Adoption of New Drugs, Devices and Treatments

How actuaries can forecast the utilization of new technologies on the market Krishna Faldu


The rapid pace of scientific and technological advances has propelled a new era in biopharmaceutical innovation. Today’s pipeline of new medicines is vibrant, diverse and incredibly promising for patients. There are more than 15,000 new technologies in development, with 74 percent of them having the potential to be first-in-class.1

New drugs, devices and treatments will only be effective to the extent they are accepted by clinicians and their use is facilitated through adequate financing and organizational support. There are many factors that influence the adoption of new technologies. These factors are interrelated, which makes predicting adoption challenging.

Factors that influence the adoption of new drugs, devices and treatments include (but are certainly not limited to):

  • Availability of current treatments
  • Effectiveness of current treatment compared to new treatment
  • Severity of the disease state
  • Patient population affected
  • Cost of the treatment
  • Administration of treatment
  • Capital investment involved
  • Accessibility

It is important to note that the categories of medical innovation, such as drugs, devices and treatments, each have a separate set of issues. Therefore, the factors determining their adoption should be discussed separately.

Adoption of Medical Drugs

Medical drugs are medications that require administration by a medical professional either in an office or hospital setting, such as IV infusions or new gene and cell therapies.

If a new medical drug is meant to treat a condition that has few, if any, effective treatments, then the other factors influencing adoption become less of an issue as payers are more likely to cover the treatment and providers are more likely to use the treatment as they don’t have many other options. This is also the case for technologies that have the potential to become the new standard of care due to their increased efficacy and/or safety over current treatments.

However, if there are other effective treatment options, providers and payers must determine the value of the new treatment. Payers develop coverage policies to manage and guide utilization of new treatments, which in turn influence provider adoption. When developing coverage policies, payers take into consideration not only the cost of the drug, device or treatment, but also the professional and administration costs involved with the technology, which could include the cost of diagnostic tests, the cost of treating adverse reactions and the cost of procedures involved in administering a new technology.

In addition to the professional and administration costs associated with a new medical drug or treatment, the complexity of the treatment can influence providers’ adoption of a new medical drug. Providers need time to become educated and comfortable with a new treatment before administering it to patients, and that can delay adoption—especially for conditions with other effective treatment options available since the value of the new treatment has yet to be determined. On the other hand, the adoption rate increases when there is a large or underserved patient population eligible for a new treatment, as providers may prioritize that technology.

Adoption of Pharmacy Drugs

A pharmacy drug is medication dispensed at a retail pharmacy, such as oral tablets and self-administered subcutaneous injections. The adoption of pharmacy drugs is influenced by many of the same factors as medical drugs: new treatments for conditions that currently don’t have any effective treatment options, first-in-class treatments or those with a novel mechanism, and drugs that impact a large patient population are expected to be adopted faster.

One difference between medical and pharmacy drugs is that pharmacy drugs do not have professional and administration costs. Patients can take the pharmacy treatments on their own, making them more convenient than medical drugs, which in turn increases the likelihood of adherence by patients. Higher patient adherence results in better outcomes; so in cases where there is a new oral treatment that replaces the need for a medical treatment, providers tend to adopt the new pharmacy medication more quickly.

Just as cost and utilization of medical drugs are managed by medical policies, pharmacy drugs are managed by formulary design and tier placement. Cost-effective drugs and those with better clinical outcomes typically are placed on preferred drug lists, which increases the adoption of the treatment by providers.

Adoption of Generic Drugs

The U.S. Food and Drug Administration (FDA) requires generic drugs to have the same quality and performance as brand-name drugs. The FDA states: “Generics have the same quality as brand-name drugs. When a generic drug product is approved, it has met rigorous standards established by the FDA with respect to identity, strength, quality, purity and potency.”2

The difference between generics and brand drugs comes down to cost. Not only do generic manufacturers not have to spend as much money on clinical trials, there is also robust competition among many generics that reduces prices for generics drugs to a fraction of the reference product. Generics account for 89 percent of prescriptions dispensed, but only 26 percent of total drug costs in the United States.3

Generally, once a generic is available on the market, it’s fair to expect immediate adoption. Of the different categories of medical innovation, generics tend to have some of the fastest adoption rates.

