Paying for Costly Medical Technologies in a Value-Based World

By | July 21, 2020

Healthcare is an industry where innovation and technology continue to progress and create an opportunity to improve lives. However, the cost of such products continues to rise and thus impacts the overall cost of care. But, suppose one surmises the purpose is to enhance care in a manner that delivers value, i.e., where the expense plays a significant component, so new models of value-based payments for such innovations are required. A recent article in Health Affairs by Lopez et al. discusses a framework that may be used to address this issue.

The Learning and Action Network outlines a value-based payment framework that creates a categorical model. The categories increase towards a population-based payment methodology. Moreover, these distinctions may also include utilization to identify value-based pricing. Additionally, the authors point out that technology payment models do not need to progress. Alternative technology payment models may fit better in an individual category versus requiring all to be at full risk.

Category 1 comprises the sales volume effectively with a discount for increased usage. Essentially, this equates to a fee-for-service insurance model. Thus, this methodology may work well to utilize generic prescriptions versus brand name drugs and step-wise formulary tiers.

Category 2 denotes volume-based payments with value adjustments. In essence, this is similar to fee-for-service, but with additional dollars for performance indicators. This category is striking in that payments may be tied to use for specific disease characteristics. Pharma prices might vary for the same treatment based on a condition or subpopulation. Participation in post-marketing studies could lead to increased payments to allow for furthering our knowledge concerning an intervention.

Category 3 links payments to outcomes. These are analogous to Alternative Payment Models with both an upside and a downside risk. In this distinction, payments correlate to volume. However, a rebate may be tied to outcome measures. In this manner, defining a value metric may be linked to payment. There is a spectrum of outcome metrics that may be utilized that increase in complexity and value. The ultimate metric includes improvement in the quality of life and decreased total cost of care.

Category 4 moves payment to population-based models. This methodology runs the gamut of ranging from a per member per month (pmpm) payment for a subpopulation to a pmpm for an entire member group. These payments may also be linked to outcomes.

What I appreciate about the authors’ thinking is that one single model does not work for all situations. Simultaneously, value-based payments do not need to progress through different categories. The optimal way for us to progress is to realize that one model does not fit all situations. As we continue innovating on the product side of the equation, it’s essential to evolve our thinking concerning payment models and work within the complexity of our environment rather than trying to over-simplify the problems we are solving. Coupling frameworks that are already in use allow us to structure our thinking in ways that allow for independence and interdependency.