E4 – The Evolution of Payment Models and the Impact on Life Sciences Companies

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In our final bundled payment podcast, Avalere's Adam Borden discusses how the potential updates may impact device manufacturers.
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Adam: We continue to witness the evolution of the payment environment for healthcare services and products towards an emphasis on quality and value, most recently with the expanded episode payment models proposed by the Centers for Medicare & Medicare Services in acute myocardial infarction, coronary artery bypass graft, and hip and femur fractures. This model is proposed to begin in mid-2017 and include all Part A and B payments set at a target price over a 90-day episode of care, and will be mandatory for hospitals and their provider partners in 98 metropolitan statistical areas.

What is the impact to pharmaceutical and biotechnology companies, and why should they be focused on this proposed model and the changing payment landscape? Regarding the cardiac care episodes, it is important to understand that these are high-volume procedures in Medicare and that there is already experience in these episodes through the voluntary Bundled Payment for Care Improvement model. The Medicare beneficiaries that undergo these procedures often have several comorbidities, which heightens the focus on care coordination and reductions in additional acute care during the episode, such as readmissions.

Medical benefit (Part B) drugs related to the conditions included in these episodes and administered to the patient during the episode are included within the historical data used to calculate the target or benchmark price, as well as in the episode payments set against the target price. Manufacturers of Part B drug products related to these conditions, such as drugs to treat heart diseases and post-acute pain, will want to thoroughly assess the model’s impact on customers and consider engagement opportunities with providers. While pharmacy benefit (Part D) products are not included in the historical data and payment related to the target price, manufacturers of related products will want to understand the impact this model and other episode payment models may have on broader provider behaviors.

Just as with other episode payment models, hospitals will be working closely with their employed and community physicians, as well as post-acute care providers, to ensure the most appropriate services and products are delivered to these beneficiaries during the entire episode. Hospitals will likely undergo a thorough value analysis exercise for different technologies, including pharmaceutical products, in relation to data points such as readmissions and post-acute spending. While the value of healthcare has been an increasing focus over the past decade, manufacturers of all related drug products should ensure that value messaging approaches include real world data strategies, relationships of products to quality measures, and short- and long-term pharmacoeconomic data relatable to the product’s impact on overall spending.

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