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The Role of Medicines in Value-Based Payment and Health Care Delivery

On June 16, BPC hosted its third forum in a three-part educational series on affordable medicines. In opening remarks, BPC Senior Vice President Bill Hoagland noted that though health care is shifting from a volume-to a value-based payment system, this transformation has been slower to take root in the pharmaceutical industry save for a few innovative models. Former Senate Majority Leader and BPC Co-Founder Tom Daschle highlighted the challenges of defining value in the pharmaceutical industry and stressed the importance of having a neutral space to openly explore these complex issues.

Dr. Mark McClellan, director of the Duke-Margolis Center for Health Policy and both a former administrator at the Centers for Medicare and Medicaid Services and commissioner at the Food and Drug Administration, presented a keynote address on the day’s topic: integrating pharmaceuticals’ in a value-based payment system. Dr. McClellan explained that the rate of drug spending is rising faster than the rate of inflation and other health expenditures. He highlighted several examples of innovative payment models, such as indication-specific pricing, to maximize health outcomes and reduce costs. He stressed that paying for value and performance requires evidence-based, cost-effectiveness research. McClellan explored the current pharmaceutical formulary tier system, suggesting that such a model is not necessarily consistent with value-based payment, but rather determined largely by brand-name and generic labels.

Pharmaceuticals in Value-Based Payment Models

Following Dr. McClellan’s remarks, the audience heard from panelists representing provider, patient, pharmaceutical, and payer perspectives. Dr. Anand Parekh, a senior advisor at BPC, moderated the discussion with Alex Azar II of Lilly USA, LLC; Jonathan Blum of CareFirst BlueCross BlueShield; Eleanor Perfetto, PhD of the National Health Council; and Lowell Schnipper, MD of the American Society of Clinical Oncology (ASCO).

Alex Azar opened the discussion by examining the concept of value in the pharmaceutical sector. Azar reasoned that the competitive market inherently measures value through the price negotiations in a third party payment system. Still, according to CareFirst analysis, pharmaceuticals currently account for one-third of claims costs. With this in mind, Jon Blum stressed the importance of integrating pharmaceuticals into total-cost-of-care models as well as other value-based payment designs.

There was consensus among the panelists on the importance of including patient perspectives of value in new payment models. The National Health Council has developed a rubric to assist patients, payers, and providers when determining which models are patient-centered. Echoing Perfetto’s sentiment, Dr. Schnipper highlighted the decision framework ASCO developed to promote joint decision-making between oncologists and patients in cancer treatment.

Though panelists debated how to define “value,” there was agreement that opportunities exist to improve the current pharmaceutical pricing and reimbursement system.

Barriers in the Transition to Value-Based Payments

There was a general consensus that a lack of transparency of claims and lab data, as well as long-term outcomes, has inhibited the movement to value-based payments. Panelists discussed that if this data were readily available, it would be easier for payers and providers to coordinate care, leading to better outcomes and lower costs. Some urged that future CMS policies and regulations on payment models adopt a more patient-centric focus, taking into account the complexity of an individual’s health.

Value is a Dynamic Concept

Panelists stressed the importance of flexibility in payment models because the concept of value is dynamic: the impact of a particular therapy might vary between different populations and changes over time. Blum noted access to real-time claims data and real-world evidence would not only assist in creating better models but also help monitor the effects of new payment structures that have been implemented. Azar, stressing the importance of flexibility in payment models for pharmaceuticals, identified how unintended consequences might result from federal regulations, for example, the creation of price ceilings. Because of the stagnant nature of price setting, he noted the difficulty in determining a launch price of a drug without the opportunity to adjust for its real-world impact.

Health Care Consolidations’ Impact on Value-Based Models

Responding to the latest trend in health insurance consolidations, one audience member inquired about the potential impact on value-based payment models. Panelists recognized a dichotomized view on health care consolidations and their effect on costs, citing mixed conclusions. Consolidations increase a company’s bargaining power; however, Dr. McClellan cited case studies of several small clinics which were able to reduce prices through improved care coordination and infrequent hospital admissions. Additionally, Blum highlighted CareFirst’s success in the market, attributing customer satisfaction and reduced costs to better care management.

Next Steps

The rising cost of pharmaceuticals has prompted an important national discussion. Though this was the last scheduled forum in BPC’s educational series, we will continue to examine the role, and affordability, of medicines in the move to greater value in health care.

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