Paying for high-cost, breakthrough drugs is one of healthcare's abiding challenges—and tied to so many of the "pre-existing" conditions that plague the industry as it tries to innovate.
If a drugmaker developing novel therapies created an online dating profile, it might read something like this:
Caught-in-the-headlines innovator desperately seeks reimbursement strategy for a wide variety of relationships: one-time, short-term, or ongoing. Must be comfortable with controversy and difficult conversations around money. Problem-solvers desired, skeptics need not apply.
Matches and responses to such a profile might be slow to roll in. Why? Because paying for high-cost, breakthrough drugs is one of healthcare’s abiding challenges—and tied to so many of the "pre-existing" conditions that plague the industry (cost, quality, and access) as it seeks to innovate. These challenges are amplified for novel therapies, especially one-and-done curative treatments. A growing number of solutions are emerging, however.
The state of novel therapies
First things first. "Novel therapies" refer to the growing number of cellular, genetic, and other biological treatments that, per the Food & Drug Administration (FDA) "serve previously unmet medical needs … [and] have chemical structures that have never been approved before." Think stem cell treatments, most of which target cancer and rare, inherited diseases. The Alliance for Regenerative Medicine (ARM) reports that only 60 products, roughly, have been approved for use—only a fraction by the FDA and many not available in the United States.
Novel therapies often address so-called "orphan diseases," defined by the U.S. Orphan Drug Act as affecting less than 200,000 people. MedicineNet frames the issue more bluntly, commenting that an orphan disease is one that has "not been adopted by the pharmaceutical industry because it provides little financial incentive for the private sector to make and market new medications to treat or prevent it." There are manufacturers that do, with the FDA offering distinct approval pathways for orphan and other breakthrough therapies for rare diseases.
Controversy continues
These therapies are not without controversy. The FDA's recent approval of Biogen to treat Alzheimer's disease set off a firestorm, not only for its cost but the questionable clinical benefit that did not stop FDA approval. High drug costs are hardly a new headline in healthcare. But Biogen’s bad press—and historical bad actors such as 2015’s price-hiking "pharm bro" Martin Shkreli—make it more difficult to separate pricing from other issues, including solutions.
Biogen’s $56,000 annual cost, for example, is small compared to limited and even single use ("one-and-done") therapies. Many of these are the aforementioned cell- and gene-based treatments with a cure versus maintenance focus. Zolgensma, a one-time therapy for spinal muscular atrophy, costs $2.1 million. Despite this price tag, The American Journal of Managed Care (AJMC)reports that it has "set the pricing precedent for gene therapies."
The current landscape
A $2 million precedent doesn’t make payers’ jobs any easier. Some aspects of the current stem cell and genetic reimbursement landscape may help. Today, stem cell implants can be reimbursed one of four ways for private insurance: case rates, per diem rates, a percentage of billed charges, or a percentage of Medicare diagnostic-related group (DRG) charges which (along with current procedural terminology (CPT) codes) are the basis of Medicare payment as well.
The real challenge is one-and-done, curative therapies. The Alliance for Regenerative Medicine (ARM) has identified the crux of the problem. "While these therapies can provide significant direct and indirect savings in medical costs over time, their potentially high upfront cost can create a significant burden on existing reimbursement systems … If paid for as drugs are today, the cost of regenerative [curative] medicines … would be incurred up front and could present a financing challenge for some insurers."
As the AJMC notes, what payers are lacking are cost-effectiveness thresholds (CETs): "the maximum cost at which the treatment is deemed to be cost-effective and the cost is justified"—for future gene therapies (2020). The value proposition depends upon efficacy (short- and long-term) and lifetime savings, none of which are guaranteed nor easy to prove.
Getting it done
Noting that "[a]s more gene, cell and tissue-based therapies reach the market, the need for payment solutions is more pressing," ARM has identified multiple payment alternatives for one-and-done therapies that distribute cost and risk over time. These include:
Installment payments: Made over time with amounts and frequency based on lifetime patient benefit calculation.
