The fee-for-service reimbursement model dominates the healthcare landscape despite being widely seen as a major culprit for the skyrocketing cost of healthcare over the past three decades. It is a model based on volume — the more services, visits, and episodes or occurrences, the more reimbursement one stands to reap.
Value-based care (VBC) arrangements are envisioned as a less transactional, more sustainable way to structure payments that are aligned to quality measures and performance metrics (such as a reduction in the total cost of care), which matter to all stakeholders — including patients, providers, and payers. In other words, VBC reimbursement is based on performance or outcomes-based milestones — not strictly volume of transactions alone.
VBC for pharma
VBC is often discussed in the context of organization and reimbursement for health services, but it also has important implications for the biopharma and medtech industries.
Although many biopharma and medical device companies are hesitant to embrace a payments framework that deviates from traditional “units of care” reimbursement, VBC contracts present an opportunity to demonstrate the effectiveness of newly approved products without asking payers to take on excessive risk or full financial accountability for sub-optimal outcomes.
Such accountability builds trust and helps payers make faster formulary, benefit, and reimbursement decisions, while also letting innovators get ahead of competitors unwilling to put skin in the game. Sure, this does take some risk tolerance, but pharma is not new to making calculated bets.
Nevertheless, despite the benefits of VBC contracts, legitimate questions remain. For example, how can drug or device effectiveness, patient adherence, and evolving health outcomes along a course of treatment be measured consistently – sometimes over extended periods of time – so as to prove a novel therapy is working?
Outcomes and performance-based milestones hinge on trustworthy data, yet neither payers nor manufacturers typically have the necessary infrastructure to capture and analyze continuous biometric and self-reported data that form the foundation for evaluating performance. Keeping in mind that up to 75 percent of current VBC business models are predicated on self-reported patient data, reliable data capture therefore takes on particular importance.
DTx for pharma
With the introduction of increasingly sophisticated digital products, healthcare is acquiring new tools with which to address many of these questions and expand the use of VBC arrangements in pharma. These technologies span a wide gamut, from digital diagnostic and biomarker-tracking tools and clinical grade wearables, to digitally delivered interventions (commonly known as digital therapeutics, or DTx) that can treat, manage, or prevent disease.
Because of their potential to reconceptualize the delivery of care through data-driven insights and multiple configurations – from beyond-the-pill initiatives to combination products, software as a medical device (SaMD), and digital wrappers to an existing molecule – DTx are currently living a moment of glory and are the object of brimming euphoria, bold investor valuations, and rapid acquisitions. But beneath all this industry commotion, they also provide a spectacular opportunity to “turbocharge” alternative payment models.
Thanks to their unique capabilities to capture and transmit rivers of data from sensor-based devices, digital health solutions make the tracking of both biometric and electronically collected patient-reported outcomes (ePROs) automatic and frictionless, and boost the accuracy of the reporting itself. As a result, these hardworking data processing devices can sound an early warning in case their underlying algorithms detect a data pattern that suggests an abnormal event; in a connected care setting, this allows a patient’s care team to react spontaneously by placing a phone call or by sending a home nurse, or even an ambulance, to assess the situation and prevent potential health complications.
To give an example (or two: see here and here), in recent years the remote cardiac monitoring space has been one of the most prolific fields for innovation in connected wearable devices that “watch for” early symptoms of disease – in this case, arrhythmia and atrial fibrillation – and empower physicians to stave off downstream health complications. Following the same logic, a digital diagnostic or DTx integrated into a VBC model can set in motion a virtuous chain reaction, supplying data that improve health outcomes, the patient experience, and total cost of care – the Holy Grail of value-based care.
The VBC-DTx plunge by pharma
In their most distilled form, DTx create value within value-based models by generating evidence of the effectiveness of new therapies or care pathways that demonstrates their comparative benefits and that is unobtainable through traditional evaluation methods. Seen this way, DTx offer a tantalizing glimpse of what’s possible to those pharma stakeholders that are still on the fence regarding VBC approaches to reimbursement, as well as to those that have already dipped their toes and may be looking to wade deeper.
Historically, pharma has been hesitant to immerse itself into VBC contracts with other players in the healthcare system and supply chain. Pharma manufacturers who have become digital builders will soon face a crossroads of how best to seek reimbursement for their products, solutions, and programs. Digital health solutions and DTx present a unique opportunity for pharma to reimagine how they deliver innovation across the healthcare system.
Digital health innovations can act as the tip of the spear for introducing VBC arrangements and solidifying relationships between pharma, payers, and providers. We are just beginning to witness the ripples from what VBC and DTx can mean for the industry. While the clarion call of fee-for-service contracts will always remain alluring for traditional stakeholders, at some point digitally innovative pharma manufacturers will need to take their maiden voyage into truly transformative waters.