Many of today’s health care headlines call out high-cost therapies. Cost can be a particular problem for potentially transformative therapies where there is uncertainty about long-term results.
For health insurance providers, there are the added questions of a therapy’s impact for different types of patients and as part of a combination therapy, as well as the uncertainty of recouping investment in a therapy, as patients may move around from one insurer to another.
One potential solution for these issues is value-based payment arrangements for potentially transformative therapies – tying payments to either observed or expected outcomes, said Aparna Higgins, CEO of Ananya Health Innovations, during AHIP Institute & Expo Online.
At a high level, speakers categorized payment models for medical products as:
- Volume-based price: These arrangements are either purely volume-based (with price reflecting expected value, not observed value) or volume-based with a value adjustment (where the adjustment is based on expectations of value, not observed value)
- Alternative payment models:
- Payment is partially or fully delinked from sales volume and linked to outcomes in the covered population.
- Payment is based on sales volume, with adjustment based on outcomes in treated patients or populations.
- Limited: Outcomes adjustment is based on a limited set of performance measures and affects a relatively small share of payment.
- Substantial: Outcomes adjustment involves a substantial share of payment linked to meaningful performance measures.
VBP arrangements are already more common than is widely known, Higgins said. She cited a survey of 12 biopharma manufacturers and 13 insurers where 80% reported experience with value-based arrangements between 2014 and 2017. However, 70% of the value-based arrangements implemented between those years were not publicly disclosed. Manufacturers and insurers, respectively, report that approximately 33% and 60% of early discussions translated into signed contracts.
Benefits and barriers
The benefits of moving toward VBP models for therapies include better results with more value, faster and/or improved access to therapies, reinforcement of value-based payment reforms for providers and support for the collection of better real-world data and evidence.
Dr. Michael Sherman, chief medical officer and senior vice president for Harvard Pilgrim Healthcare, explained that FDA approvals of transformative therapies based on limited data can create “a conundrum” for insurers, who may be willing to cover a drug but are concerned about the price tag. VBP models are “one way to overcome that tension.” Value-based agreements “offer a framework for not letting our antiquated financing system stand as a deterrent to patients getting the therapies that we would want them to have,” he said.
However, there are several barriers in the current marketplace:
- Legal and regulatory barriers, including restrictions on manufacturer/provider collaborations, off-label communication restrictions and drug-pricing rules designed for volume-based systems
- Operational barriers, including administrative burdens, identifying outcome measures, data collection and interoperability
- Additional considerations, including value definitions and frameworks, as well as financing mechanisms for high upfront costs of therapies with long-term benefits
Sherman points out that a fair starting price for the therapy and an appropriate VBP agreement can be very helpful in overcoming barriers and improving access.
“The juice has to be worth the squeeze,” he said. For example, when a manufacturer proposes a value-based agreement for a diabetes drug it claims will lower total cost of care but it is only willing to risk for 2% of the spend on the drug, “that really doesn’t make it worthwhile, and it’s hard for us to invest resources.” That is one reason that Harvard Pilgrim focuses on more transformative therapies, like gene therapies and oncology drugs, he said.
Speaking from a manufacturer standpoint, Doug Danison, senior vice president and head of market access at bluebird bio, said that before settling on what to charge for a therapy, bluebird grounds itself in the following principles:
- Fair recognition of value (such as lifetime cost effectiveness)
- Shared risk
- Per-patient affordability
- Health system affordability.
To ensure that health insurance providers and manufacturers reach a mutually beneficial agreement, future value-based arrangements would benefit from a framework to guide the negotiation and implementation process, Higgins said.
To that end, the Duke-Margolis Value-Based Payment for Medical Products Consortium is bringing together insurers, health care providers, manufacturers and patient advocates to talk about regulatory, policy and operational considerations that come up in designing these kinds of payment models.
The consortium recently developed a framework for VBP models that will be helpful for negotiating payment arrangements for innovative medical products and for helping to track reforms, improve evidence and support analysis of policies related to medical product payment.
Danison noted that when it comes to improving access to innovative but high-priced medical products, “it takes a whole ecosystem of people coming together to solve the problem because each of us is responsible for a different part of the problem.”