One the biggest questions in the cancer care ecosystem is: When can we expect value-based benefit innovation from healthcare payers, specifically and especially in a high-cost and complex disease such as cancer? All healthcare payers state they are interested in value-based contracting, but to date the industry has no consensus on what value means. The sad reality is when you ask 100 industry people to define value-based contracting, you get 200 to 300 different answers. Unfortunately, the most common landing place on value today is as a discount or rebate off the top-line pricing.
Stakeholders’ failure to agree on the definitions and structures for value-based contracting is preventing the necessary innovation and reform. Today, a frustrated marketplace is calling for disruption, transparency, and change. The best opportunity to fix the system lies in the hope that payers and providers can find consensus on the purpose and definition for value-based contracting.
Market distortions in drug pricing alone serves as an example of how the current system is completely broken. Cancer drugs can represent up to 80% of the cost of some cancer treatments, so drug cost is top of mind for healthcare payers. Unfortunately, drug contracting happens under a legacy of valueless pricing methodology that has created a huge delta of economic distortion between the published prices and the price actually paid for drugs and services.
For proof, consider that the total U.S. drug spend in 2020 was about $470 billion, but the real number is closer to $300 billion as payers and third-party intermediaries known as pharmacy benefit managers (PBMs) take in non-transparent hidden rebates and discounts equaling $170 billion. These fees and discounts extracted from pharmaceutical manufactures cause on average a 37% corridor of distortion between real-world costs and what’s actually charged.
A Clearer Picture is Emerging
Previously, the road to value-based contracting has also been negatively impacted by legislative policy and CMS regulatory reimbursement obstacles, but the winds of change are blowing in the right direction. Conversations around value-based contracting are leading to more clarity on methodologies, not only from CMS’ Medicare offices, but from payers, providers, and drug companies alike as an industry consensus starts to emerge.
Medicare, who has the largest stick in the payer community, is starting to put together definitions, final rules, and guidelines around the government’s positive interpretation for value-based contracting. And both the pharma industry and provider organizations (hospitals, community practices, clinics, integrated health delivery systems, etc.), have expressed a willingness to engage in value-based contracting.
I think that eventually value-based contracting will resonate more on performance-based or warranty-based contracts between parties, which will de-risk or underwrite the uncertainty, and that payments will be based on the value derived and not promised. Ultimately, the marketplace has no choice but to evolve as today’s legacy economics are not sustainable. So we won’t have to wait much longer for the term “value” to finally be listed in the healthcare dictionary with a clear definition for all.