Value-Based: Manufacturer reimbursement based on pre-defined health outcomes, with payment including discounts, rebates, and money-back guarantees.
Hybrid: Value-based model with incentive payments extended over more time.
Novartis is but one manufacturer getting onboard, including a hybrid financing-reimbursement solution for the previously mentioned Zolgensma that includes a five-year payment plan and partial rebates if the drug is not effective.
Each approach faces implementation barriers already common to healthcare innovation, from accounting rules based on point-of-service payment to coverage portability to the FFS chassis that still limits value-based purchasing strides. All of these require legal and/or regulatory intervention. Multiple, multi-stakeholder initiatives have emerged to address, including the Biotechnology Innovation Organization (BIO), the Institute for Clinical and Economic Review (ICER), the American Society of Gene and Cell Therapy (ASGCT), and the MIT-based NEWDIGS (New Drug Development ParadIGmS).
NEWDIGS, for example, is "focused on enhancing the capacity of the global biomedical innovation system to reliably and sustainably deliver new, better, affordable therapeutics to the right patients faster." Initiative members include manufacturers, payers, providers, industry groups, and even venture capital firms. Anthem, the Blue Cross Blue Shield Association, Harvard Pilgrim Health Care, Humana, Kaiser Permanente, and UnitedHealthcare participate on the insurer side.
Full-scale intervention is necessary. The ARM writes: "No one entity can achieve these changes on its own, nor will every solution be ideally suited to each new therapy or circumstance." Innovative therapies that lack innovative financing and reimbursement will strain industry attempts to make healthcare more accessible and affordable. More initiatives will be needed to help payers partner with drugmakers, government, and other stakeholders for solutions.
"What has been missing is the patient's perspective," says one industry consultant.
The future of clinical pathways is patient-centric: an approach that balances the long-standing focus on cost-effectiveness with personalized medicine choices, defined by patients and providers, to deliver results across the value chain. “What has been missing is the patient’s perspective,” says Winston Wong, PharmD. Wong—whose career has arced from health plan pharmaceutical executive to industry consultant and editor-in-chief of the Journal of Clinical Pathways (JCP)—states that has been the field’s most significant shift since 2015. This perspective includes many facets: financial, treatment tolerance, caregiver support, and a holistic view of the person receiving treatment.
Definitions and foundations
Many factors can and must contribute to patient-centered clinical pathways, many linked to the very dynamics that will help the healthcare industry shift from volume- to value-based care (e.g., provider integration, innovation, social determinants of health). By definition, a clinical pathway is an evidence-based treatment plan. Wong adds to this definition the “balance of efficacy, tolerability, and affordability [that] lead to the set of preferred treatment options,” with accountability for following the pathway being critical.
Built out further and based on definitions developed and updated between 2010–2016, JCPdefines clinical pathways as meeting four criteria: “(1) a structured multidisciplinary plan of care; (2) the translation of guidelines or evidence into an algorithm; (3) detailed steps within the pathway along a timeframe in a course of treatment/care plan; and (4) standardized care for a specific population.”
Oncology and outcomes
Clinical pathways cut their teeth in oncology and remain prevalent in a field marked by high treatment costs, expensive specialty pharmaceuticals, and a particular need for coordinated and integrated multidisciplinary care that spans every dimension of human need. Add to this the personal toll that a cancer diagnosis can bring.
There is no doubt that clinical pathways make a difference. “A clinical pathway will lead to better, more cost-effective care and outcomes,” says Wong. In addition to the efficacy, tolerability, and affordability cited earlier, he adds: “From a quality standpoint, it has been well documented that by decreasing the number of regimens, the staff becomes more familiar with the regimens being administered and they are able to support the patients better by being able to manage their experiences and toxicities.”
