Written By: Cheryl Reifsnyder, PhD
Prescription drug spending in the United States hit $535.3 billion in 2020, a 4.9% growth rate from the previous year.1 In an effort to curb rising healthcare expenses, the U.S. healthcare system is moving toward value-based care and away from fee-for-service healthcare.2-5 Value-based care is a system in which providers—including hospitals and physicians—are paid for performance and patient outcomes. This differs from the traditional fee-for-service and volume-based delivery models, in which healthcare providers are paid for the amount of healthcare services they provide rather than the quality of those services.2, 6
“The benefits of a value-based healthcare system extends to patients, providers, payers, suppliers, and society as a whole.” – The New England Journal of Medicine6
Value-based care provides tangible benefits for every stakeholder in the healthcare environment.6
- Patients: Value-based care provides patients with improved outcomes at lower costs
- Providers: Value-based care provides higher rates of patient satisfaction and better care efficiencies
- Payers: Value-based care introduces stronger cost controls along with reduced risk, because risk is spread across a larger patient population
- Suppliers: Value-based care aligns prices with patient outcomes
- Society: Value-based care reduces overall healthcare spending while providing better overall health
As a result, there is an increased focus on value-based solutions in the life sciences, as biopharmaceutical companies attempt to use an outcomes-driven approach to pricing.
There is pressure from all sides to shift to value-based contracts. The public is calling for it—pharmaceutical prices have been coming under intense public scrutiny of late. Providers are calling for it, as well; three notable provider organizations—the Mayo Clinic, the American Society of Clinical Oncology, and the Memorial Sloan Kettering Cancer Center—recently issued recommendations for dealing with the high costs of oncology drugs. Payers are also calling for it, attempting to cut the costs of expensive specialty pharmaceuticals by developing value-based contracts with life sciences suppliers.2
There is a growing need for life sciences organizations to start addressing this payment trend in all areas of functioning to avoid being left behind. In this article, we will look at some of the approaches life science groups are exploring, and the key factors required to make these solutions a reality.
Aligning product costs with patient outcomes
In the biopharmaceutical and medical device industries, value-based contracting is defined as any contractual agreement between a manufacturer and payer in which payment for a therapeutic agent is tied to its real-world clinical outcomes. In other words, value-based contracting is any contract that links the amount and timing of a payer’s payment for a drug or medical device to the safety and efficacy benefit it delivers.2
This sort of contract can be structured in many different ways. However, all of them are built on the fundamental premise of tying payments to real-world value.2
One approach has been to align products and services with positive patient outcomes, tying reduced costs to positive outcomes via rebates or reimbursements. Reduced cost is an important selling factor in an era where national health expenditures continue to rise.
Aligning product costs with product performance
Medical technology companies are entering into contracts with hospitals and health insurers that tie payment incentives to product performance, rather than tying costs directly to patient outcomes. Value-based pricing is dependent on the product delivering real-world results similar to those seen in clinical trials. The hospital or payer may receive a reimbursement if the product fails to perform its function.7-10 In other cases, the hospital or payer pays one price if the product achieves a specific quality target, and another if it fails to hit the target.5, 11
Several major medical device vendors have made agreements with hospitals sharing the risk of new products. They may compensate the hospitals if the device fails to meet clinical standards. Alternatively, the agreement may both cover the device and guarantee a specific health outcome. This risk-sharing approach benefits providers by reducing the risk of trying new treatment options. It benefits life sciences suppliers by helping to accelerate market acceptance of new medical devices.12
Risk share by product
This type of contract differs from a product or service guarantee because the rebate is tied to some other cost in the process, not the actual cost of the product.
For example, a risk-sharing contract might offer to cover a patient’s hospital costs if the medication or medical device fails to prevent hospital admission. A similar approach has been used successfully with pharmaceuticals: a pharmaceutical company introduces a money-back guarantee for patients who experience a life-threatening event after using the guaranteed medication as prescribed for a specified period of time. In some cases, they refund the cost of the medication; in other cases, they refund the cost of the medication plus costs for hospital admission and treatment.13, 14
Veradigm’s unique portfolio of solutions provides data-driven, actionable insights and are derived from best-in-class analytics. When integrated with point-of-care technology solutions, Veradigm is poised to help improve the quality, efficiency, and value of healthcare. Veradigm’s value-focused solutions can help life sciences organizations to:
- Align products and services with positive patient outcomes and reduced costs
- Promote medication adherence, extracting greater value from filled prescriptions
Veradigm AccelRx™ is a specialty medication fulfillment solution which streamlines the specialty medication fulfillment process to enable patients to receive specialty medications more rapidly which, in turn, also helps to promote medication adherence.15
Veradigm StudySource facilitates clinical research as it leverages electronic health record (EHR) systems to identify eligible study patients for sharing data with research sponsors. It is structured to help life science researchers gain access to real-world information, allowing them to advance research efforts by making research more accessible to more clinical practices.16
Veradigm’s Real-World Evidence and Analytics resources promote advances in real-world clinical research, driving improvements in both quality of care and value of care. Real-world data is a powerful tool for life science researchers, either independently or as an addition to clinical trial data. Veradigm’s linked data products allow researchers to use real-world data from a variety of sources.17
Veradigm offers two Clinical Data Registries operated in association with the American College of Cardiology, the PINNACLE Registry® and the Diabetes Collaborative Registry®. These clinical data registries offer a longitudinal view of health outcomes for patients with cardiovascular disease and diabetes as they receive care and treatment from multidisciplinary care teams.18
To learn more about Veradigm’s value-focused solutions for Life Sciences, contact us.
