Innovations in drugs, devices, and procedures are causing payers to rethink their traditional approaches to product coverage and reimbursement and how to define and measure the “value” of these products overall.
Next-generation, ultra high-cost drug therapies (e.g. gene and cell therapies) offer the promise of durable effects with only a single application, yet can cost hundreds of thousands to millions of dollars per dose. To mitigate against the financial risk of these therapies, payers are starting to embrace new financing models with life sciences manufacturers—with value-based contracts and performance-based agreements finally gaining traction after years of promised potential.
However, payers participating in these agreements are just starting to address the burdensome real-world data collection needed to demonstrate outcomes and proof of “value.” Payers also just starting to evolve how they evaluate these products. Today, most payers still view next-gen treatments through the same framework used for traditional small-molecule drugs: strictly evaluating safety and efficacy over a short time horizon (typically 1-2 years) based on limited data from a pivotal randomized controlled trial (RCT). Yet for many curative or durable therapies, safety and efficacy can only be established after a long period of time. Further, many payers have yet to incorporate critical data like patient experiences or quality-of-life measures in their value assessments, which can provide additional insight into treatment success.
For medical devices, payers are continuing to encourage providers to adopt value-based payments that carry downside risk like bundled or capitated payment. Providers that participate in these risk-based contracts will pay greater attention to the cost and quality impact that devices and supplies have on procedures, with the goal of selecting products that offer the greatest outcomes and savings across an episode of care. Just as payers have trouble quantifying the value of next-gen therapies, providers that participate in risk-based contracts with payers similarly struggle to quantify the long-term outcomes associated with device use.
Impact on life sciences
Life sciences leaders must proactively work with payers to align on meaningful metrics and outcomes for value-based contracts or innovative payment models.
For pharmaceutical manufacturers, starting discussions about value-based contracts post-launch is too late. By the time a drug is launched, payers look to leverage existing RCT and RWE data to inform contract design and endpoint selection. As a result, pharmaceutical leaders must work with payers early in the product lifecycle to understand what data is needed to prove treatment “value” once launched – and use that data to inform early-stage contract negotiations and agreements.
Similarly, medical device manufacturers must proactively work with provider customers to identify quality metrics that directly tie product use to savings over an episode or care.
Questions to consider
- How can we leverage our existing customer relationships to develop new, innovative contracts that encourage adoption of our products?
- Where do we have knowledge gaps about our customers’ clinical and financial priorities, and how can we fill those gaps to advance contract development?
- How can we work earlier in product development to collect data and evidence that informs early-stage contracting discussions with payers? What endpoints can we collect today, based on conversations with customers, to better inform future value-based contracts?
- How can we support payers with data collection and evidence generation? What capabilities or infrastructure can we leverage to take off additional burden, or support their own internal analysis?
- How is payers’ definition of “value” different than that of our provider customers? What will it take for us to agree with payers on a shared definition of “value” and how might that change over time?
- How can medical, HEOR, commercial, and other internal functions be involved in the development of contracts?