Cost vs. value: Healthcare shifts its focus


Value-based care is transforming the world of healthcare. Simple cost management must give way to utilization management, and alignment of stakeholder services is inevitable.

Mike SaxDrug costs are constantly in the headlines. According to Forbes, growth in drug spend has hit a 13-year high, with a $54 billion increase in spending over the 5-year period ending in 2014. A recent CMS report about the 2013 Medicare Part D Rx drug spend showed that while 400 of the most expensive drugs accounted for fewer than 1% of claims, they made up one quarter of total drug costs. Experts have stated that specialty drugs compose 42% of the late-stage pipeline, up from 33% a decade ago. Costs - especially for specialty drugs - do not appear to be slowing down.

“Specialty” is not an official drug classification, but the term generally is used to describe drugs treating less common conditions, which are produced through advanced biotechnology (biologics) and require special administration, distribution, storage, and/or monitoring. All these attributes add up to higher costs, the specialty drug’s most defining characteristic. Other definitions may take in complexities of the health plan design, administration, disease, and level of care.

See also: ACA opens the door to value-based care

Trends and strategies

Specialty drug cost trends have been projected to increase from 38% of total drug spend in 2014 to 50% of total drug spend in 2018. Increases of 17%-21% per year in specialty drug costs are of particular concern to payers, who project the increase in drug spend for traditional drugs at 4-6% per year during the same period.

Key factors connected with the escalating cost trajectory for specialty drugs include increased use by an aging population, a drug pipeline that contains new biologics and therapeutic categories, and expanded indications. In addition, innovation has led to the development of new drug entities rather than the “me-too” formulations better known as generics.

Recent reports have shown that costs are lower for drugs managed under the pharmacy benefit than they are when the same drugs are managed through the medical benefit. Currently 50% of specialty drugs fall under the medical benefit.

The site of care also contributes to variation in cost, since self-administered drugs have a lower delivery cost than do drugs administered in a clinic setting. Opportunities to reduce costs can be found in both these factors.

However, better strategies are needed to reduce the costs of drug therapy and overall medical management of patients. Strategies to provide value-based care focused on better patient outcomes should include improved drug adherence and optimized medical management.

See also: The transformation of pharmacy in a rapidly changing retail environment

Value of specialty drugs

Value-based care means something different to each stakeholder on the healthcare spectrum. Some prevailing definitions include:

·      Value = Effectiveness

·      Value = Lowest cost

·      Value = Best health outcomes for the cost

With the introduction into the marketplace of multiple high-cost therapies, value can no longer be defined merely by efficacy and price. Payers want to ensure that drug therapies have value and that use of specialty drugs is appropriate, to optimal effect. Specifically, payers look for cost per event avoided or cost per percent of improvement. Ideally, they would like to see outcome comparisons between treatment options to determine which drug therapy provides the best or greatest value.

Precedent for value-based payment can be seen in government. Medicare is moving toward a value-based payment system that rewards doctors and hospitals for the quality, rather than quantity, of healthcare provided. For value-based care to be measured and delivered, modification of current organizational structures and information systems will be necessary.

Provision of value, improved performance, and accountability should be the responsibilities of all healthcare stakeholders. Each stakeholder will need to participate in evaluation and demonstration of value-based therapy.


Challenges and opportunities

In relation to performance metrics, data, and outcomes, a better alignment of distribution channels and service providers is needed. There are many challenges, including payer reimbursement, contracting, and site-of-care/dispensing issues. Vital performance metrics and outcomes are lacking among all stakeholders. Value-based care will require contributions from each respective stakeholder.

·      Pharmaceutical manufacturers should develop and market drugs that demonstrate measurable value to the healthcare environment, linking payment for drugs to value achieved (outcomes), rather than focusing on a cost-per-volume of drug. Participation in value-based pricing agreements would demonstrate that commitment.

·      Prescribers will need to be able to monitor, track, and report outcomes of therapy, in order to demonstrate that the prescribed therapies and care-management plans provide value. Robust IT services will be crucial to documentation of care and outcomes.

·      Payers will need to exercise creativity in designing networks and benefits geared to reduced costs and guaranteed access to the best therapies. State-of-the-art utilization-management strategies will be required if value-based care is to be provided.

·      Patients need to continue to be engaged in their own care to ensure consideration of their preferences by others as well as their own committed adherence to their therapy and management plans. Financial incentives for adherence may be an option to help them achieve the best value.

With the growth of the population of patients receiving more complex drug therapy, there will be a need for alignment of all services among the stakeholders, who will need to align services with patient expectations. We must move from simply managing cost to managing utilization, in order to provide value-based care to patients.

Michael J. Saxis president of The Pharmacy Group LLC(, a consulting group inGlastonbury, Conn.

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