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By Monica E. Oss

Last month Geisinger, a Pennsylvania-based health system and health plan, announced plans to expand its ProvenCare Total Hip program with Medacta International, by launching a pilot that will cover consumers’ lifetime costs of any subsequent hip replacement surgery (see Geisinger Launches ‘Guaranteed For Life’ Hip Replacement Pilot Program Through Partnership With Medacta). The initiative is an example of the evolution and operationalization of the concept of “value” in the health care system. The unique twist in this program is the involvement of a device manufacturer as a partner. Francesco Siccardi, executive vice president of Medacta International, made a very important observation-the arrangement with Geisinger redefines the orthopedic “product” to encompass not only the implant, but also the surgery and consumer education.

Other value-based arrangements involving pharmaceutical and device manufacturing companies have also been recently announced. Last year, Novartis struck an agreement with the Centers for Medicare and Medicaid Services (CMS) to offer an outcomes-based pricing model for its new leukemia drug Kymriah (see Novartis, CMS Collaborate On Outcomes-Based Pricing For $475k Leukemia Drug). The drug costs $475,000 per treatment and Novartis will only receive reimbursements for the drug from CMS if consumers respond to the medication by the end of the first month of treatment. Earlier this year, manufacturer Spark Therapeutics received approval for its new gene therapy to treat progressive blindness—a treatment that will cost $850,000 (see Luxturna Gene Therapy For Blindness To Cost $850,000). The company has negotiated an agreement to refund money to Harvard Pilgrim if consumers don’t get better vision long-term and is in negotiations with CMS to “come up with ways to let insurers pay by installments.”

Adoption of value-based reimbursement (VBR) by the makers of pharmaceutical companies (and device companies and digital treatment companies) is slow. According to a new report by PricewaterhouseCoopers, Launching Into Value: Pharma’s Quest To Align Drug Prices With Outcomes, only 25% of pharmaceutical companies have used value-based contracts of any kind and only 38% of those surveyed feel the benefits of such contracts justify the risks. At the same time, 71% of these executives believe such arrangements could be useful when bringing innovation products to market.

I think VBR for service provider organizations will drive VBR for medications, devices, and digital treatments—with the focus on cost reductions. A great example is the Medicare bundled rate program. A recent study found the a program for lower extremity joint replacement cut the cost of Medicare post-acute care episodes by 27% and total costs by $5,577 (see Bundled Payments Cut Medicare Post-Acute Care Episodes Costs By 27%). Another study found that 51% of the savings came from decreasing the cost of implants and supplies (see Cost Of Joint Replacement Using Bundled Payment Models).

Even the Trump Administration, initially hesitant, has come back to the pay-for-value concept. The new Bundled Payments For Care Improvement (BPCI) Advanced Model for 32 clinical conditions will launch in October of this year (see Bundled Payments For Care Improvement (BPCI) Advanced Model Timeline). Under the model, 90-day episodes will be paid fee-for-service (FFS). But individual episodes are then reconciled to the target price, and after adjusting for quality measures, participating organizations will either receive or owe a payment to CMS. And Secretary of Health and Human Services, Alex Azar, laid out four priorities for national health policy in a speech last month-one of which is using “experimental models in Medicare and Medicaid to drive value and quality” (see Alex Azar, Trump’s New HHS Secretary, Makes Surprisingly Bold Policy Speech).

These developments have a few important implications. First, as VBR models move slowly to focus on “total health spending” as a metrics for gainsharing and financial risk, managers of provider organizations will need more knowledge of the “value” (the cost and performance) of medications, medical devices, and the emerging treatment technologies. And, as services become inextricably part of the medication, medical device, and treatment technology “product,” their makers become both potential partners and potential competitors of existing service provider organizations.

For more of our coverage on this strategy issue, check out

  1. The Chain Continues – Value-Based Payment Moves To Devices & Pharma
  2. Medical Device Industry Makes Moves To Value-Based Care
  3. Medicaid Episodes Of Care & Other Weird Arrangements
  4. The Power Of Bundled Rates
  5. Under The Bundled Umbrella: The New Financing Models Shaping Health Care
  6. Medicaid MCO In Your State? There May Be An APM In Your Future
  7. The 2018 OPEN MINDS Performance Management Executive Survey: Where Are We On The Road To Value?
  8. Are Bundled Payments Working? An Evaluation Of The Medicare Bundled Payments For Care Improvement (BPCI) Initiative
  9. Key Features Of Medicaid Behavioral Health Episodes Of Care
  10. The Hospital Perspective On ‘Owning’ Value-Based Reimbursement

For more, join my colleague and OPEN MINDS Advisory Board Member Richard Louis, III on September 17 for his 2018 OPEN MINDS Executive Leadership Retreat Executive Seminar, “How To Build Value-Based Payer Partnerships: An OPEN MINDS Executive Seminar On Best Practices In Marketing, Negotiating, & Contracting With Health Plans.”

 

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