What Prescription Drug Pricing Can Learn From Value-Based Care Models

During this past year, momentum has increased to make healthcare more accessible and affordable: Highlights in the realm of increasing accessibility to affordable care and streamlining user experiences include Amazon acquiring primary healthcare provider One Medical; and Walmart inking a deal with UnitedHealth Group to provide care to Medicare Advantage patients at in-store clinics. And in the strongest government steps to date to reduce patient costs for prescription drugs, President Joe Biden signed into law the Inflation Reduction Act.

All of these developments are a move toward healthcare that is priced fairly for the value it delivers. In the technical sense, value-based care refers to U.S. health systems and providers receiving increased payments from health insurers and the government agency that oversees Medicare and Medicaid when patient outcomes meet or surpass certain goals—and decreased payments if patient outcome goals are not met. The model is based on paying for quality rather than quantity of services; and in many cases, care-providers and payers share at least part of the financial risk. Today between 6% and 15% of all healthcare revenue stems from value-based contracts. Although still a relatively small part of overall healthcare and with challenges of its own, it is one of the best answers to growing consumer demands for quality care at a fair price.

A similar model based on value and patient outcomes is needed when it comes to prescription drugs, a key part of healthcare that is suffering from rapidly growing prices. Currently, most drug prices are based on negotiations between health insurers and pharma companies, and often consider business aspects like how many drugs an insurer is buying from a particular pharma company, rather than how much a drug improves patients’ lives or reduces future care costs. But really, patients and payers, including both health insurance companies and the government-backed programs Medicare and Medicaid, should be able to pay prices based on the value that medications and therapies deliver.

Indeed, this is starting to happen with the emerging practice of value-based contracting, which allows payers to base their price negotiations and payment models on how well a medication works in real life, with pharma companies accepting payments in installments as patients make progress, or even reimbursing insurers for medications that did not deliver the expected results.

As pharma becomes part of the value-based revolution, there are several lessons that can be learned from the ongoing development of value-based care.

A proactive approach

At its core, value-based care takes a proactive approach, treating people before they become sick, or sicker.  Examples of this include health plans that cover diagnostic blood tests or wearable and home devices that can monitor blood pressure or sleep. These can detect problems at their earliest stages, making them easier, and often cheaper, to treat.

Drug-pricing can learn from this model of being proactive and thinking ahead. For example, if insurers knew that a medication could reduce future care costs by a certain amount, they could use that figure to arrive at a fair purchase price. Basing prices on outcomes like this will become even more important as multi-million dollar gene therapies, which aim to cure patients or drastically reduce the effects of disease, become more common. It may very well be worthwhile to cover the growing number of potentially life-saving and life-changing drugs, including Bluebird Bio’s $2.8 million gene therapy for a blood disorder. But payers also need to know the drug actually works, and through value-based models can share some of that risk with pharmaceutical companies, with steps like paying in installments, or receiving reimbursement if the drug does not deliver its expected result.

The importance of data-sharing and EHR interoperability

One of the main obstacles holding back the growth and success of value-based care is the challenge of sharing data between providers. In fact, a recent study found that when data and electronic health records are shared in user-friendly systems, outcomes are better for both patients and caregivers in value-based care models.

This is an important lesson for those working to implement value-based contracting for prescription drugs. As a common system where all parties will have access to the health history of a patient, including the drugs they have been prescribed, and their outcomes is essential for value-based contracting. For example, record interoperability will provide a way to follow patients as they move between doctors and insurers, take new medications and receive any new treatments or diagnoses. This will be essential in order to set up and carry out refunds for drugs that do not work, a key part of value-based contracting.

The importance of incentives–and government support

Recently, physicians working in value-based care plans that are part of Medicare saw their federally-funded bonus for this type of care reduced to 3.5% from 5%. The bonus helps cover costs associated with starting up value-based care models, including analytics and work-flow software and reaching out to new and underserved patients. Amid the reduced bonus, a group of bipartisan senators is supporting a new bill to increase these payments. Several groups, including the American Medical Association, have voiced support for the proposed legislations and are lobbying for increasing or restoring the 5% bonus, as they say it is crucial for expanding value-based care and lowering healthcare costs for the long-term.

With value-based contracting the incentive is inherent, as overall drug costs will be reduced. But it would still be worthwhile for policy-makers and industry groups to consider offering incentives to participating insurance companies to cover startup costs. For example, to enact value-based contracting, payers do need to invest in a digital platform to keep track of patient outcomes in order to quantify the value of a drug.

Policy-makers could also smooth the road for such a transition by enacting regulations or industry standards for value-based contracting. For example, insurance companies using this model would benefit from a system that ensures any reimbursements or installment payment schemes are distributed fairly when patients change insurance plans or providers.

It is clear that government support, including many programs involving Medicaid and Medicare patients, has been instrumental for the emergence of value-based care.If Medicare and Medicaid programs embrace value-based contracting, it could have a domino effect on the private sector, causing more private insurers to also consider the model. This is actually more possible today than ever before; as the Inflation Reduction Act has given Medicare the ability and authority, for the first time, to negotiate prices with pharmaceutical companies.

With the right approach, it is indeed possible to bring prescription drugs into the realm of value-based medicine. And the time is now. It’s something that must be done in order to ensure that the life-saving and life-changing drugs being developed today, including million-dollar gene therapies, reach the patients who need them, and that drug costs overall become more affordable and more fair to those paying for them.

Photo: Devrimb, Getty Images