Volume to value trifecta: Purchasing, pricing and premiums
By: John Doyle, DrPH, MPH | June 27, 2016
This is the second in a 10 part series of trends impacting the biopharma industry.
Macroeconomic pressures and austerity measures continue to impact the global marketplace, and the ongoing transition of reimbursement models from volume-to-value in U.S. healthcare is building momentum in 2016. To accommodate this transition, biopharma companies have a clear mandate to price products based on value, and to link their value-based price to metrics that already govern payment contracting. If they do not proactively define their value appraisal, others will do it for them.
This value play is rolling out in three inter-related mechanisms: purchasing, pricing, and premium/coverage setting.
The shift triggered by the Affordable Care Act to coordinated care and quality-based reimbursement also continues to drive change in the way purchasing decisions are made. By the end of 2016, the U.S. Department of Health and Human Services (HHS) aims to tie 30% of fee-for-service Medicare payments to quality or value through alternative payment models. On March 11, 2016, the HHS issued a proposed rule for a two-phase Part B drug payment model “that would test whether alternative drug payment designs will lead to a reduction in Medicare expenditures, while preserving or enhancing the quality of care provided to Medicare beneficiaries.” The first phase would change the 6% add-on to Average Sales Price (ASP) under Part B to 2.5% plus a flat fee. The second phase would implement value-based purchasing tools similar to those employed by commercial health plans, pharmacy benefit managers, hospitals, and other entities that manage health benefits and drug utilization. HHS believes the new model will drive more efficient spending on care for Medicare beneficiaries.
This shift is already producing knock-on effects in the private sector as managed care organizations model similar approaches under their adopted “triple aim” mantra of improving population health, enhancing the quality of care and reducing costs. In January 2016, Lilly and Anthem produced a paper promoting value-based contracting arrangements with policy proposals to help drive payment innovation. Their goal is to create an environment conducive to allowing health plans and manufacturers to enter into a variety of value-based contracting arrangements that align with the shift toward value-based payment and promoting access to high-value care. In February 2016, BIO issued a set principles on value, supporting ‘novel value-based and outcomes-based contracting arrangements…alternative financing and payment mechanisms’ or similar options.
In conjunction with the move to value-based purchasing, there is increasing pressure for drug prices to clearly reflect value to the patient. In October 2015, Reuters quoted Steven Pearson, president of the Institute for Clinical and Economic Review, as saying, "Americans at the same time are getting tremendously ripped off with drugs and also getting tremendous value and we almost never know when we're getting ripped off and when we're getting real value, and that has to change."
Indeed, many healthcare stakeholders have pioneered pharma valuation schemes, most evident in oncology, with proposals from the American Society of Clinical Oncology (ASCO) and others. On February 10, 2016, HHS Secretary Sylvia Burwell told the House Ways and Means Committee that her department is considering issuing guidelines on an executive action, known as ‘march-in rights’, to fight high drug prices. This applies where federally funded research was used to create a new drug, allowing HHS “to break a drug patent when the price is too high and not available to the public on reasonable terms,” reports The Hill. The HHS later rejected the proposal.
Value-based medicine is not about cutting costs. It is about optimizing the cost effectiveness of therapy. Clinical proof – once sufficient foundation for product success this therapeutic area – must today be complemented with compelling demonstration of treatment value.
Value-based insurance design
The third arm of this value-drive transformation is insurance design. Value-based formularies are also increasingly taking hold among private payers in the U.S., including Premera Blue Cross, CVS Caremark and Anthem. Payers are also applying value-based decision-making to their insurance product design, shifting economic risk to consumers as shown by the remarkable uptick in high deductible health plans. With some 50 million patients purchasing insurance from either private or public exchanges by 2018, healthcare consumerism is firmly taking root. Since 2010, deductibles for all workers have increased around three times as rapidly as premiums, and some seven times as fast as wages and inflation.
What does this mean for biopharma?
Biopharma companies are already being pushed to price products based on value, and to link pricing to metrics that already govern payment contracting, and they clearly stand to benefit by being more proactive in establishing an objective scorecard for their products.
The challenge now is adopting new tools and strategies to demonstrate value as a way to justify pricing in a value driven world. The Journal of the International Society for Pharmacoeconomics and Outcomes Research recently published research by a team at Quintiles profiling an evidence-based appraisal framework for oncology drugs describes a systematic and evidence-based approach to appraising a drug’s relative performance. Quintiles' multi-attribute valuation methodology, which takes into account efficacy, safety and economic factors to synthesize relative value created by pharmaceutical interventions, was applied to a cohort of 10 oncologic therapies. Five key value attributes were considered:
The results indicated that the evidence-based appraisal framework allows simplification of comparison of relative performance of oncology treatments. By including cost, the framework can provide a systematic mechanism to compare relative value of these treatments.
Regardless of the framework utilized, a tailored valuation must embrace each stakeholder’s unique perspective. Historically, biopharma has largely left patients to the world of direct-to-consumer advertising. Yesterday’s DTC was geared to educating with the purpose of starting the conversation between patient and provider. Tomorrow’s DTC needs to put the ‘consumer’ back in direct-to-consumer and personalize the value proposition to patients who are making critical decisions about their healthcare not only based on risk and benefit, but also price.