Delivering value in cost-constrained healthcare environments
pharmafile | February 14, 2013 | Feature | Manufacturing and Production, Medical Communications, Research and Development, Sales and Marketing | Cost, MSI, NHS, VBP, austerity, value
As millions of pounds, euros and dollars are cut from healthcare budgets around the world – driven by austerity measures – and with no indication that this will change in the foreseeable future, the pressure is on pharma companies to demonstrate real ‘added value’ for new and more expensive therapies.
Failure to achieve this justifies the paying authorities and bodies to demand price reductions, or other methods of delivering monetary savings. On the assumption that all branded pharma companies will choose to resist the drive towards lower prices, in this feature we will build a hypothesis detailing what value currently is and what it will look like into the future – and suggest what pharma must embrace and do to deliver this value.
What is ‘value’?
In healthcare each stakeholder can have different, often conflicting goals, including clinical outcome, access to services, profitability, high quality, cost containment, safety, convenience, patient-centeredness and satisfaction.
As patients (which we will all be sooner or later) we are interested in maintaining where possible, improving if feasible, or managing our health ‘status’, so that it has as little impact on our lives as possible. Clearly expectations will vary across a lifetime, but essentially we want to be able to do what we do now.
So as patients – the recipients and ultimate beneficiaries of healthcare – we are clearly most interested in our own individual outcome, whatever the cost. We have seen this particularly in recent years in the case of modern, expensive cancer therapies that extend life beyond current standard of care. Patients want the therapies; but payers do not see the ‘value’.
Ultimately what we value as patients is health ‘outcome’. In an ideal world achieving high value for patients, ie., the best outcome, should be the overarching goal of healthcare delivery – but cost has to enter into the equation. Either the payer is prepared to cover the cost or we are prepared/able to finance, if that is allowed.
However, payers are increasingly financially constrained due to various driving forces, so budgets are limited. Hence where payers are involved, whether government or insurer, ‘value’ becomes defined as the health outcomes achieved per £/€/$ spent.
The challenge for healthcare delivery systems is that since value depends on results (outputs) not inputs, value in healthcare needs to be measured by the outcomes achieved, not the volume of services delivered. Neither can value be measured by the adherence to a process of care: process measurement and improvement are important but are no substitutes for measuring outcomes.
Since value is defined as outcomes relative to costs, it has to involve efficiency. Yet cost reduction with no attention to the outcomes achieved is dangerous and potentially counter-productive, and can lead to false ‘savings’ and limit effective care.
To make things more difficult, outcomes (one part of the ‘value’ equation), are inherently condition-specific and multidimensional. For any medical condition, no single outcome captures the results of care. Cost, the other part of the equation, in reality involves all the costs for the full cycle of care for the patient’s medical condition, not the cost of individual services.
In many cases the best approach is often to spend more on some services to reduce the need for others, thereby reducing overall cost. It’s easy to agree on costs, but far harder to agree on what are valid measures of outcome.
According to the Economist Intelligence Unit survey, pharma companies consider: “Value to consist of attributes such as the degree of improved efficacy over existing products or the cost-benefit implications of a new drug for overall treatment. Payers, on the other hand, tend to look more towards improved longevity and quality of life. Other studies point to differences in value perception among other groups, such as physicians, pharmacists, and patients.”
The future was then
Value-based pricing (VBP) agreements have actually been in use for more than a decade, with increased prevalence in the last five years. Early examples, driven by the pharma industry, were aimed at gaining market share for new entrants, including Proscar (finasteride) by Merck in 1994, Clozaril (clozapine) by Sandoz in 1995, Zocor (simvastatin) by Merck in 1998 and Diovan (valsartan) and Diovan HCT (Valsartan/Hydrochlorothiazide) by Novartis in 2004.
In countries where government plays a role in pricing and price negotiations of pharmaceuticals (unlike in the US) the focus has been more on ‘payment by results’:
• In Denmark, Bayer entered into a ‘no cure, no pay’ initiative on Levitra (vardenafil) for erectile dysfunction in 2005; patients not satisfied with the treatment were eligible for a refund.
• In 2007, following the UK’s National Institute for Health and Clinical Excellence (NICE) negative reaction to Velcade (bortezomib) due to its cost relative to its estimated benefit to the population, Johnson & Johnson offered to forgo charges for patients who did not have an adequate medication response.
The future is now
Now, private and public payers around the globe are encouraging increased use of VBP agreements for pharmaceuticals. As discussed earlier, US commercial health plans have engaged with pharma on VBP agreements. Government payers and policy makers also seem aligned with the move towards VBP.
Consider the following examples of payer demand for innovative and VBP agreements:
• The US Centers for Medicare & Medicaid Services (CMS) are shifting from a volume-payment to a value-payment system for medical products. CMS will use ‘reasonable and effective’ criteria for reimbursing medical devices and pharmaceuticals with an emphasis on patient outcomes.
• The Australian Pharmaceutical Benefits Pricing Authority (PBPA) is now more regularly suggesting alternative pricing agreements in negotiations with pharma companies. As of June 2010, there were 90 alternate pricing agreements (deeds of agreement), including value-based, either in place or in development.
• Germany has recently changed its reimbursement system to a VBP system. Pharma companies have one year to prove the value of new pharmaceuticals when compared to existing offerings. Achieving value will result in obtaining a premium price compared to the competition; not achieving value will result in a price based on similarly effective, existing (and often generic) pharmaceuticals.
