How Health Plans Use Value-Based Drug Pricing

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Health plans and other payers can manage drug expenditures through value-based approaches that tie drug pricing to patient outcomes.

Health plans and other payers are increasingly using value-based approaches to better manage prescription drug costs. This approach ties drug prices to the clinical benefits that a drug offers patients compared to other treatment options.

Value-based drug pricing is widely used in Australia, Canada, and some European countries, and a few US states have recently requested state plan amendments to incorporate value-based pricing into their Medicaid programs. In a 2021 survey of 51 US-based health plans and pharmacy benefit managers, 56% of payer respondents reported having executed at least one outcomes-based contract (a value-based pricing mechanism).

Health plans use several value-related methods to manage costs:

  • Bundling: A single payment for a set of services provided to a patient in a given period; providers are incentivized to use the lowest-cost approach to achieve the desired treatment outcome
  • Clinical Pathways: A designated treatment course, which can include specific therapies, that is intended to be cost efficient; providers are often rewarded for following the clinical pathway
  • Exclusion Lists: Formulary exclusions due to cost, quality, therapeutic equivalence, or other factors
  • Indication Pricing: Pricing a drug based on clinical trial data regarding the effectiveness of the therapy for a specific indication
  • Outcome-Based Pricing: Payment for a specific therapy based on its outcomes in an individual patient or patient population
Value-Based Approaches to Drug Pricing (same as the five approaches discussed in the text)
Figure 1. Value-Based Approaches to Drug Pricing
Figure 1. Value-Based Approaches to Drug Pricing

The shift to a value-based purchasing system could drive increased competition among products in specific therapeutic areas while providing life sciences companies with opportunities to engage payer and provider customers in unique contracting and reimbursement relationships.

To learn more about value-based approaches to drug coverage and the effects on your business, connect with us.

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