plan and worsen a patient’s condition, particularly if there are few other alternatives on the formulary. A recent study by the Doctor-Patient Rights Partnership, or DPRP, revealed that, since 2014, drug formulary exclusion lists have increased by nearly 160 percent.2

Work with your health care provider to find the right medications for you that will also be covered by your health insurance plan. If you have questions, don’t hesitate to ask your provider or your pharmacist.

1Sara Heath. PatientEngagementHIT. Jan. 4, 2018. “Drug Formulary Exclusion Lists Reduce Patient Access to Treatment.” Accessed Aug. 16, 2018.


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