How to Achieve Value-Based Reimbursement

Payments for health care services in the U.S. are under a great deal of scrutiny by policy makers, insurers, employers and patients. Decades of financial dysfunction under an inefficient fee-for-service scheme have prompted many to refer to the “health care system” in the U.S. as a “sick care system” since there are few incentives to proactively keep patients healthy. Hence, reimbursement models such as capitation, payment for outcomes and payment for quality are being implemented in an effort to fix the financing model and ensure we move towards a value-based health care system.

Rightfully, these same reimbursement models are also being applied to biopharmaceuticals. Value-based pricing is the one approach that is getting a lot of attention. As biopharmaceutical expenditures start to figure more prominently in health care decisions, we must make sure that appropriate parameters are in place so that we engage in a patient-centric approach to this new reimbursement model to safeguard against access restrictions and limitations on pharmaceutical innovation which provide hope for patients desperately in need of cures.

First, the term value based pricing should be replaced with value-based reimbursement. The reason for this subtle but important distinction is that, due to the complicated reimbursement scheme currently in place, price is not indicative of the final cost of biopharmaceuticals to insurers, patients or the overall health care system. For instance, a new study by Berkley Research Group confirms prior findings by IMS Institute for Healthcare Informatics that pharmaceutical companies retain a decreasing share of U.S. prescription drug outlays. Based on the Berkley Research Group report, in 2015, biopharmaceutical companies retained only 47 percent of total drug spend. At the same time, retrospective rebates, discounts and fees collected by insurers, hospitals and pharmacy benefit managers (PBMs) increased from an estimated $67 billion in 2013 to $106 billion in 2015. Thus, final reimbursement after accounting for all rebates and discounts is the true cost to the economy of a medicine – not the list price of a biopharmaceutical.

Second, any final value based reimbursement calculation ought to include the impact of medicines on the utilization of other types of health care services. The use of biopharmaceuticals inevitably impacts other health care services, often reducing overall expenditures by reducing or even eliminating the need for more expensive interventions.

Third, evaluation of value must take into consideration the barrier of time. The societal value of a medicine is often not captured until years or decades after it has been consumed. For example, the value of a statin to lower cholesterol is ultimately found in the reduced rate of cardiovascular events over many years. Consequently, a long-term assessment of the value of biopharmaceuticals is needed.

Fourth, cost reduction should not be the only value proposition we look at. Assessment of value should include the impact medicines have on other factors such as a patient’s quality of life or the ability to return to the workforce, to name a few, and  the selection of these other factors should be driven by what is important to patients as they are the primary stakeholders in the health care system.

Fifth, it’s very important that any financial savings gained through coverage decisions based on the new models benefit the patients directly. It is important to save money for the health care system. However, with more insurance plans asking patients to shoulder high deductibles and coinsurance for medicines; any cost savings incurred by the system should be passed on to the consumers who are directly affected.

There are those who will fight this change and make excuses about the feasibility of new models. Despite the self-serving financial sentiment, some of the skepticism from various parties is valid and needs to be addressed. For example, we need to improve our health care data interoperability system to ensure we can capture patient outcomes and utilization of services. We need to develop appropriate quality measures to track outcomes and value for patients. We also need to reform regulations that prohibit or make it difficult for insurers or providers and the biopharmaceutical companies to engage in value or outcomes based agreements. Finally, we need to recognize that such models may not be feasible for every disease. For instance, outcomes in certain ailments are not solely dependent on a medicine.  Sometimes a successful treatment protocol may require an interlay of surgery, technology and biopharmaceuticals.

Health care has entered a revolutionary era in science. However, the financing mechanism languishes in a bygone era. It is very important that we all appreciate and take advantage of all opportunities to improve patient care. Let’s move toward a value-based reimbursement system that reflects true costs and helps patients without restricting access to the most cost beneficial intervention in health care, the biopharmaceutical.


Dr. Robert Popovian is the vice president of Pfizer US Government Relations. He has two decades of experience in the biopharmaceutical health care industry and has published and presented extensively on the impact of pharmaceuticals and health care policies on health care costs and clinical outcomes.

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