• In Sweden, the TLV (The Dental and Pharmaceutical Benefits Agency) makes decisions on the reimbursement status of new medicines, under a ‘value-based’ system introduced in 2002. Here, three criteria drive decisions about whether a new therapy will be eligible for reimbursement: equity, need/solidarity and cost effectiveness. The first two are considered of greater importance than cost effectiveness, which is seen as an aid in decision-making, rather than an objective per se.
Three core principles underpin the Swedish VBP approach:
1. Taking a societal perspective in decisions to take account of the economic effects beyond the health sector.
2. Applying a threshold value that focuses on individuals’ maximum willingness-to-pay for a quality life year (QALY) gained, rather than using QALYs to control the healthcare budget.
3. Assessing the decreasing marginal utility of treatments, recognising that different indications for the same product may provide different health gains.
Where now?
From January 2014, the UK will engage in universal VBP. The existing Pharmaceutical Pricing Regulation Scheme (PPRS) will be replaced with VBP for branded medicines sold to the NHS. The UK will begin with a basic price threshold, expressed as cost per QALY or other outcome metric and then include three factors:
1. The extent to which the drug treats diseases which have the greatest physical and emotional impact on patients.
2. The degree of innovation provided in terms of therapeutic benefits (over and above current treatment options) to patients.
3. Wider societal benefits, such as benefits to carers.
This would go much further than the current methods of measuring benefits as NICE and the Scottish Medicines Consortium (SMC) currently only considers the effect of the drug on the patient in terms of additional years of life, and/or improvement in the quality of life.
The following examples from Health Policy journal demonstrate the types of pharmaceuticals that might be candidates for similar price related agreements in the future:
“Products with simple methods for measuring the treatment effects (eg., decreased blood pressure or cholesterol level), as well as products with clearly defined outcomes (eg., did the tumour respond to treatment or not) are likely candidates.
“In addition, products with high budget impact due to high cost and/or high volume appear to be good candidates, as they represent areas of increased scrutiny for payers (eg., oncology treatments or those for chronic versus acute diseases).
“It appears that payers may be more willing to engage in these schemes in areas with high unmet need, high cost, variable treatment duration and uncertain long-term benefits. In contrast, manufacturers appear to be willing to engage in these schemes if required for access or in competitive disease areas such as oncology and osteoporosis.”
But VBP is not necessarily a guarantee of high ‘value’. Granted, it will reduce the unit price of a medicine but clearly there is more to healthcare than medicines alone. Most healthcare involves numerous, different elements, ranging from hospitals to GP practices to specialist units providing single services, however, none of these represent the boundaries within which ‘value’, ie., outcome, is actually created.
Care for a patient’s medical condition (or for a specific patient population) usually involves multiple specialties and numerous interventions. Value (for the patient) is created by providers’ combined efforts over the full cycle of care.
The benefits of any one intervention for ultimate outcomes will depend on the effectiveness of other interventions throughout that cycle of care. The proper approach for measuring and demonstrating ‘value’ should encompass all services or activities that jointly determine success in delivering the outcome for the patient.
These needs are determined by the patient’s medical condition, defined as a number of interlinked medical circumstances, which are obviously best addressed in an integrated way.
The definition of a medical condition should then include the most common associated conditions, so that the care for diabetes, for example, must integrate interventions for conditions such as hypertension, renal disease, retinal disease and vascular disease and that value should be measured for everything included in that care.
The dimensions of outcome should encompass both acute and longer-term elements, based around survival, the whole recovery process, time to return to normal activities and sustainability of recovery of health status – plus the long-term consequences of therapy. Clearly this will vary hugely based on the underlying medical issue, hence the difficulty in defining true outcome and hence ‘value’.
The issue in a financially challenged system is that the focus becomes cost not outcome based. Costs tend to be measured according to individual departments, specialties, support service areas, particular interventions and items such as drugs and supplies. Costs, linked as they are to outcomes, should instead be measured around the patient.
Measuring the total costs over a patient’s entire cycle of care and weighing them against outcomes will enable truly effective cost reduction. This is achieved by reallocating spending across services that deliver better outcomes, eliminating services that do not add ‘value’ ie., better outcome, better use of capacity, shortening of the cycle of care, provision of services in the appropriate settings etc.
In our experience, the NHS recognises these challenges but can lack the bandwidth to deal with them in a timely fashion, given their complex nature. Here is a recently developed example of an ideal approach to a specialist commissioned service:
Fully mapped, clearly detailed ‘best practice’ pathway
• Clear costs attached to each intervention, payments linked to outcomes
• Commissioning discreet sections of pathways, to ensure appropriate service specification
• Support from NICE providing evidence behind pathways
• Clear definitions of expectations and outcomes for service and patient cohorts.
Clearly defined provider responsibilities
• Multi-disciplinary management at specialised centres to ensure quality care and expertise
• Effective ‘Shared Care ‘where appropriate’ to localise responsibility and support compliance and tracking.
Continuation of ‘Hub and spoke’ approach
• Spoke providing management for stable patients
• Reduce travel required
• Flexibility to deliver Specialist care locally.
The challenge for pharma in the new VBP paradigm – where the price they can charge will be determined by ‘value’ – is being able to demonstrate the true extent to which the drug delivers better outcomes to diseases which have the greatest physical and emotional impact on patients, offers wider societal benefits (such as benefits to carers) and reduces the cost of the whole cycle of care.
The need for real world data is paramount, but that’s best left for another article.
Dr Paul Stuart-Kregor is director and founding partner at The MSI Consultancy. Email: pstuartkregor@msi.co.uk
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