New whitepaper identifies limitations in using ICER’s “potential budget impact” work to guide private payer budget decisions

Holly Campbell
Holly Campbell January 18, 2019


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new whitepaper authored by Bruce Pyenson, F.S.A., M.A.A.A. and colleagues from Milliman explains why Institute for Clinical and Economic Review (ICER) potential budget impact analyses are not very useful for private payers’ budget decisions.

The whitepaper’s authors identify several weaknesses in ICER’s budget impact analysis, which they believe limits the usefulness of this approach for private payers, including:

  1. Different payers can come to different decisions about the impact of a new medicine based on their own circumstances.  ICER analyses focus on the average population, each payer has a distinct patient population with different incidences of particular diseases.
  2. Payers have varied techniques to manage costs to a budget. Private payers can use a variety of cost-sharing tools and management strategies when figuring out what medicines to cover. However, payers cannot account for these tools if they use ICER budget impact analyses to determine how covering a new medicine will affect their budgets.  
  3. ICER does not consider the potential impact of a new medicine on prices for existing medicines. Prices of medicines can go up or down as new medicines enter the market. However, these dynamics are not taken into account by ICER when analyzing a medicines’ budget impact.  
  4. ICER does not consistently use real-world data and assumptions in their incremental cost calculations. ICER does not consider cost-sharing tools or other existing medicines on the market, which makes it difficult for private payers to use ICER’s calculations.  These are real-world circumstances that payers must reflect.
  5. ICER does not present detailed models that would enable payers to make adjustments for their own circumstances. Without access to the detailed models ICER uses for its analyses, private payers are unable to adapt or modify ICER budget impact analyses to reflect their own unique situations.
  6. ICER’s budget threshold can vary greatly from year to year. ICER uses the average number of Food and Drug Administration approvals from the prior two years as its basis for determining a medicine’s budget threshold.  This is problematic because this number can vary widely.  For example, the annual number of approvals in 2016 was 22 and more than double that in 2017 (46).  
  7. ICER focuses disproportionately on new medicines, but new medicines might not have the most important budget impacts. ICER’s focus on new medicines ignores the effect of medicines already on the market, which often account for more spending than new medicines.
  8. ICER bases the allowable spending increase for the budget impact threshold calculation on general inflation.  ICER uses Gross Domestic Product (GDP) growth plus 1 percent as the allowable spending increase for the budget impact threshold.  This value is not consistent with historical spending or projected future spending on medicine.

This whitepaper follows another Milliman whitepaper released last year showing how ICER’s cost-effectiveness assessments are misaligned with the needs of private payers for decision making. Other research has shown that using ICER assessments to determine medicine coverage could significantly limit patients’ access to life-changing innovative therapies.

Read the full Milliman report to learn more about limitations of using ICER’s budget impact analyses for private payer budget decisions.

Topics: Out-of-Pocket Costs