Technological and scientific advancements have dramatically altered the treatment landscape in several disease states. These include orphan diseases and conditions that previously had no disease-modifying treatment options. These innovative therapies have also come with unprecedented costs, with some agents introduced at a price exceeding one million dollars for a single patient. Value-based purchasing arrangements (VBPs) have attempted to manage the initial cost of these agents. In a VBP, which is sometimes referred to as an outcome-based arrangement, the ultimate price that is paid for the drug is dependent on the clinical outcome. In addition to a plan’s traditional utilization management initiatives to maintain sustainability, this strategy aims to hold pharmaceutical manufacturers responsible for the result of their product. This is similar to other healthcare environments, such as when readmissions impact hospital reimbursement. Under VBPs, a pharmaceutical manufacturer would issue a reimbursement if their product failed to produce the desired clinical outcome. In addition, this strategy incentivizes the development of unique therapies that are more likely to have a clinically significant impact. Novel medications that improve outcomes would provide a greater healthcare value and could be priced higher in the market. Currently, volume is a large driver of cost, with discounts from pharmaceutical manufacturers often tied to the number of units dispensed. This is less helpful for niche-area pharmaceuticals and genuinely innovative treatments used for uncommon conditions.

Practical considerations of VBPs, such as a higher administrative burden (e.g., paperwork, electronic database access, automated retrieval of data), limit their application to all products. Since it can be expensive to measure outcomes in order to assess the worth of a product to an individual patient or plan, VBP concepts are most commonly applied only to the costliest medications. For instance, VBPs can have a significant impact on the pricing of agents like gene therapy or select oncology agents. Some of these agents can have a large clinical impact on disease progression, survival, or quality of life, but a drug may not have the same results in all patients. However, value-based or outcome-based pricing may provide an increased incentive to payers by decreasing their initial risk and providing more sustainable treatment coverage.

While there has been an increase in the use of VBPs by states, manufacturers, and other payers in order to control drug spending and tie patient outcomes to cost, uncertainty remains in developing novel VBPs. The Medicaid Drug Rebate Program (MDRP) created by Congress under the Omnibus Budget Reconciliation Act of 1990 ensures that Medicaid receives the lowest net price for a single source drug or innovator multiple source drug during the rebate period charged to any payer. Simply put, pricing net of all discounts, must be reported to Medicaid, and the best price would have to be offered to Medicaid as well. It is critical that Medicaid programs continue to receive the lowest price available for a single source drug or innovator multiple source drug.

On June 19, 2020, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule that is aimed at promoting VBP flexibility for a variety of payers, including Medicaid, with a goal of maintaining a best price for Medicaid. CMS notes that best price creates challenges related to the availability of VBP arrangements. For example, under existing best price rules, if an individual fails to achieve the specified clinical outcome under the VBP arrangement, the drug manufacturer may be required to provide a discount or otherwise may not be entitled to payment for that patient. Thus, the best price of that drug for purposes of the MDRP could become zero. This possibility has stunted the development and proliferation of VBPs. This new proposal from CMS, which includes other regulatory revisions as well (e.g., minimum standards for Drug Utilization Review [DUR] programs), could ultimately lower healthcare costs and potentially limit spending on treatments with limited value over time.

The ultimate goal of a VBP is for all parties to have a vested interest in the outcomes of drug therapy and to share the risk related to healthcare costs. Specifically, it calls on manufacturers to have more “skin in the game.” Moreover, the change to the Medicaid market could have potential savings applicable to a variety of market segments, impacting all Americans. Regardless of the final outcome or any changes made to the current draft prior to its possible rollout, the proposal demonstrates readiness from CMS to pivot prior strategies to mitigate rising drug prices.

More than 70 healthcare thought leaders, providers, and other innovators gathered in Florida in late January to explore the profound impact that new disruptors are having on healthcare delivery models, financing approaches and outcomes.  For the third year in a row, Magellan Health’s ‘Magellan Open Vision Exchange’ (MOVE) innovation forum brought together executives, providers and analysts to collectively discuss how industry innovators can solve some of healthcare’s biggest challenges.

