Pharmaceutical Industry May Hold the Key to Implementing Value-Based Care

Under former President Barack Obama, the US Centers for Medicare and Medicaid Services (CMS) made significant efforts to transfer at least 50% of Medicare spending to value-based care, rather than the traditional fee-for-service payments.

The CMS believes that paying physicians for quality over quantity will lead to lower costs and improved patient outcomes. However, it is still unclear how healthcare providers are responding to these payment models.

Looking at practices implemented by pharmaceutical companies may provide additional insight into how to remedy problems with value-based care and which practices to avoid, according to a perspectives article published by The New England Journal of Medicine.

Despite this type of payment model being relatively new to healthcare providers, it has been used by insurers and pharmacy benefit managers (PBMs) for many years. To ensure that patients are choosing high-value drugs and generics, PBMs and insurers sort prescription drugs into tiers, which corresponds with price.

This practice requires less out-of-pocket spending for preferred drugs, compared with non-preferred drugs that are in the higher tiers. Tiering drugs on a formulary also allows PBMs to decrease costs by leveraging placement during price negotiations, according to the article.

For pharmaceutical manufacturers, being placed in a lower tier results in higher sales, compared with a drug placed in a higher tier that is linked to a higher copay.

Recently, manufacturers have started issuing discounts to offer assistance with out-of-pocket costs if a certain drug is placed in a high tier. Coupons and other discounts directly counteract the effects of tiering, since some patients may now pay less for a non-preferred drug than they would for the preferred drug, according to the article.

These discounts can remove incentives to take high-value drugs, and can reduce the likelihood of a manufacturer negotiating lower prices for being placed in a preferred tier.

Some pharmaceutical companies may even choose to place a high price tag on a drug included in the formulary, and offer discounts to increase use. These actions may cause insurers to remove the drug, which could increase patient harm from not being able to access the proper treatment.

Coupons for prescription drugs are now becoming more prevalent online, and are even offered in some magazines. The popularity of these coupons has increased the number of prescriptions for brand-name drugs by more than 60%, and increased drug spending $30 million to $120 million during the 5 years after generic entry into the market, according to the article.

For healthcare providers, insurers are demanding discounts by leveraging inclusion in limited networks. These requested discounts may be more substantial in areas where other providers are available, and financial incentives may be given to patients to steer them towards approved providers, the authors wrote.

Similar to pharmaceutical manufacturers, some providers may charge high prices to remain out-of-network for some plans, and then waive cost sharing for the patient. Providers may also lobby for legislation that limits an insurer’s ability to limit their network, which is comparable to insurers lobbying to include all drugs in 6 categories for Medicare Part D reimbursement.

Some providers have also begun taking legal action against insurers. In 2013, the Seattle Children’s Hospital sued the insurance commissioner after they were excluded from a majority of plans being sold on health exchanges, according to the article.

Additionally, providers may decide to increase promotional efforts through direct-to-consumer advertising to ensure that they remain in-network with low prices and cost sharing.

Providers may also choose to differentiate themselves by improving patient outcomes and experiences, much like a breakthrough drug from a pharmaceutical manufacturer, according to the article. Of the aforementioned possibilities, this is the most meaningful option since it results in better outcomes.

When Virginia Mason Medical Center received complaints about high costs and poor care for patients with back pain, they created a special clinic to treat these patients. The Spine Clinic uses screening questionnaires to determine the severity of the pain, and has been able to reduce costs related to the use unnecessary imaging, prescriptions, and specialists, according to the article.

Fostering successful innovation to improve care will require extensive collaboration among healthcare stakeholders. Through identifying potential issues ahead of time and formulating a counteraction, providers and other stakeholders will be able to create a beneficial value-based healthcare system, the article concluded.