Tuesday, 12 January 2016 18:14

Value-Based Payments for Pharmaceuticals: Forum Explores Opportunities and Roadblocks

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Pharmaceutical innovation, patient access and affordability formed the foundation of a forum organized by the Department of Health & Human Services (HHS) on November 20, 2015. Participants of the “HHS Pharmaceutical Forum: Innovation, Access, Affordability and Better Health” included consumers, providers, employers, manufacturers, health insurance issuers, state and federal government representatives, and other key players, including representatives from the American Hospital Association (AHA) and the Centers for Medicare & Medicaid Services (CMS).

The AHA reported that the group discussed the current challenges and possible opportunities to “improve patient access to affordable prescription drugs, develop innovative purchasing strategies, and incorporate value-based and outcomes-based models into purchasing programs in both the public and private sectors.”

Status Quo for Pharmaceuticals

“While the rest of the healthcare world moves toward value, prescription drug prices remain in a fee-for-service world,” stated Daniel Durham, executive vice president, Strategic Initiatives, AHIP, at the “Value-Based & Outcomes-Based Pharmaceutical Purchasing Programs” breakout session of the forum.

Even though Durham and the other four industry experts who were panelists of this session support the current movement toward value-based and outcomes-based programs, they believe that getting pharmaceuticals to that point will be a slow-moving train for a number of reasons.

For starters, pharmaceutical innovation takes time, costs money, and impacts the health of millions of patients and the bottom lines of companies and providers. As Durham and other panelists emphasized, pharmaceuticals must be affordable for everyone.

“We need to focus on sustainability,” said Durham. “The focus must be on private-sector, market-based solutions that drive value, so we’re paying for outcomes, not volume.”

He quoted a previous speaker who said, “In 20 years out, it will be outcomes equal revenue. Hopefully, we will get there a lot sooner.”

Defining Value

Under the standard value-based pricing agreements, payers and pharmaceutical companies link payment to the value achieved, rather than volume.Agreements dictate price (and/or coverage) relative to actual performance or outcomes.

However, panelist Bernard J. Tyson, chairman and chief executive officer for Kaiser Permanente, pointed out that the industry does not have a common definition of “value-based” yet. “Depending on who is promoting it, you may or may not agree with the definition,” he says.

Panelists agreed that “value” may have to be defined in different ways, which could be a monumental task. Kenneth C. Frazier, chairman of the board and chief executive officer, Merck & Co., believes that it varies by situation, saying, “To define value, we must think of it from the patient perspective—their individual lives—as well as the payer’s economic perspective.”

Dollars and Cents

Although pharmaceuticals may represent the most rapidly rising costs in government programs, they are “not the dominant driver of healthcare costs,” stated Frazier. In his opinion:

Medicines actually hold great promise for reducing future costs as we face growing rates of chronic disease and a rapidly growing aging population. Even the Congressional Budget Office has recognized that the increased use of medicines in Medicare will reduce costs.

However, getting to affordable is another story. Tyson addressed the economic perspective, citing the reality of negotiating for an affordable price in the current non-value-based world of pharmaceuticals. To his partner across the table who has set an exorbitant price for its product, he says, “I can bring 10.2 million members to this product, but I need a better price. I hear back that they would love to do that but they have this problem and that problem.” In his opinion:

There is something wrong with this picture. If the market would dictate that a pill is worth $1,000 and is truly market-based but someone can charge $10,000 for that pill, I don’t have a choice but to accept the $10,000. If I get the price down from $10,000 to $8,000, I’m still paying more than what the market would do if it was actually working on my behalf… That’s the starting point. It’s a fundamental flaw we need to address in the 21rd century.

Value-Based Experiments

Several years ago, Merck entered into a first-of-its-kind performance-based contract with the health insurer Cigna Corporation. Merck’s goal was to ensure that diabetic patients were controlling their blood-sugar levels by its products Januvia and Janumet. The drug manufacturer agreed to provide Cigna with an additional rebate if the company could show that it could get patients to their goals by taking their medicines on a regular basis.

As Frazier explained, “Instead of paying people for the amount of market share we get from that health plan, we incentivize companies like Cigna to make sure the patients got the benefits of the medicine. They got the outcome we wanted (getting patients to reach their goals), and we paid them for reaching those outcomes.”

Another panelist—Steve Miller, MD, senior vice president and chief medical officer, Express Scripts—provided another example. In 2016, his company intends to launch an indication-based formulary for certain medications. Currently, he said, the company is paying top dollar for every indication, including those where the patient outcomes are marginal.

The company’s goal is to ensure that payment for performance of a therapy aligns with the value that it delivers to each individual patient—an approach that makes therapy more affordable and accessible for all patients.

“A drug like Tarceva® (erlotinib) provides, on average, an additional five months of life for lung cancer patients compared to normal care. The same drug provides, on average, an additional 12 days of life for pancreatic cancer patients. Yet, we pay the same amount for the drug,” he reported. “We are going to change that.”

Wrapping It Up

Dr. Miller emphasized a point made by CMS acting administrator Andy Slavitt in his opening remarks. Specifically, there are no easy answers on how to move pharmaceuticals into the value-based world, but one thing is clear: A sustainable system is needed. As Dr. Miller stated:

We need to talk more about value-based and outcomes-based systems and must adopt new payment systems that continue to award manufacturers but also make patient access and affordability available.

The question remains: What can pharmaceutical manufacturers, government agencies, healthcare payers, and patients do to make for a better future? All of the components of the system must work together for things to change.

All panelists agreed that more experiments to achieve this are needed.

The above panel discussion, along with other forum breakout sessions, can be found at https://www.youtube.com/watch?v=vjUkhIzJtkc&index=7&list=PLrl7E8KABz1G1mxcJg6MxcVzXndRT-7CL

About the Author

Janis Oppelt is the editorial director for Panacea Healthcare Solutions.

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Last modified on Tuesday, 12 January 2016 18:23

Janis keeps the wheel of words rolling for Panacea®'s publishing division. Her roles include researching, writing, and editing newsletters, special reports, and articles for RACMonitor.com and ICD10Monitor.com; coordinating the compliance question of the week; and contributing to the annual book-update process. She has 20 years of experience in topics related to Medicare regulations and compliance.