Over the course of three days of dynamic interaction on Amelia Island, the group participated in presentations and discussions from a wide range of experts – including a Pulitzer Prize-winning practicing oncologist, CEOs of several large public and commercial healthcare programs, futurists, entrepreneurs, and innovation change gurus.

The speakers at MOVE 2018 brought very different perspectives, but the messages they delivered hit remarkably consistent notes.  Healthcare is being transformed through ever accelerating advances in technology, leveraging the power of big data, and producing personalized health solutions that are radically changing the way disease is predicted, identified, treated and contained.  As more than one expert noted, many of us do not even realize that ‘deep learning’ – as population-based meta-data analysis is known – has already made its way into our homes, and indeed into our pockets.  Sam Srivastava, CEO of Magellan Healthcare, reminded us all that the humble Smartphone has much more computing power than the early super-computers.  Pulitzer Prize-winner Siddhartha Mukherjee explained how researchers are using voice data passively recorded on Amazon’s Alexa™ to identify early-stage Alzheimer’s disease.  And, as eminent futurist Jim Carroll noted: “Connected health homes are the new normal.”

How do these profound changes impact the healthcare delivery system? Or as one audience member mused:  “In a world where computers make most of the clinical decisions, what becomes of the traditional provider?”  The answer was encouraging.  Several panelists felt that when machines take over routine diagnostics and health maintenance, the doctor-patient relationship will actually be enhanced, as primary care providers will have more time to actively listen to their patients, and more flexibility to address the non-clinical determinants of health that positively impact healthcare outcomes.

In the short term, providers are preparing for a transformed healthcare landscape by investing time and resources in creative partnerships with health plans and health informatics leaders in an effort to re-define and augment their value proposition.  Leaders from Magellan’s healthcare and pharmacy divisions joined with GuideWell of Florida in a panel discussion that explored the ‘volume to value’ shift in Value Based Purchasing (VBP).  Participants suggested that, while finding the optimal value-based model has been elusive, some promising pilot programs are emerging.  Aligning provider and payer incentives remained a challenge, the group agreed, and even the best-designed VBP program will fail if it does not drive member accountability.  Dr. René Lerer, president of GuideWell, captured this sentiment perfectly when he said that an effective health solutions company no longer delivers managed care – but instead ‘delivers a managed life to each and every member.’

In other words, the key to good personalized medicine will always be the person at the center of the healthcare journey.  Tommy Duncan, CEO of Trusted Health Plan, revisited this theme forcefully when describing how his inner city D.C. health plan was able to achieve a remarkable operations and financial turnaround in only one year.  The secret, Tommy explained, was that Trusted pivoted its existing care management model completely to focus on high-touch, face-to-face interactions at brick-and-mortar ‘Wellness Centers’ staffed by interdisciplinary teams.  Using predictive modeling data as a starting point to identify high-risk, high-cost members, the Wellness Center model generated behavior change at the individual member level that resulted in a 60 percent drop in emergency room visits in only one year.  Erhardt Preitauer, CEO of Horizon Health New Jersey, delivered a similar message, and ended his discussion of long term care best practices with the comment, “It all comes down to personal engagement.”

MOVE 2018 came full circle with closing comments delivered by Barry Smith, CEO of Magellan Health.  Many presenters talked at length about vast cloud-based, technology-enabled data repositories. Barry brought the discussion back down from the data cloud to an intensely human level, when he told the story of how a group of 80 compassionate strangers formed a human chain to save a family in distress on a Florida beach not too far from the room where MOVE attendees were sitting.  The group of strangers bonded spontaneously around a common goal, unanimously determined not to fail, and focused single-mindedly on ensuring not a single member of the stranded family drowned.  As a vivid metaphor for MOVE 2018, Barry’s story moved everyone who heard it.  It was also a perfect reflection of Magellan’s purpose:  “leading humanity to healthy, vibrant lives.”