A new focus: Patient-centered
But given that clinical pathways are not ubiquitous, what remains? Patient-centeredness, says Wong. He notes that while prior objectives were weighted heavily to cost control, “we’re now looking at total patient care, SDOH, and triple aim; what’s coming to fruition is patient satisfaction. We [at the JCP] arrived at the conclusion that clinical pathways are used more today as a total tool.”
This perspective is reflected in the findings of the Journal of Clinical Pathway’s 2020 Oncology Benchmarking Survey. The primary reasons that oncology practices report utilizing pathways are to decrease treatment decision variability, improve care quality and outcomes, and streamline data collection. “Cost control, per se, came in lower compared to 2019,” says Wong, “possibly due to the shift from fee-for-service reimbursement to overall performance/outcomes-based reimbursement.”
Clinical Pathways University adds: “In a health care landscape undergoing a paradigm shift from a traditional fee-for-service to a value-based care model, clinical pathways represent the uniting of real-world clinical and financial data with medical practice as a means to drive precision and optimization of patient care.” It’s also important to note this might mean a clinical pathway is not utilized for select patients. The example Wong gives is an 80-year-old patient who may not tolerate chemotherapy well or require it if the cancer is controlled.
The role of integration and consolidation
As clinical pathways diverge in the wood, who will define this road less travelled? Payers will continue to lead but they are not alone. Wong cites CareFirst BlueCross BlueShield, Cigna, and Humana as innovative carriers, either independently or by working with third parties such as New Century Health. Today, providers are also using New Century, including Mercy Health, Cancer Care Specialists of Illinois, and Conviva Care Solutions. The latter is a Humana-practice management which prompts what role integration will have in clinical pathways’ brave new world.
With more stakeholders working with the same third parties, expect to see a reduction in the number of clinical pathways in favor of consolidation and streamlining. Wong notes that even programs created independently “appear to be a moving back towards using guidelines and compendia as the base, and then pairing down the treatment options based upon the needs and demands of the practice.” Collectively, these practices—along with clinical pathway-EHR integration—help solidify and streamline, reducing the variation that causes pathways to die on the vine.
CALLOUT: 61% of providers access pathways via the EMR, 25% via a separate system, and 8% using hard copy paper orders (Source: JCP 2020 Oncology Benchmark Survey)
This also occurs when providers align their pathways to their largest payer populations or attempt to identify common factors across business lines. Aligning to size and consistency reflects the pros and cons of healthcare reform—using existing volume and existing mechanisms as the only starting point while building the kind of stakeholder consensus that breaks down silos and ensures innovation is moving in the same direction across stakeholders.
Precision medicine and more specialties
The opportunity to apply clinical pathway beyond oncology to rheumatology, gastroenterology, cardiovascular, and other areas are making headlines. Notably, clinical pathways are also moving beyond not only oncology but pharmacology. MedPage Today and the American Society of Clinical Oncology (ASCO) are calling for pathways that “reduce their reliance on drug utilization” as more genomic, immunology, and cellular treatments emerge. The rise of precision and personalized medicine through these therapies could be the tide that lifts clinical pathways to full patient-centeredness.
Click here for the full MedPage/ASCO study and here for more insights from The Journal of Clinical Pathways’ 2020 Oncology Benchmarking Survey.
The FFS claims submission process is still the primary means for capturing the broader encounter data needed for VBP analysis and payment.
Value-based purchasing (VBP) has been part of the national healthcare vocabulary for more than a decade. And while there is much to suggest that VBP is finding its place in the delivery system—with numerous government programs and thousands of payer-provider contracts spanning managed Medicare, commercial, and even Medicaid programs—VBP also has a long way to go. And the still-entrenched fee-for-service (FFS) chassis linked to every functional aspect of healthcare is why.
Value-based purchasing—sometimes referred to as alternative payment model (APM)—does not have a conceptual problem or even a "will" problem. There is a general consensus that healthcare is too expensive and that new strategies are necessary to control costs. Healthcare already represented 17.7% of U.S. Gross Domestic Product in 2019 and could represent nearly one-fifth of GDP by 2028.
