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Navigating Payment Reform

The Big Tent of Value-Based Care Has Room for Big Pharma

Article · November 20, 2017

At Intermountain Healthcare and other integrated health systems, prescription medications represent the fastest-growing expense category — rising by about 13% per year. Contrast that with increases in salaries and other types of expenses, which (along with revenue gains) are in the low single digits.

During the past 35 years, the percentage of national health expenditures on prescription drugs has increased from 4.7% to 9.8%, whereas the portion spent on hospital care has decreased from 39.4% to 32.1%. In some respects, that shift is good news: medications are improving health and prolonging lives, and the decline in hospital spending (as a percentage of overall health care spending) reflects successes in coordinating care and keeping patients healthier. But rising spending on prescription drugs also raises a fundamental question:

As payers and providers work together to improve value, will pharmaceutical companies join that effort, or will they act as vendors that merely maximize short-term profits for shareholders?

Pharma Knows It Holds a Stake

Payers and providers are realizing that the overall value of care will not improve unless they collaborate. Take Intermountain’s practice of embedding mental health professionals in its primary care practices: per member per year, the approach costs $22 up front but saves $115 in emergency department (ED) visits and other expenses down the road. Intermountain’s insurance company sees the savings for only a minority of patients, but focusing on overall value across all patients reveals the wisdom of the investment.

Integrated and non-integrated health systems that involve all stakeholders in improving value will fare better in the long run. Greater attention is focusing on Pharma as one of those stakeholders. So far in 2016, at least 14 U.S. state legislatures have considered bills to address the rising cost of prescription drugs and to increase transparency on how pharmaceutical companies price their products. If market forces cannot control costs, regulation will step in, as the pharmaceutical industry is aware. A recent article in Pharmaceutical Executive magazine notes, “Making outcomes-based arrangements simple and workable for payers will be critical to mitigate additional price regulation and access restrictions that are being proposed by public and private payers, politicians, and other stakeholders.” And in January 2016, Eli Lilly and Anthem made a joint announcement about legislative and regulatory options for promoting value-based contracting arrangements.

How to Integrate Pharma in Value-Based Care

Achieving value-based care will clearly be a joint effort. We briefly propose four ideas for fully engaging pharmaceutical companies in that endeavor:

  1. Rebates based on a drug’s effectiveness. A manufacturer could contractually agree that when a patient does not respond to therapy as expected (from results in pivotal clinical trials), the company will rebate the cost of the therapy. For example, in 2004, Novartis contracted with Intermountain’s Health Plan (now called SelectHealth) for such an initiative involving its valsartan (Diovan) blood pressure–lowering products. If a patient did not reach the target blood pressure set by his or her physician while taking the drug as directed, the patient was reimbursed for the copays or the cost of the medication. The initiative also provided adherence-enhancing initiatives (e.g., education kit, medication tracker, pill box, monitor, pedometer). This approach worked well for well-defined therapeutic endpoints while lowering the cost to payers (and patients) for poor outcomes. But it demanded resources for managing the rebated and refunded copays, collecting data and tracking outcomes, and overseeing complex data-sharing arrangements. This approach was also challenging in patients with multiple comorbidities taking several medications, as therapeutic success or failure wasn’t always clear. And in some cases, it was tough to ensure that patients were taking medication as directed.
  2. A capitated or fixed rate per patient. A manufacturer could contract with a payer for such a rate for each of its medications — or for any of its medications within a therapeutic category. With that rate as one data point, patients and their physicians could decide on the appropriateness and feasibility of treatment. Advantages include more-predictable expenses (for the payer) and copays (for the patient); challenges include how to pinpoint the best contracted price.
  3. Collaboration with health systems in bringing drugs to market. The average time from discovery to drug approval is about 12 years, at an average estimated cost of $2.1 billion. Integrated health systems, such as Intermountain, have the ability to aid in bringing new medications to market more quickly and economically. As drug therapy becomes more individualized, real-world data must augment evidence from randomized controlled trials. Intermountain can offer access to data from large numbers of patients, and widespread use of its electronic health record can facilitate data collection and analysis for regulatory decisions (e.g., about additional indications and populations).
  4. Joint analysis, with providers, of prescribing practices. This analysis, using national practice guidelines and care-process models as benchmarks, would help to track prescribing behavior, medication adherence, and related patient outcomes. Although medication adherence increases treatment costs, total-care costs usually decrease (thanks to fewer ED visits and hospitalizations). Drug makers could become more of a partner in formulary-management efforts that focus on long-term quality and costs.

These four proposals are not the only ways to involve Pharma in value-based care. Each health system will have to consider these and other possibilities — and then tailor them to its own needs and populations. But the overarching goal is perhaps best captured by an excerpt from a 1950 speech at the Medical College of Virginia, by George W. Merck. Then president and chairman of Merck & Co., he said, “We try to never forget that medicine is for the people. It is not for the profits.” All stakeholders in health care would do well to follow that sage advice from a pharmaceutical company executive. Achieving value-based care is difficult when some stakeholders operate outside the tent. Providers, payers, and patients are waiting with open arms for drug companies to come inside.

This article originally appeared in NEJM Catalyst on September 14, 2016.

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