In Defense of Innovation: Value-Based Reimbursement & Contracting

Value-based reimbursement and contracting will become mainstream as reimbursement authorities move away from ‘cost’ as the focus towards ‘value.’

While the biopharma industry has seen the rate of growth increase from new product launches and indication expansions in specialty therapeutics for a number of years, the total cost increases to health systems has been modest, held down by the patent expiries of therapeutics targeting larger population diseases such as cardiovascular.

We are now entering a period where the rate of new specialty product launches will consistently drive higher overall therapeutic spend rates in most major health systems. For example, therapeutic spend in the US was rising 4.2 percent per year until 2014 when there was a one-time increase of more than 13 percent, largely driven by specialty spending increases of 38 percent - a quarter of this increase from therapeutics in one therapeutic area, Hepatitis C. Key European economics are seeing the same thing, with Germany reporting a nine percent increase for the same time period.1Recent projections suggest increases of at least 5.6 percent annually going forward – again all this driven by specialty and individualized therapeutics.2

Incremental value

With this accelerating spend, Accenture suggests there could be an increasing emphasis on value – assuring the new therapeutics provide sufficient incremental value so as to offset other costs borne by the health system.

For example, in the US for chemotherapeutics directed to the most common cancers, a new episode-based payment model financially incentivizes high-quality, coordinated care under a new Centers for Medicare and Medicaid Services initiative.3 Whatever combination of therapeutics, supportive care therapeutics, and health professional coverage used is within the discretion of the clinical practice participating in the program as long as they are within evidence guidelines. 

Over the past year, Accenture studied ten therapeutics where there was a value basis to reimbursement in oncology, rheumatoid arthritis, diabetes, osteoporosis, macular degeneration and advanced cardiovascular disease.  In most cases, the value reimbursement approach functioned to provide price cap, adverse events, and patient response assurances – e.g., to hold the health system harmless for increased direct and indirect treatment costs as a basis for coverage. These early value reimbursement programs were modestly successful, supporting reluctant health systems to make a positive decision for patient access, but they rarely scaled outside of a single geography.  Our belief is that the next phase of programs will be far more sophisticated and link more directly to the beneficial outcomes of a specific therapeutic approach. 

For example, for the most expensive gene and cell-based therapies that may be curative, offering patients decades of prolonged and high-quality life, we will see alternative models appearing consonant with the value promise – valued as an annuity consistent with the value delivered to patients, health system and economy.The life sciences sector most directly impacted by cost sensitivities has been medical devices, and they are accelerating their ability to be better operators in a value-based reimbursement environment through new services where they are paid for outcomes.5

Data key to fair reimbursement

We project pharmaceutical companies will increasingly move toward use of real-world data and advanced analytics as the basis for their contracting.  Not because they are required to do so, but because they have a higher likelihood of receiving fair reimbursement for their novel therapies where they are linked to the value they create. 

This can take the form of novel financial instruments coming from the insurance or other industries such as annuities.  It can also be more direct, where a specific patient population is identified as ‘high responder / high beneficiary’ and data are captured with the full participation of health systems and health reimbursement authorities within a financial funding period and over time.  Here, we would expect to see these as multi-year agreements where there would be value at the outset and improvements in the population response over the three- to five-year life of the contract. 

Where there is one advanced therapeutic for the population, there may be exclusive contracting with more explicit outcome expectations built into the economics, including incentives for advanced services to complement the therapeutics to assure appropriate diagnosis by clinicians, ongoing adherence to the treatment approach, and complementary diet and exercise.

Where there are multiple new therapeutics in the same category, there may be incentives to narrow the companies participating, allowing the health providers and health system to allocate a proportion of the treated population to one value contract or another.  In so doing, they can get the advantage of competitive offerings but also see consistent treatment approaches within their systems from narrower partnerships. 

Value-based reimbursement and contracting will become mainstream as reimbursement authorities – public and private – move away from ‘cost’ as the focus towards ‘value.’   Without this, we’re concerned the trend towards declining ROIfor new therapeutics would accelerate and would lead to necessary new therapies for the most devastating diseases being slowed down in getting to patients.  Within the leading economies, this is underway – though still in early development.  It will also advance as markets leading and shaping pharma and biopharma agree to go into market-scale pilots and value-reimbursement programs around their new specialty therapeutics.  As much as health providers and health insurers are beneficiaries of newer specialty therapeutics – they are also caught in a cycle of legacy reimbursement and narrow operating margins.  Real-world value pilots, founded on data accessibility and openness, can bring these new models into a standard of practice, accelerating benefit to patients and assuring innovators focus on value as the basis of their future therapeutic and services investments.






5. 33rd Annual J.P. Morgan Healthcare Conference San Francisco, Medtronic Presentation, January 12, 2015, pp. 16-18. 

6.  0.1377/hlthaff.2014.1029 HEALTH AFFAIRS 34,
NO. 2 (2015): 245–252

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