Value-based care and the role of health economics outcomes research

A fundamental shift is occurring in the world of healthcare delivery and reimbursement.

As costs of care continue to rise, payment models based on volume, such as fee-for-service, are becoming unsustainable. In their place, healthcare stakeholders are moving quickly to explore a myriad of value-based options—all of which tie reimbursement to the quality of the treatment delivered and, more importantly, the outcomes achieved.  And while the shift is happening in all therapeutic areas, it is of critical importance to those working in specialty medicine where treatments of complex diseases can costs tens of thousands of dollars.

For manufacturers of specialty pharmaceutical products, successfully managing the transition to value-based care will mean increased collaboration with providers, payers, health systems and other stakeholders. One thing all of these decision makers agree upon is that additional data and analysis will be needed to effectively measure and compare the total value of specialty care products.

Proposed value-based models

While the shift away from fee-for-service seems inevitable, it is not yet clear what models will replace it and how this shift will impact stakeholders. One alternative gaining support is the episodic or bundled payment model, in which a set fee is provided for patient care based on diagnosis. According to an article in the October 2013 Harvard Business Review, the bundled payment model is effective because it aligns payment with what the team can control and encourages teamwork and high-value care.  Unlike the fee-for-service model that rewards providers for increasing the amount of services, under the bundled model providers benefit from improving efficiency while maintaining or improving outcomes.

The American Society of Clinical Oncology (ASCO) proposed a variation on the bundled method that would use monthly rather than episodic payments. In the ASCO model, a single payment would be provided when a new patient is seen, followed by monthly payments for treatment, active monitoring, change in treatment, and enrolling the patient in a clinical trial. ASCO believes this monthly payment model could be sustainable throughout the patient care continuum and could deliver a welcome departure from practice dependency on reimbursement for infusion drugs.

The Centers for Medicare and Medicaid Services (CMS) have also proposed new payment models.  In February, CMS announced that by 2016, 30% of Medicare payments will be tied to value or quality through alternative payment methods, which will increase over the following two years to a total of 50% by 2018. Regarding oncology specifically, CMS plans to implement an episode-based payment model that aims to decrease medical costs by focusing on quality of care and improving patient outcomes. When participating in the episode-based payments, monthly patient management payments will be provided for each fee-for-service beneficiary being treated as well.

Growing pressure on manufacturers

As the merits of different payment models are debated, pharmaceutical manufacturers—particularly those with higher-cost products—are feeling growing pressure to demonstrate the value of their medicine to validate the price.  Novartis recently announced that it will explore a novel pricing model for its new heart failure drug, Entresto, which is competing against several older and less expensive cardiovascular drugs.  Under the proposed model, healthcare systems would purchase Entresto at a discounted price, but would agree to pay Novartis more if the medicine successfully reduces the need for additional hospital visits.

Novartis is not alone in making the case for paying more for therapy in the short term to reduce higher medical costs in the long term.  This issue has been widely debated over the past year following the introduction of two drugs to treat Hepatitis C that cost more than $80,000 for a 12-week regimen—but which cure 80-90 percent of cases and also prevent many patients from developing costly related illnesses such as cirrhosis of the liver and liver cancer later in life.  While the initial cost is large, when viewed over the lifetime, patients receiving these treatments will likely spend far less—and experience much better long-term health—than those treated with older therapies.

As more advanced medicines continue coming to market, it will be incumbent on industry stakeholders to implement payment models that reflect the total value delivered by the therapy over the life of the patient, while also ensuring that the cost is fair and reasonable.

Demonstrating value through HEOR

While it is not evident which value-based payment model will prevail, it is certain that specialty pharmaceutical manufacturers must be prepared to not only demonstrate the effectiveness of their drugs in clinical trial settings, but also provide real-world evidence of the total value a product can deliver, from both  a financial and quality-of-life perspective. Health economics and outcomes research (HEOR) studies, both retrospective and prospective, are becoming essential tools for companies as they prepare for a shift to value-based care.

The article “Episode-Based Payments and the Role of HEOR” in FOCUS Magazine, a publication from Cardinal Health Specialty Solutions, describes how two types of HEOR studies can help pharmaceutical manufacturers assess the value of their products.  While the article focused specifically on oncology care products, the benefits of these HEOR studies could apply broadly to many types of specialty drugs.

  • Retrospective cost-of-care studies, which focus on identifying the cost drivers and cost of care for patients at different stages of disease, can be used to determine the components of total cost of care, including costs of hospitalizations, emergency room visits, clinic visits, laboratory use, radiation, supportive care agents, adverse event management, drug administration, and drug costs. Understanding the differences in costs and cost components based on selection of chemotherapy agents and by line of treatment can help identify the preferred agents for patients with different stages of a specific cancer. The insights about cost drivers can also be used to determine whether specific costs should or should not be included in a bundled-care payment model for cancer patients.

    Retrospective studies also can be used to build predictive risk models that categorize patients into high-cost and low-cost groups based on treatment patterns, patient clinical and demographic factors, and comorbidities. These studies can help to determine the stage-specific episodes or categories that need to be created to set up an episodic payment system.

  • Comparative effectiveness analysis studies that correlate adherence of chemotherapy agents to total medical costs and to clinical outcomes, such as overall survival and progression-free survival, can be used to determine the most effective treatment options. These studies are especially valuable when the agents being compared have the same mechanism of action and mode of administration and are indicated for the same cancer, by stage, and line of therapy.

Looking ahead

As new payment models continue to be explored, pharmaceutical manufacturers have a window of opportunity to help shape the industry’s thinking around value-based care. Those that proactively collect data to demonstrate improved outcomes and the long-term value of pharmaceutical products will be in the strongest position as the reimbursement landscape evolves.

For more insights on health economics and outcomes research from Cardinal Health Specialty Solutions, please visit  You may download the full edition of Focus Magazine at