Actuarial Notes

Reimagining Pharmacy Financing

By Joan C. Barrett, Tony Pistilli, Nathan Stokes and Gregory Warren · Society of Actuaries Research Institute · 2024

Study guide: Exam GH-301

A March 2024 Society of Actuaries Research Institute report, sponsored by the Health Section Council, on prescription drug affordability. It discusses an alternative to policy solutions: reimagining commercial pharmacy financing with a value-based reimbursement methodology that increases transparency, encourages competition, aligns stakeholder incentives and mitigates total cost of care (TCOC) increases.

On the syllabus

  • Exam GH-301 — Disease Management, outcome 2b; Sections 2 (background) & 3.

1 Executive Summary

  • 1.1 Defining Value
  • 1.2 Measuring Value
  • 1.3 Rewarding Value

2 Defining Value

  • 2.1 Introduction
    • Background
    • About this Report
  • 2.2 Value Definitions for Diabetes and High Cholesterol
    • Stakeholders
    • Value Definition Frameworks
    • Type 2 Diabetes Case Study
    • High-Cholesterol Case Study
    • Applications of Value Definitions

3 Measuring Value

  • 3.1 Introduction
  • 3.2 The Decision-Making Process
    • Benefit Structure
    • Financial Decisions
  • 3.3 The Data
  • 3.4 Methodologies
    • Methodology Overview
    • Pre-Post Index Event Methodology
    • Propensity-Matching Methodology
    • Risk Adjustment
  • 3.5 Results and Commentary
    • Hypercholesterolemia: Index Method
    • Hypercholesterolemia: Propensity Score Method
    • Hypercholesterolemia: Risk Adjustment Methodology
    • Type 2 Diabetes: Index Method
    • Type 2 Diabetes: Propensity Method
    • Type 2 Diabetes: Risk Adjustment
  • 3.6 Lessons Learned
  • 3.7 TCOC Value Measures
    • The Criteria
    • Constructing a Guarantee

4 Rewarding Value

  • 4.1 Defining Success
    • Increasing Transparency
    • Encouraging Competition
    • Mitigating Total Cost of Care Increases
    • Aligning Stakeholder Incentives
  • 4.2 Measuring Value
    • The Current Landscape
    • The Value Stack Concept
  • 4.3 Applying the Concepts
    • Price Setting
    • Risk Management and Affordability
  • 4.4 Enhancing the Infrastructure
    • Closing the Analytical Loop
    • Value Stack
    • Total Risk Analysis
  • 4.5 Next Steps

5 Acknowledgments

Appendix A Index Method Technical Documentation

Appendix B Propensity-Matching Technical Documentation

Appendix C Risk-Adjustment Technical Documentation

Sources