A move toward value-based arrangements in pharmaceuticals is a positive step toward creating a more sustainable healthcare system. But this will require broader changes in pharmaceutical business models than many anticipate. Ensuring a medication’s maximal value is delivered requires interaction with a complex side of the healthcare system most pharma companies are unfamiliar with.
Pharmaceutical cost volatility and growth are major concerns for healthcare stakeholders, from the government down to the general public. Drug manufacturers face increasing pressure to address this issue. But simple answers or scapegoats are hard to come by, as there is a perceived mismatch between drugs’ cost and value.
The current administration seems to recognize this by focusing on value-based arrangements and acknowledging the need to promote these arrangements in its blueprint to lower drug prices. More specifically, The Food and Drug Administration (FDA) recently released regulatory guidance clarifying rules around payer-pharma company information sharing to try and facilitate value-based pricing structures.
This is good news in the long run. An approach assuring better alignment between drug costs and well-defined value is more likely to achieve buy-in and drive a sustainable marketplace than approaches that either punish certain stakeholders or further decouple the price certain stakeholders pay from the value they receive. However, in the short run, this signifies significant disruption and new complexity.
How do you measure the value of a drug? Not easily.
If pharmaceutical companies soon find a significant portion of their revenue tied to the value patients realize from their drugs, these companies will need to ensure that value is recognized. But, as we discussed in two older articles – Measuring the Value of a Drug and Will Identifying Clinically Unproven Drugs Curb Pharma Costs? – there’s tremendous complexity in defining and measuring “value,” and delivering that value. For one thing, the greater healthcare industry has yet to develop a consistent drug pricing method; each transaction side considers value from a different lens.
But, are pharmaceutical companies prepared to do that? At first, the right answer may seem to be “of course.” The act of providing the drug at all is highly valuable – drugs that improve patient health reduce costs by eliminating healthcare utilization driven by unmanaged conditions or older therapies’ side effects. Manufacturers have well developed medical economics departments dedicated to demonstrating the value associated with these factors. Indeed, the recent FDA guidance, for instance, was targeted around allowing the information these departments produce to be more widely shared with payers to fuel value based arrangements. These data points include but are not limited to: information about the time of onset of action of a product, or about patient compliance or adherence.