Considering Health Spending By Marianne Hamilton Lopez, Gregory W. Daniel, Nicholas C. Fiore, Aparna Higgins, and Mark B. McClellan doi: 10.1377/hlthaff.2019.00771 HEALTH AFFAIRS 39, NO. 6 (2020): 1018–1025 Policy Insight ©2020 Project HOPE— The People-to-People Health Foundation, Inc. Paying For Value From Costly Medical Technologies: A Framework For Applying Value- Based Payment Reforms Marianne Hamilton Lopez is research director for value- ABSTRACT Innovative medical products offer significant and potentially based payment reform at the transformative impacts on health, but they create concerns about rising Duke-Margolis Center for Health Policy, Duke University, spending and whether this rise is translating into higher value. The in Washington, D.C. result is increasing pressure to pay for therapies in a way that is tied to Gregory W. Daniel is head, their value to stakeholders through improving outcomes, reducing U.S. Healthcare Policy, at Edwards Lifesciences in disease complications, and addressing concerns about affordability. Policy Washington,D.C.Hewasthe responses include the growing application of health technology deputy director of the Duke- Margolis Center for Health assessments based on available evidence to determine unit prices, as well Policy and a clinical professor as alternatives to volume-based payment that adjust product payments at the Fuqua School of Business, Duke University, in based on predictors or measures of value. Building on existing Durham, North Carolina, when frameworks for value-based payment for health care providers, we this work was performed. developed an analogous framework for medical products, including Nicholas C. Fiore is a research drugs, devices, and diagnostic tools. We illustrate each of these types of assistant at the Duke- Margolis Center for Health alternative payment mechanisms and describe the conditions under Policy. which each may be useful. We discuss how the use of this framework can Aparna Higgins is a policy help track reforms, improve evidence, and advance policy analysis fellow at the Duke-Margolis involving medical product payment. Center for Health Policy. Mark B. McClellan (Mark [email protected]) is director of and the Robert J. Margolis, MD, Professor of ith more biomedical advanc- ahead.3–6 The result is ongoing, intense public Business, Medicine, and Policy at the Duke-Margolis Center es and accelerated regulatory debate about how to improve access to these for Health Policy. processes, new medical prod- products and health care affordability, while also ucts are poised to substantial- supporting continued innovation. ly disrupt current treatment A wide range of value-based payment initia- Wmodels,1 with the potential to improve the lives tives are being implemented to address these of millions of patients. These new products in- challenges.7 A major area of activity is summa- clude pharmaceuticals that delay or halt major rizing existing evidence on the value of a drug— disease complications, transformational thera- generally defined as its impact on outcomes, pa- pies that correct cellular and genetic defects, tient experience, and the total cost of care— medical devices that can enable patients’ daily through health technology assessment. Payment functioning and experience, and advanced diag- models based on these assessments set the per nostic tests and tools that support more person- unit price based on the available evidence. Spe- alized and effective care decisions. At the same cific methods such as those employed by the time, out-of-pocket2 and total spending on phar- Institute for Clinical and Economic Review, a maceuticals and other products continue to rise, nonprofit cost-effectiveness evaluator in the and their growth may intensify in the years United States,8 are increasingly cited in payment 1018 Health Affairs June 2020 39:6 Downloaded from HealthAffairs.org on June 29, 2020. Copyright Project HOPE—The People-to-People Health Foundation, Inc. For personal use only. All rights reserved. Reuse permissions at HealthAffairs.org. negotiations between payers and manufac- buck” for medical technology spending, simply turers, based on the research and frameworks lumping all reform models into the category of for describing important aspects of value devel- value-based payment can create misunderstand- oped by expert groups such as the International ings about exactly what reforms are being con- Society for Pharmacoeconomics and Outcomes sidered, why they may or may not be helpful, and Research.9 whether they are achieving their desired effects. These reforms have generally been applied to The absence of a clear framework for value-based negotiations about the unit prices of medical payment reforms for medical products leads to products,10 with discounts or rebates driven by missed opportunities to clearly define these volume and not value. At the same time, value- models; increase their impact; and foster consis- based reforms for health care providers increas- tent analysis and assessment of how they can be ingly aim to generate more value for covered used most effectively, either alone or in combi- populations by shifting away from payments nation. based only or mainly on the volume of services. Consequently, we present a framework for de- These provider payment reforms attempt to en- scribing value-based payment for medical prod- courage the use of appropriate high-value com- ucts and illustrate its application using recent binations of products and services, such as clini- examples. It builds on the Health Care Payment cal pathway models (which tie payments to Learning and Action Network’s framework for following practice guidelines) and Medicare’s categorizing alternatives to fee-for-service pay- Oncology Care Model (which ties payment to ment for providers.20 As is the case with the reducing overall costs, including physician- Learning and Action Network categories, the in- administered drug spending, while improving tent is to describe how different kinds of value- performance on measures of quality or out- based payment could increase the value of care comes).11–13 The provider value-based payment involving medical products. Our framework ac- models aim to influence the use of drugs and commodates a variety of definitions and mea- devices, but they generally do not shift payment sures of value in particular contexts, including for medical products away from fee-for-service. the definitions of value used in health technology Alternatives to strictly volume-based payment assessments like those produced by the Institute for drugs and devices have been implemented on for Clinical and Economic Review and other a relatively modest basis (such as rebates with health technology assessments. Like the Learn- some links to quality or utilization measures), ing and Action Network value-based payment with limited consequences for actual payment framework for providers, our framework for for the product.14,15 However, there is increasing medical products describes the extent to which activity among payers and manufacturers in de- payment shifts away from volume, and it accom- signing and implementing such models. As ad- modates performance measures and supports ditional costly medical technologies reach the varying levels of sophistication. market with potentially large, long-term benefits To facilitate the use of the framework, we de- in preventing disease complications or the dis- scribe when payment models in each category eases themselves; as data systems improve; and are likely to be effective in creating value, reflect- as provider payments continue to shift toward ing prior reviews and recommendations for value, more opportunities are emerging for man- many kinds of value-based payment arrange- ufacturers to participate in value-based payment ments.21 Value-based payment models for medi- arrangements for potentially valuable new med- cal products can create more value not only ical treatments that increase patient access and through prices that better reflect value, but also improve outcomes and evidence, while sustain- through supporting better evidence, more ap- ing transformative innovation.16–19 propriate use, more valuable product refine- For example, indication-specific pricing meth- ments, and better mechanisms for promoting ods set per unit prices by clinical indication, if patient access—all of which lead to more value there is evidence that certain clinical subpopu- through better patient outcomes and fewer cost- lations differ substantially in expected value. ly disease complications. The framework can fa- Outcomes-based payment methods adjust pay- cilitate analyses of how much additional value is ment for a treatment based on observed out- created and how the risks and rewards related to comes over time. Subscription payments provide high-value performance can be shared among access for a covered population based on a per payers, patients, providers, and purchasers. In member per month subscription fee, which may addition, the framework describes how value- also be adjusted based on the outcomes observed based payment models can support the develop- in the population. ment of better evidence that will affect future While supporters of these reforms are motivat- negotiations about both price levels and pay- ed by the same goal of getting more “bang for the ment methods. The examples used to illustrate June 2020 39:6 Health Affairs 1019 Downloaded from HealthAffairs.org on June 29, 2020. Copyright Project HOPE—The People-to-People