Is the Life Sciences Industry Ready for Outcome-Based Pricing?

Soaring healthcare costs have been pushed to the top of government budgets around the globe because of a distorted reimbursement model. In a recent study by advisory firm Lazard, 88% of biotech and pharma executives viewed pricing and reimbursement as their top concern.

To keep up, life sciences industry players are experimenting with innovative outcome-based pricing models that align reimbursements with positive outcomes, while improving pricing stability and predictability.

On a recent episode of the Internet talk radio program Changing the Game with Life Sciences, a special edition series of Coffee Break with Game-Changers, presented by SAP, a panel of three industry-leading experts explained how outcome-based pricing works and discussed the ways in which the model aligns all stakeholders in the value chain in the interest of the patient.

Joining moderator Bonnie D. Graham on the panel were Joe Miles, global vice president of Life Sciences at SAP; Bob Steller, industry principal, Life Sciences at Vistex; and Joseph M. Coppola, managing director in the Commercial Strategy & Operations Practice of Deloitte Consulting’s National Life Sciences Organization.

The following are just some of the observations presented during the one-hour show. For more information, listen to a complete recording of the show: Outcome-Based Pricing: Cure for an Ailing Healthcare Industry?

The concept of outcome-based pricing and its current popularity

Joe Miles: Outcome-based pricing has been around for several years. People have been experimenting in different ways. What’s really changing though are the technology innovations that are happening and the digital revolution that’s underway. It further fuels the opportunity now to do this. We now have technologies and capabilities –  whether it’s wireless devices, fitbits, different types of medical devices, or medical sensors –  that are used to capture information.

Joseph Coppola: This is so important now. This shift from volume to value in our healthcare system is really happening today. It’s imperative that life sciences manufacturers and device creators are listening to the music and starting to understand that they need to change the way they dance, operate, succeed, and differentiate their solutions and products based on the value they deliver.

How the life sciences industry perceives outcome-based pricing

Bob Steller: There’s the “OMG” effect, but people will realize as we get more into it that there will be better results. There’ll be better data. There’ll be better ways to look at how we move forward, improve the products, and improve people’s lives. As it moves forward it will be, “Yeah, this is great. This is about time we got in here.”

An outcome-based model aligns the pricing of pharmaceutical drugs with the interest of the patient

Joe: By linking drug prices with desired results, outcome-based pricing puts the focus on the patient while aligning all the players around the consequences for the patient. The market has historically been around blockbuster drugs and the concept of selling the same drug to thousands, if not millions, of patients. It’s a very different market. Technologies have evolved as well as the prices have increased. It really is driving a need for a very, very different model.

Outcome-based pricing puts the focus on the patient while aligning all the players around the consequences for the patient

For example, say we have a group of people predisposed to a certain outcome based on their genetic profile. And we have a drug that is much more expensive to develop. Two colliding forces. How do we work that to a model that allows for the continued innovation around these life-changing and life-saving drugs and products, while also allowing for a reimbursement level that is commensurate with the amount of investment into these products?

Bob: I agree. What’s really driving this is that these drugs are much more expensive to develop. In some cases more expensive to even deliver to the patient, but they can have very positive outcomes. It is a big discussion on value – for example, if it reduces the need for a transplant later in life or hospitalization. We really have to look at the full value of the spectrum. Then determine, are we delivering that value to that patient, so that we are helping them through their life and helping reduce the long-term costs of health care? If we are, then there’s great value to it.

Joseph: A couple of other drivers of change are happening at the same time, creating the perfect storm. One is the consolidation of providers and of payers. There are four payers out there that manage roughly 80% of the lives in the US. That’s an unprecedented scenario, which creates incredible leverage of these purchasers of care or reimbursors of care. That’s a key one. Another is the patient. There needs to be a focus on patients. With that comes the increased sharing of the risk of one’s health, but also the financial burden. Our patients are inundated with information that we never had before about our options, about what healthcare solutions could be had and for how much. These dynamics in the market are converging. We’re putting a lot of pressure, causing all the stakeholders of our healthcare continuum to seek greater cost effectiveness in their purchasing and prescribing of medications and solutions.

Now patients are becoming involved in the collection of their data

Joseph: Patients are becoming an integral part of the provision of real-world evidence through wearable technology from the providers themselves. There’s a big push in our industry called “patient engagement” or “patient services,” where manufacturers are focused on the patient, the provision of basic care management and the collection – assuming the patient opts in – of their patient-level data in support of measuring the effectiveness of the treatment protocol that they’re on. We’re seeing much more of that, especially in the areas of diabetes, cholesterol and cardiac ailments. This sharing of information is pivotal and critical to value-based contracting becoming widely adopted. It’s a very difficult task, but it’s not insurmountable.

Joe: The whole issue of patient accountability and involvement is an interesting topic. In many respects, patients are already being held more accountable for their own health. People want to have healthier lifestyles. The technologies and the awareness have grown to the point where we will be much more knowledgeable. Instead of just accepting that a physician’s going to put in a certain type of knee joint, we’ll do more research. What is an appropriate knee for me based on my athletic profile, if I’m a marathoner versus not? That level of accountability has already begun. We have all the technology. We have our cell phones which are as powerful as laptops were ten years ago, right in front of us.

Tune in to Changing the Game in Life Sciences

Join us for more episodes of Changing the Game in Life Sciences to hear how the digital economy is changing the life sciences industry. For more up-to-the minute business and technology news, listen to Coffee Break with Game-Changers broadcast live every Wednesday, 8:00 a.m. Pacific / 11: 00 a.m. Eastern Time on the VoiceAmerica Business Channel. And follow Game Changers on Twitter at @SAPRadio and #SAPRadio. 

Experts’ comments have been edited and condensed for this space.