News & Commentary

‘Paying for Value’ May Be Solution for Improving Environment for Drug Costs

January 29, 2016
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With prescription drug spending at an all-time high and accounting for $374 billion in U.S. health care costs, the issue of drug pricing has landed high on the agenda for policymakers, drug companies, insurance companies, employers, and patient advocates—and solutions are in high demand.

In a recent Health Affairs blog, Anthem’s former Chief Medical Officer, Sam Nussbaum, and Eli Lilly’s Senior Vice President David Ricks argue for a new approach to drug pricing–namely, ‘paying for value’—which they say requires evaluating new treatments in relationship to the total cost of a patient’s care. For example, value might be measured according to improvement in outcomes over an established standard of care—pharmaceutical, surgical or otherwise—or by recognizing that certain individuals may experience better results than others. Most of all, the authors state, “We know from experience that value-based payments are multidimensional and evolve with experience.”

The companies have come together to suggest two major public policy solutions to help spur innovation towards tying drug pricing to value, including:

  1. Allowing for more robust communication between health plans and drug makers before a drug is approved; and 
  2. Addressing two of the most significant legal and regulatory barriers that prohibit value-based payment arrangements.

The first white paper, Facilitating Open Communication About Emerging Therapies, proposes clarifying federal law to allow health plans and drug developers to communicate about new medicines before they are approved by the FDA. 

Under the current system, regulation makes it difficult for drug developers to advise health plans on the possible impact new drugs may have once approved, including information necessary for determining appropriate reimbursement and the scope of the population that may be served by the drug. Because health plans must be priced well in advance, drug approvals can unexpectedly create cost surges and new patient populations, sending “shockwaves through the system, with late-breaking, unexpected budget impacts for the government and employers.”

The second paper, Promoting Value-Based Contracting Arrangements, advocates for removing regulatory barriers to value-based pharmaceutical pricing. The way current anti-kickback statutes and government best-price rules are written discourages drug developers and health plans from collaborating to incentivize medication adherence and drug efficacy for specific patient populations.

For example, in a value-based payment arrangement, a drug developer could pay a 40 percent rebate to a health plan for all patients who did not sufficiently respond to therapy, but charge full price for patients who did respond. In this example, the drug developer could be required to offer Medicaid programs the lower rebate price for all patients, even those who responded well to the drug. 

To learn more, read the op-ed by Dr. Samuel Nussbaum and David Ricks in Health Affairs.

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