Value-based contracts provide promise and potential

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There has been significant focus and attention paid to the issue of drug prices in the last few years. As Adam Fein, president of Pembroke Consulting Inc. and chief executive officer of Drug Channels Institute, has said, “Drugs are 12% of the costs, but 90% of the ­conversation.”

Dan Leonard, National Pharmaceutical Council

Dan Leonard

Fortunately, the spirited national conversation about drug prices opens up new opportunities to find solutions that benefit all stakeholders. But first, another statistic: The growth curve for prescription medicines has slowed. Spending on medications among employer health plans was up only 1.5% in the past year, and spending on nonspecialty medicines actually declined. Spending on prescription medicines is far outpaced by spending in other sectors of the health care economy, yet there are few proposals aimed at reducing costs in other ­sectors.

At the National Pharmaceutical Council, we believe that the promise and potential of value-based contracts, combined with an improved understanding of the true costs in health care, dramatically reduced low-value care, and necessary legislative and regulatory changes, can help to create a system that promotes value, access, innovation and evidence.

Value-based contracting

Value-based contracts, also known as outcomes-based contracts, are an innovative payment model that links coverage and reimbursement levels for drugs to their effectiveness. Although value-based contracts can provide earlier access to biopharmaceuticals and offer more efficient pricing mechanisms, there are barriers to fully realizing their potential. Fortunately, the Food and Drug Administration has recently issued new guidance that provides clarity on how and when health care economic information can be shared between drug makers and payers. NPC’s research has shown that payers want this information and that their current decision making is limited by the available data. Having more information to make decisions benefits everyone.

Improved understanding of costs

A little more than a year ago, NPC partnered with Health Affairs to launch a new series on health spending. As Health Affairs editor Alan Weil said in his introduction to the series, “The United States is an outlier not only in how much we spend on health care, but [also] in the absence of formal mechanisms to consider how much we spend or how we allocate our ­spending.”

As aggregate health care spending nears $3 trillion and 18% of gross domestic product, it is critical that we improve our understanding of costs. Concurrent with the new series, NPC also launched Going Below the Surface, a research initiative to explore the different dimensions of health care spending. It is our belief that the national health care spending discussion had devolved into blame and finger pointing, and that a new emphasis on collaborative solutions that benefit patients — and indeed all stakeholders — was needed. It is our goal to delve deeper, to understand not only what we spend but how well we spend.

Reducing low-value care

The Institute of Medicine has estimated that we waste $765 billion in health care expenditures annually. In 2016, NPC partnered with the Altarum Institute to improve our understanding of low-value care, including proposed definitions and measures. Not surprisingly, consensus was difficult to achieve, and interview participants struggled with what they perceived as ethical territory. However, they did agree that there are some elements of low-value care that need immediate attention, including medical errors, pricing failures (unjustified price variation), and overuse and overtreatment. We continue our work on these vexing issues, as has Altarum, which has teamed with the Center for Value-based Insurance Design on a research consortium to address low-value care.

Legislative and regulatory changes

In our response to the Request for Information on the Department of Health and Human Services’ Blueprint to Lower Drug Prices and Out-of-Pocket Costs last summer, we emphasized to Secretary Alex Azar that biopharmaceutical innovation has played a key role in improving health outcomes. However, there are government price reporting barriers that hinder the realization of the full potential of value-based contracting. For example, Medicaid Best Price rules create strong incentives to limit the rebates that manufacturers can provide for medications covered under Medicaid.

Further, there is uncertainty about how the anti-kickback statute aligns with value-based contracting. In NPC’s view, the statute prohibits biopharmaceutical manufacturers from using risk management tools that could improve patient outcomes. Research shows that 20% to 30% of prescriptions are never filled, and as many as 50% are not taken as prescribed. Estimates suggest this nonadherence costs our health care system between $100 billion and $289 billion every year. If more safe harbors are created, manufacturers could institute programs that give patients the best chance of successful treatment, bolstered by education, coaching, case management and monitoring.

NPC believes that the government is heading in the right direction by considering these changes. However, there are other potential moves that we believe would be harmful to our health care system, including index pricing linked to foreign countries. Adopting such a pricing scheme could lead to rationing and inhibit patient access.

If these steps are taken to drive the health care system in the United States toward greater value for all stakeholders, then the country will be able to realize a shared vision of a system that inspires innovation, relies on strong evidence, and aspires to and delivers value and access. It is our hope that we will move closer to this shared vision in 2019.

Dan Leonard is the president and chief executive officer of the National Pharmaceutical Council.



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