As Brian Wheeler, vice president, provider collaboration and network transformation at CareFirst BlueCross Blue Shield, notes: "Payers and providers can't continue to haggle over unit cost."
What VBP does have is a functional problem that manifests operationally, technologically, and programmatically. Why? Because FFS is still the primary mechanism by which most services are billed, even in value-based contracting models. This billing is largely retrospective and occurs through the only means available to capture broader, patient and population encounter data: claims submission. Claims, in turn, are linked to multi-setting reimbursement coding, all of which are preset and hard-wired into existing program designs and platforms.
"Healthcare delivery system partners and payers are still very dependent on the flow of fee-for-service claims," says Wheeler. "Many benefit designs cannot be administered without a known unit cost for the service provided. Electronic health records [EHRs], the billing systems, the accounting systems—the whole system is built around this." Or as industry expert and policy analyst Paul Keckley has written: "The transition from volume to value is inevitable but the road from here to there is bumpy."
Current strategies, in essence, are work-arounds (e.g., FFS payments reconciled retrospectively to pre-defined VBP cost and quality targets, with assessment of provider performance over time.) On the pharmacy side strategies are even more challenging, with some health plans using retroactive rebates to account for VBP payments linked to prescription drug metrics. "The only way any plan has been able to figure out the drug portion is through providing back rebates," says Winston Wong, a former payer pharmacy management executive and now industry consultant. "It’s the only way for financials to go from a manufacturer back to a health plan. The financial processes are just not in place."
So how can payers and other stakeholders make more rapid and substantial VBP progress and move away from the FFS chassis while it’s still in place? Two solution categories are IT and integration. For the former, encounter data relevant to VBP must be liberated from the claims process.
CareFirst’s Wheeler reports: "We do this using analytic tools that capture patterns in utilization and quality based on the claims data. Once baselines are established, and adjustment factors are agreed on (e.g., changes in population size, changes in risk characteristics), progress can be measured and (the best part) rewarded."
CareFirst also has a unique provider partnership approach, a four-fold model that ranges from enterprise managers who provide total relationship management (for larger providers) to payment transformation, practice transformation, and care management teams that target improved data, workflow management, practice economics, and outcomes opportunities, including for high-risk patients. The carrier’s practice transformation team, for example, includes "master's-prepared" consultants who identify key, actionable insights from practice data. Practice transformation team members also share best practices for skilled, focused consulting.
There are many other industry factors that will impact VBP’s ability to fully migrate from the FFS chassis. Lack of model consensus and operationalized standards is a challenge. For example, Bailit Health has reported that state-designed Medicaid VBP contract designs follow a mix of Medicare- and/or commercial-based VBP strategies as they strive for harmony but grapple with market dynamics.
"MCOs noted that multi-payer alignment was beneficial to providers and plans, since they felt that providers would be more likely to engage in VBP arrangements if these arrangements were more standardized across plans and lines of business," the authors state. This hints at another VBP challenge: more providers with the desire and ability to assume downside risk (i.e., financial penalties in addition to rewards).
There is also the government's role. The Centers for Medicare & Medicaid Services (CMS), for example, prescribes much in the way of initiatives while mandating very little of how those initiatives should be achieved—a perpetual blessing and curse to the industry’s stakeholders. The agency’s 2020 proposed rule is another attempt to bring specificity and more results to VBP, this time related to prescription drugs.
But how fast should, or can, the industry move? Healthcare has a habit of racing to the next problem before fully solving the existing one, an expensive and inefficient strategy. The speed of innovation and digital transformation make some of this inevitable.
Artificial intelligence (AI), for example, could help decouple data locked in legacy systems for broader analytics needs. Olive AI hopes to achieve an "Internet of Healthcare" vision by using artificial intelligence to connect "all of healthcare’s disparate technology," eventually linking payer and provider revenue cycle from start to finish.
