Healthcare convergence is the thesis that all stakeholders in the healthcare ecosystem will increasingly need to work more closely together to achieve one aim: better patient outcomes at lower costs. New ecosystems are built around patients, not providers [see figure below]. Companies that can demonstrate the value their products (and increasingly services) bring to the emerging healthcare systems will be able to access broader patient populations in both developed and emerging markets.
Historically, payment for healthcare products and services has been based on unit or episode. However, payers worldwide are now seeking ways of contracting value not volume, a trend on which we have recently reported and proposed some solutions to help achieve this critical outcome.1 In a system that rewards better outcomes at the same or lower costs, the interests of pharma could converge with those of healthcare providers and payers in increasingly integrated delivery and financing models, provided the products and services are of a sufficient standard. Given pharma’s deep knowledge of testing and measuring the quality of outcomes and related costs, the industry can play a significant role in the evolving, broader healthcare enterprise. But to do this it must demonstrate a clear understanding of the convergence of focus from stakeholders on value and cost.
The key policy trend in healthcare convergence is the move to paying for outcomes, not disjointed and uncoordinated inputs. We comment on this and three other related policy changes:
Recent government healthcare reform acts such as the US 2010 Patient Protection and Affordable Care Act (PPACA) and the UK Health and Social Care Act 2011, focus on improving outcomes for patients, while also cutting healthcare spending. Improved outcomes at the same or lower costs would represent an improvement in value. However, as KPMG’s recent report, Transforming Healthcare: From Volume to Value highlighted, every existing healthcare payment system partly rewards value: the classic fee for service mechanism stimulates productivity, timeliness and a focus on the patient as the client while the block grant or wholesale budget for a hospital stimulates judicious use of resources, and prevents overuse. Yet these systems are so unrefined and undifferentiated that they can destroy more value than they create.
High quality, low-cost healthcare can only be created by redesigning the care from the patient’s perspective [see figure above]. Healthcare systems are now looking for the next step forward: paying for outcomes rather than activities, and paying for value rather than reimbursing costs.2 Healthcare systems with the patient, rather than the provider, at the center will need a completely fresh approach from the industry.
Health technology assessments (HTAs) are growing rapidly in importance as providers look for ways to determine what treatments should be provided to patients and at what cost. HTAs assess the additional value of a medicine relative to treatment alternatives.
Government payers, whether direct (as in the UK), or indirect through third parties (as in the US and Germany), have turned to comparative effectiveness as a way of determining the value of pharmaceuticals in recent healthcare reforms, although there are subtle and important differences in approach between countries. While the importance of the US to the global market is self-evident (it is forecast to be 31 percent of the global market in 20163), the UK and Germany have global influence that far outweighs their respective shares of the market. UK pharmaceutical prices influence more than 25 percent of the global market through international reference pricing,4 while German prices also have some bearing on a number of countries.5
In developed markets, the HTAs currently employed by governments in Germany through the Institute for Quality and Efficiency in Healthcare (IQWiG) and in the UK through the National Institute for Health and Clinical Excellence (NICE) have the most short-term impact on pharma. In Asia and the emerging markets6 the use of HTAs is less mature, but is growing in profile.
The proliferation of data and the emergence of a Big Data landscape are increasing the ability of real world data to generate real world evidence of the effectiveness of healthcare interventions. Public payers in the US, France and Germany are moving to adopt real world data by following the examples of the UK, Australia and Sweden. Evidence of broad applicability is growing. For example, real world data has influenced access in Sweden where evidence generated by registries informs product reassessments and has even improved access. Using data from its rheumatoid arthritis registry, the National Board of Health and Welfare determined that early treatment with TNF-inhibitors was cost effective. As a result, national rheumatoid arthritis guidelines prioritized early treatment with TNF-inhibitors. In the UK, real world data could influence post-launch adjustments of prices under a new value-based pricing system. In the US, CVS Caremark has indicated its intent to use its own claims data to conduct comparative effectiveness research to inform all aspects of its business including guidelines, restrictions, and negotiations with manufacturers.7
Value-based pricing agreements have been in place for more than a decade in the US where they have been used to increase market share for the first entrant in a new therapeutic category, such as Merck’s Zocor8 (simvastatin) in 1998 and Novartis’ Diovan HCT9 (valsartan/hydrochlorothiazide) in 2004. In markets where the government plays a role in pharmaceutical pricing there have already been value-based pricing agreements in response to budgetary pressures. Bayer offers performance based contracts for Nexavar, with discount/refund for non-responders, e.g. in Italy, while Johnson & Johnson established a risk-sharing refund scheme for Velcade.
Now the UK government is proposing to replace the Pharmaceutical Pricing and Reimbursement Scheme (PPRS), which expires in 2014, with a value-based pricing system. Under the current pricing system, drugs and treatments are assessed using the estimated total health benefits they provide. There is no provision for assigning a greater weight to the drugs that address significant unmet needs or are used to treat severe and life-threatening conditions. Moreover, drug prices are regulated by a mix of price and profit control under this PPRS system. Once set, the drug prices cannot be increased. This system also regulates the profits that companies earn on their sales to the UK National Health Service (NHS), creating pressure to offer competitive drug prices. Although PPRS has these limitations, it has certain flexible pricing options that cannot be ignored. It encompasses attractive features such as freedom of pricing for new active substances and a provision to raise drug prices when more evidence is available. In addition, there is a provision for introducing patient access schemes that offer discounts or rebates to reduce the cost of a drug to the NHS, which have improved patient access to certain costly drugs that otherwise could not have been assessed as cost-effective by NICE.
By introducing the concept of value-based pricing, the UK government is aiming to achieve in the following benefits for stakeholders:
1Contracting Value: Shifting Paradigms October 2012 KPMG.
2The Global Use of Medicines: Outlook Through 2016 IMS Institute for Healthcare Informatics p.5
3 The Pharmaceutical Price regulation Scheme, The Office of Fair Trading 2007 p.42
5Real-world evidence: transforming the industry into the ‘prove it works’ era An extract from Pricing & Market. Access. Outlook 2010-2011 Edition.
6Future Pharma: Five strategies to accelerate the transformation of the Pharmaceutical industry by 2020. October 2011 KPMG.
7Carlson JJ, et al. “Paying for Outcomes: Innovative Coverage and Reimbursement Schemes for Pharmaceuticals.” Journal of Managed Care Pharmacy. 2009;15(8):683-7.
8Møldrup C. “No cure, no pay.” BMJ. 2005;330:1262-4.
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