Navigating the Value-Based Care Shift: Key Challenges for Payers (Part 1)

This two-part series examines the shift from volume-based to value-based contracts in the healthcare industry and the impact this transition has on specialty drugs and cell and gene therapies (CGTs). As healthcare costs rise, particularly in respect to innovative specialty therapies, value-based pharmaceutical contracts (VBPCs) present potential solutions to balance both access and affordability. In Part 1 of this series, we will introduce key concepts and outline the specific challenges faced by payers and manufacturers.

Innovations in Specialty Drugs and Gene Therapies

The patient care landscape is poised for transformation thanks to groundbreaking specialty drugs and novel CGTs. As of mid-2024, six engineered cell therapy products are commercially available for treating hematologic disorders and cancers, with a notable immunotherapy for melanoma receiving approval, representing a major advancement in treatment options.

Despite these promising advancements, the multi-million-dollar price tags associated with these therapies present a significant challenge for payers. Balancing the high costs of these treatments with the imperative need for accessible care will be crucial in shaping the future of healthcare.

A recent survey of health plans and employers revealed that 74% expect gene therapy affordability will be a moderate or major challenge for their organizations in the next two to three years. The complex manufacturing processes and comparatively high production costs of CGTs often result in longer reimbursement timelines versus traditional treatments, leading to potentially prohibitive list prices. Finding creative ways to address these financial hurdles will be vital to ensuring that innovative therapies remain accessible to the patients who need them.

Innovative Payment Models

As the US healthcare system transitions to value-based care (VBC)-- an industry-wide strategy aimed at improving population health and reducing overall healthcare costs -- payers and biopharmaceutical manufacturers are increasingly leveraging value-based pharmaceutical contracts (VBPCs). These alternative payment models connect reimbursement, coverage or payment directly to the effectiveness and real-world performance of treatments over a defined period.

VBPCs not only provide predictable cost structures but also align the interests of payers and manufacturers in a more meaningful way. Their primary objective is to establish a fair margin for manufacturers while enhancing patient access to potentially lifesaving biopharmaceutical treatments. By cultivating this alignment, VBPCs aim to drive cost savings, improve patient outcomes and foster a more sustainable healthcare ecosystem that benefits all key stakeholders.

VBC Benefits to Payers

Transitioning to a value-based contracting model empowers payers to achieve better cost management and expand patient access to necessary therapies. By tying payment structures to a product's real-world performance, this model significantly reduces the risk of making suboptimal purchasing decisions for payers.

In a VBC arrangement, payers gain firsthand insight into a product's effectiveness, which alleviates uncertainty regarding its clinical value, performance, and financial impact. This approach fosters an environment of transparency and accountability, leading to more precise performance metrics that facilitate effective evaluations of care quality. Ultimately, VBC is a win-win for all stakeholders, contributing to improved health outcomes and greater satisfaction among both members and patients.

The Road Forward for Value-Based Care

The shift from volume-based to value-based care represents a pivotal transformation in the healthcare landscape, particularly in addressing the challenges posed by specialty drugs and cell and gene therapies. As prices for new therapies continue to rise, the need for sustainable solutions that ensure patient access and affordability has never been more urgent. Value-based pharmaceutical contracts (VBPCs) offer a viable framework for aligning the interests of payers and manufacturers, fostering a collaborative environment that prioritizes patient outcomes.

By embracing the shift in payment models, payers can mitigate financial risks, enhance transparency, and drive better healthcare decisions. This approach not only supports effective management of high-cost therapies but also lays the groundwork for a more equitable and efficient healthcare ecosystem.

Looking Ahead to Part 2

As we move into Part 2 of this series, we will dive into the specifics of various value-based models, including value-based purchasing, outcomes-based contracts, and annuity-based contracts. We will also present real-world examples showing how VBPCs are being utilized to manage high-cost therapies and drive better patient outcomes. This next installment will be published soon on our Payer Insights Page.