Will Health Insurers Cover Digital Pills?

February 02, 2018

Woman rising hand

Digital technologies are changing the face of health care. First it was wearable devices and mobile apps, now it’s smart pills. The Food and Drug Administration has recently approved the ingestible sensor, the Abilify MyCite System. How effective will it be in the treatment of mental illness? Our experts Julia Ehrhardt and Mike Zhu asked payers.

The US FDA recently approved the first digital medicine system, Abilify MyCite. Otsuka Pharmaceuticals and Proteus Digital Health collaborated to enhance Otsuka’s antipsychotic Abilify for the treatment of schizophrenia, bipolar I disorder, and major depressive disorder. By embedding a Proteus sensor in the pill, Abilify MyCite works by tracking drug ingestion in patients. This “digital pill” provides family members and care teams with information on patient adherence patterns.

Media buzz surrounding the approval of Abilify MyCite has begun to pick up steam as it marks the first time a pharmaceutical integrating technology was approved. The extensive press coverage of Abilify MyCite indicates that many are enthusiastic about the potential of digital pills. However, the question remains if health insurance providers share the same excitement. Simon-Kucher recently checked in with payers from a few countries around the world to gauge expectations for this new innovation.

We have been waiting for digital pills to be approved for a while as the technology has been ready. – French CEPS expert

None of the payers approached in this study, not even those from the US, have discussed Abilify MyCite at an organizational level. However, payers are generally aware of Abilify MyCite’s approval. Many have put individual thought into how they expect to approach management of digital pills. Currently, Abilify MyCite is only approved for use by the FDA, yet multiple individuals in the EU and Japan are aware of the innovation. Across all markets, payers are intrigued by the potential of digital pills, but require additional data to support rewarding the innovation.

Digital pills will add the most value in indications that decrease hospitalizations. That is our biggest cost driver. – US payer

Andrew Thompson, CEO of Proteus Digital Health, stated in an interview with MobiHealthNews that digital pills create a “window of opportunity for innovation that leverages the entire library of drugs that already have been discovered.”

While optimistic, this statement underlines a key point. Proteus’ technology is primed to enhance adherence for existing drugs across a wide range of indications. We probed for which indications payers believe digital pills could provide the greatest impact. They commonly stated both diabetes and transplant immunology.

Healthcare insights

Drugs for these indications have two characteristics in common. First, they require regular usage, often multiple times per day, to be effective. Second, when patients miss doses, they frequently end up in the hospital ER, or even the ICU. It’s clear that digital pills will derive their highest value in indications where adherence is paramount, and where the consequences of non-adherence are most dire.

Will it matter if someone takes Abilify MyCite for one year and they have improved adherence? I also want to see the clinical or economic benefit of that improvement. – US payer

Intuitively, digital pills appear to be an obvious benefit to payers. According to a review in the Annals of Internal Medicine, medication non-adherence results in $100-$289 billion in additional annual cost to the US healthcare system. However, payers require clear evidence demonstrating the benefits of digital pills in order to reward the innovation. For a subset of payers, a significant adherence improvement is enough to demonstrate value. This may prove difficult to achieve in a clinical trial setting, where adherence rates tend to be much higher than in the real world. That said, for most payers adherence improvement is not enough to reward digital pills. They question whether adherence improvement translates into improved outcomes — which is what they really care about. Instead, these payers require an improvement in clinical outcomes (e.g., reduction in cardiac events) or a reduction in healthcare resource utilization (e.g., reduction in hospitalizations).

Healthcare insightsIn the case of Abilify MyCite, this could mean reduced hospitalizations or fewer ICU stays. These data requirements are not easy to satisfy and may limit the reimbursement potential for digital pills.

In the case of Abilify MyCite, this could mean reduced hospitalizations or fewer ICU stays. These data requirements are not easy to satisfy and may limit the reimbursement potential for digital pills.

Digital pills can clearly be used in the context of performance-based contracting or risk-sharing contracts. – French CEPS expert

Given these burdensome requirements from payers, there may be an opportunity to demonstrate the value of digital pills through innovative contracting. Continued advancements in data collection have given these contracts a bit of a renaissance in payers’ eyes. Payers expressed a willingness to engage in innovative contracts tied to adherence (for those who find adherence to be enough) or clinical outcomes/healthcare resource utilization. In such a contract, digital pills could likely achieve a price premium over non-digitally enabled drugs in its class. However, the manufacturer would owe a rebate to payers should the product fail to meet defined endpoints.

If [digital pills] improved outcomes or decreased other medical costs, we would embrace them. You would be crazy not to. – US payer

Let’s say manufacturers are indeed able to fulfill the significant data requirements asked for by payers. Will payers follow through on their intention to reward these innovations? Companion diagnostics for high-cost therapies may serve as a relevant analog in attempting to answer this question. Clinical data supporting many of these products has enabled more targeted prescribing of these high cost therapies.

Yet, not all payers have demonstrated a willingness to substantially reward companion diagnostics. They struggle to quantify the value of these innovations. Therefore, manufacturers should be skeptical of any payer promises to reward digital pills. Innovative contracting could be a solution to this dilemma. By tying payers and manufacturers to contractual agreements, each side would be forced to hold up their end of the bargain.