- New Report Finds COVID19 Pandemic Causes Dramatic Shift in Prescription Drug Spending. American Society of Health System Pharmacists® (ASHP); April 20, 2021. https://www.ashp.org/news/2021/04/21/new-report-finds-covid19-pandemic-causes-dramatic-shift-in-prescription-drug-spending?loginreturnUrl=SSOCheckOnly.
- Sen I. Value-Based Contracting: Key Considerations for Life Sciences Manufacturers. Huron Consulting Group Inc. Accessed October 10, 2021
- Pillai I. How are medical device companies responding to value-based healthcare? Clarivate™. Updated August 6, 2018. Accessed October 11, 2021, https://clarivate.com/blog/medical-device-companies-responding-value-based-healthcare/.
- Shadan M. MedTech innovation amiss unless it serves health systems transitioning to value-based care. Becker’s Health IT. Updated September 13, 2017. Accessed October 11, 2021, https://www.beckershospitalreview.com/healthcare-information-technology/medtech-innovation-amiss-unless-it-serves-health-systems-transitioning-to-value-based-care.html.
- Implications of value-based care for the life sciences industry. Baker Tilly. Updated October 20, 2019. Accessed October 10, 2021, https://www.bakertilly.com/insights/implications-of-value-based-care-for-the-life-sciences.
- NEJM Catalyst. What Is Value-Based Healthcare? NEJM Catalyst. Updated January 1, 2017. Accessed October 15, 2021, https://catalyst.nejm.org/doi/full/10.1056/CAT.17.0558.
- Barlas S. Health Plans and Drug Companies Dip Their Toes Into Value-Based Pricing. Pharmacy and Therapeutics. January 2016;41(1):39, 40, 41, 53.
- Stynes T. Novartis Reaches Entresto Pay-for-Performance Deals With Cigna, Aetna. The Wall Street Journal. Updated February 9, 2016. Accessed October 13, 2021, https://www.wsj.com/articles/novartis-reaches-entresto-pay-for-performance-deals-with-cigna-aetna-1455038859.
- Staton T. Novartis defies naysayers with newfangled pay-for-performance deals on Entresto. Fierce Pharma. Updated February 10, 2016. Accessed October 13, 2021, https://www.fiercepharma.com/sales-and-marketing/novartis-defies-naysayers-newfangled-pay-for-performance-deals-on-entresto.
- Humer C. Novartis sets heart-drug price with two insurers based on health outcome. Reuters. Updated February 8, 2016. Accessed October 13, 2021, https://www.reuters.com/article/us-cigna-novartis-drugpricing-idUSKCN0VH25K?feedType=RSS&feedName=healthNews.
- Bryant M. GE, Medtronic among those linking with hospitals for value-based care. Healthcare Dive. Updated March 29, 2018. Accessed October 14, 2021, https://www.healthcaredive.com/news/ge-medtronic-among-those-linking-with-hospitals-for-value-based-care/519039/.
- Hodsden S. Medtronic, J&J, St. Jude Pursuing Risk-Sharing Agreements With Hospitals. Med Device Online. Updated July 9, 2015. Accessed October 14, 2021, https://www.meddeviceonline.com/doc/medtronic-j-j-st-jude-pursuing-risk-sharing-agreements-with-hospitals-0001.
- LaMattina J. Outcomes-based Pricing Not A Panacea For High Priced Drugs. Forbes. Updated May 27, 2019. Accessed October 12, 2021, https://www.forbes.com/sites/johnlamattina/2019/03/27/outcomes-based-pricing-not-a-panacea-for-high-priced-drugs/?sh=5476bfa35c23.
- Hand S. Is Amgen’s Outcomes-Based Pricing Model for Repatha Benefiting Patients and Payers? Xtalks. Updated April 6, 2018. Accessed October 12, 2021, https://xtalks.com/amgens-outcomes-based-pricing-model-for-repatha-1258/.
- Veradigm AccelRx™ Veradigm. Accessed October 18, 2021, https://veradigm.com/accelrx/.
- Veradigm StudySource. Veradigm. Accessed October 18, 2021, https://veradigm.com/veradigm-studysource-point-of-care-research/.
- Real-World Data: A Comprehensive Guide. Veradigm. Accessed October 18, 2021, https://veradigm.com/comprehensive-guide-of-real-world-data/.
- Clinical Data Registries. Veradigm. Accessed October 18, 2021, https://veradigm.com/clinical-data-registries/.