Preparing for Population Health Management
How can pharma prepare for this new value-driven environment?
As I’ve written in past columns, the U.S. healthcare system is currently in the midst of seismic change, largely characterized by the shift from volume to value-based medicine. Driven by this shift, population health management has gained considerable traction in recent years, with significant implications for pharma. This month, I’ll discuss this important trend, including what’s driving the transition to value as well as key considerations for pharmaceutical companies preparing for this new environment.
The Shift to Value
Although there have been modest successes in “bending the cost curve,” healthcare spending in the U.S. continues to reach unprecedented heights. Over the next decade, healthcare costs are on track to nearly double, going from $2.9 to $5.2 trillion.1 What’s worse is that while the U.S. spends far more per capita on healthcare than any other major developed country, it consistently ranks near the bottom on many measures of quality and performance. Given the current state of healthcare in the U.S., it’s no surprise that the entire system is under intense pressure to deliver better, more cost-effective solutions.
In particular, payers are actively exploring ways to replace the current fee-for-service (FFS) model – which incentivizes high-cost, high-volume care – with alternative, value-based payment models that link payment to performance and shift financial risk to providers. Payers are also taking steps to limit reimbursement for and access to products and services that don’t show sufficient economic and clinical value. At the same time, consumers are raising their expectations for the healthcare they receive and pay for, especially as the use of high deductible plans increases.
Two recent announcements have further accelerated the transition to value. In early 2015, the Centers for Medicare and Medicaid Services (CMS) announced a goal of increasing Medicare payments through value-based models from 20% in 2014 to 50% in 2018.2 A short time later, the Health Care Transformation Task Force, a 28-member alliance of providers, payers, employers, and various other partners, committed to transitioning 75% of its members’ healthcare payments to value-based arrangements by 2020.3 In short, the shift to value is rapidly approaching!
What is Population Health Management?
Population health management has attracted broad interest from across the market as a response to the evolving healthcare environment. While there are multiple ways of defining population health, it’s generally focused on managing the health of a defined population by providing the right intervention for a specific patient at the least costly point in the care continuum. At its best, it’s offering predictive services at a predictive price. The net effect should be better health, better health outcomes at lower cost. In a significant departure from FFS, the goal of population health management is to keep patients out of acute care settings, and thereby lower overall healthcare costs and redefine “healthcare” as more than just “sick care.”
An important part of this model is that providers assume more financial risk by agreeing to manage against cost and quality targets for the defined time period and services agreed upon. For providers making the transition to at-risk agreements, the ability to manage variation in cost and quality will be critical, and as a result, the use of standardized care paths – which promote the consistent delivery of high-quality, cost-effective care – is expected to expand.
What Pharma Needs to Know
Today, the actual progress that’s been made by providers towards population health management is somewhat mixed, often tied to local market dynamics, policy, and regulation. In some ways, this isn’t surprising – population health management is a radical shift for most organizations and many are still deciding on how and when to move forward. However, the demands for value in healthcare clearly aren’t going away and will only continue to accelerate going forward.
As providers continue transitioning to population health management, here are several key considerations for pharmaceutical companies.
- Providers will be focused on the care continuum. As providers look across the entire care continuum for ways to reduce overall healthcare costs, there will be significant opportunities for pharmaceutical companies to develop deeper, more strategic relationships with these entities. Instead of simply selling a product, pharmaceutical companies can position themselves as a partner, helping providers prevent, manage, and treat diseases. One example is value-added services, which may include service wraps around particular products that seek to promote adherence, improve outcomes, or reduce treatment costs. No matter the approach, pharmaceutical companies looking to create meaningful partnerships with providers will need to develop sales teams that are capable of engaging in strategic conversations with key decision makers across the organization, including hospital executives, administrators, and clinicians.
- Providers will continue to adopt standardized care paths to manage variation in cost and quality. Of particular concern for pharmaceutical companies is that care paths may increasingly exclude certain products or product classes, or make them available only on an exception basis. This makes developing compelling value propositions even more critical, given that products left off of these care paths are likely to see diminished use. In order to stay competitive, pharmaceutical companies will need to demonstrate that their products deliver economic and clinical value that aligns with the key issues facing providers. This also includes providing the necessary data to support these claims.
- Providers will assume more risk. As alternative payment models continue to gain traction, providers will seek ways to manage their risk and their costs. They’ll look to partners that can help them deliver superior outcomes and manage costs. Pharmaceutical companies will increasingly need to develop novel, mutually beneficial payment models that meet the needs of provider organizations – or risk losing placement on formularies and in care paths. Financial based risk-sharing agreements and collaborations to identify patient population outcomes are some of the models likely to gain more attention.
As the healthcare market continues its rapid transformation, providers are facing intense pressure to deliver “better outcomes at lower cost.” In response, they’re increasingly transitioning to population health management and similar value-based models of care. Although adapting to this new environment won’t be easy, pharmaceutical companies that are able to develop the necessary skills, competencies, and capabilities to meet the evolving needs of providers will be best positioned for continued success in the market.
Rita E. Numerof, Ph.D.is President of Numerof & Associates, a strategy development and implementation firm with more than 25 years’ experience helping major pharmaceutical, device, diagnostic, payer and delivery organizations define, create, and deliver value across healthcare. Experts in business model transformation, Numerof specializes in redesigning commercial models, developing economic and clinical value propositions, and crafting market access strategies for the pharmaceutical industry worldwide. For more information, visit our website at www.nai-consulting.com
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