Adoption of Biosimilars

As previously noted, pharmaceutical drugs have reduced the cost of many medical treatments tremendously, and they even have come to dominate some therapeutic categories. However, the adoption of biosimilars has, so far in the United States, lagged in comparison to some other countries. The FDA has approved 23 biosimilars since 2010, but only a few have made it to market and their presence has not reduced the spend on biologics. Biologics account for 37 percent of U.S. drug spend despite making up only 2 percent of prescription dispenses.4

One reason why there is slow adoption of biosimilars is that the American legal system makes knocking down patents very difficult. Humira, which is one of AbbVie’s top-selling drugs, has four FDA-approved biosimilars now, none of which can be launched because the patents haven’t expired. In addition, the biosimilar makers have agreed to delay launch to avoid costly patent litigation. Meanwhile in Europe, multiple biosimilars of Humira are on the market.

Another barrier to adoption for biosimilars is the lack of education about these new products among physicians and pharmacists. This is what differentiates biosimilars from generics.

Generics are considered interchangeable with their reference products, and state substitution laws mandate their use when available. That is not the case for biosimilars, for which doctors need to be convinced about the safety and efficacy. A study published in the American Journal of Managed Care in June about gaps in oncologists’ use of biosimilars pointed out that physicians have appeared wary of prescribing the drugs, with more than half reporting unfamiliarity with them and more than one-third saying they never prescribed them. In another survey, 30 percent of physicians would not prescribe a biosimilar to a treatment-naive patient.5 With so few biosimilars on the market, providers do not prioritize learning about them.

Adoption of Medical Devices

Medical device innovation has been pivotal to the advancement of health care and improved quality of outcomes. Unfortunately, the health care industry is known for its slow adoption of medical devices, since implementing new devices requires an investment of time, money and other resources.

While novel devices may provide advanced treatment options and improved quality of life, the high costs associated with the devices—and other costs such as surgery for the implantation of the device, anesthesia and hospital costs—can create challenges for hospitals. Because of high research and development costs, the expense of clinical trials and market factors, an innovative medical device tends to carry a high price tag. Additionally, manufacturers may set prices higher hoping that the Centers for Medicare & Medicaid Services (CMS) also will set reimbursement rates higher, which results in the cost of a new device being significantly higher than the current treatment option. For example, an average 273.3 percent increase in price over the predicate medical device was found in a review of Vizient data for several recent innovative cardiovascular medical device introductions.6

Another determinant in the slow adoption of medical devices is that new devices are rarely reimbursed adequately at the time of FDA approval. It takes an average of six months from approval for a device to be assigned a diagnosis-related group (DRG) code. Additionally, hospitals will want to make sure payers cover the new device before investing in the new technology; otherwise they risk losing money on each procedure if they choose to be an early adopter of a new device.

New devices that are disruptive—meaning they address an unmet need—provide improved outcomes, have relatively low clinical risk and are favorable financially are easy to justify adopting, as they are a win for patients and hospitals. Most devices don’t fall into that category. Instead, most new devices provide a competitive edge to treatment options that are already on the market. Physicians may be experienced and comfortable with the current devices, so they don’t see the value in learning to perform a new procedure with a new device without clear clinical evidence of improved outcomes.

Why It Matters

Projecting the adoption of new technologies on the market helps actuaries forecast utilization. For example, there may be an extremely expensive treatment approved for a condition that already has a number of effective treatments; therefore, we wouldn’t expect much utilization. Accurate projections of utilization are important in setting premium rates or budgets, as well as in trend forecasting.

Clinical areas in the payer space are interested in the adoption of newly approved technologies because they are responsible for the development of cost and utilization management policies. Cost management strategies include techniques such as innovative contracting solutions using value-based or outcome-based contracts, or ceding cost through stop-loss or reinsurance coverage. Utilization management strategies include prior authorization, step therapies and formulary design.

Provider groups and hospitals need to understand the adoption rate of newly approved technologies to develop communications and policy bulletins to advise and educate physicians and health practitioners of the costs, uses and adverse events of new drugs, devices and treatments in the pipeline. The advance notice of upcoming technologies allows health care staff to be trained and prepared to adopt the new treatments. It also alerts them to the possible future changes in health care delivery.


As drug costs continue to rise and create challenges for payers and providers, there is a need for a proactive approach to managing trend and spend while maximizing the quality of health care for patients. Understanding the factors that influence the adoption of new medications will be crucial in the implementation efforts aimed at maximizing the value of care individuals receive.

Krishna Faldu, ASA, MAAA, is an actuarial director with Optum Advisory Services.

Copyright © 2020 by the Society of Actuaries, Chicago, Illinois.