EHRs are a prime example and also critical to achieving VBP’s full potential. EHRs are still struggling with the core issues of burdensome, inconsistent data entry; maximum clinical decision support; and their chief aim: interoperability. One need only look at the Cerner EHR modernization debacle at Veterans Affairs (e.g., "Clinical and interdisciplinary workflows were not tested prior to ‘go-live’ in a manner that effectively reflected a real-world environment") to recognize that successful IT implementations are an abiding challenge—in healthcare and otherwise.
Maybe it’s something about the 10-year mark. The industry is entering its second decade of not only The HITECH Act and VBP but The Affordable Care Act and Clayton Christensen’s The Innovator’s Prescription. In that work, Christensen and colleagues Jerome H. Grossman, MD, and Jason Hwang, MD, highlight the challenge that ties healthcare’s hands as it attempts to disrupt itself: cost: "Reformers who focus solely on how to pay for rising healthcare costs fail to address the root problems of why care is so costly to begin with."
In this way, VBP remains dependent on not only the FFS chassis but how to deliver savings alongside ballooning expenditures.
Opponents' primary argument is that covering the uninsured, while noble, fails to address healthcare's other related albatross—skyrocketing costs, including for prescription drugs—with fixed premiums and lower reimbursement rates applying further constraints.
In May 2021, Nevada’s Democratically controlled legislature passed SB 420, authorizing a Public Option for uninsured residents who fall between Medicaid eligibility and up to and including marketplace options. Signed by Gov. Steve Sisolak, the Public Option also covers small businesses with The Wall Street Journal headlining that the "future of U.S. Healthcare may be playing out in Nevada."
We’ve heard this before, more than a decade ago in fact when Massachusetts was cited as the model for the Affordable Care Act (ACA). “Romneycare” and “Obamacare” had similarities and differences but one truth remains: government-sponsored healthcare remains a challenging discussion in the U.S. The groups opposing the new Nevada law cite potential destabilization of the current marketplace, a similar argument in 2009–2010. Bob Foesset of the Las Vegas Review-Journal writes: "I suspect secretly that many Republicans and some Democrats will be happy with the new 'public option' program that the Legislature just passed, as it is only partially 'public.'
This is true, given that private carriers will provide coverage—and one that operates against a relatively diverse payer landscape. Nevada is one of 15 states that operates its own health insurance exchange (HIE), with New Jersey and Pennsylvania joining the roster in November 2020. Five carriers currently offer Nevada HIE plan coverage: Health Plan of Nevada (HPN, from UnitedHealthcare), Silver Summit (Centene), Anthem, as well as Friday Health Plans (FHP), and Select Health. The former three also offer Nevada Medicaid plans. Anthem offered no exchange plans from 2018–2019 but re-entered, with FHP and Select entering the marketplace for 2021. Anthem, Select, and United also offer Medicare Advantage plans in Nevada, in addition to eight other carriers.
So how is Nevada's so-called Public Option unique and how is it more of the same: State small businesses plus Nevada residents who make more than 138% of the federal poverty level (FPL) —the upper limit of Medicaid eligibility—could purchase a Public Option plan from bidding commercial payers. So could those currently eligible for an ACA marketplace plan, which are now more affordable thanks to new subsidies enacted by the American Rescue Plan Act (ARPA) and in place through 2022. Nevada’s new program requires Public Option plans to be priced at 5% less than exchange plans and up to 15% less over the program's first four years.
Opponents' primary argument is that covering the uninsured, while noble, fails to address healthcare's other related albatross—skyrocketing costs, including for prescription drugs—with fixed premiums and lower reimbursement rates applying further constraints. Reimbursement rates are an ongoing challenge for which there is no easy answer. Kaiser Family Foundation captures the dilemma well: "Policymakers and analysts continue to debate whether relatively high payments from private payers are necessary to compensate for lower Medicare payments, and the extent to which providers could operate more efficiently to reduce costs." Noting that even efficient providers "appear to be ... losing money on Medicare patients over the past few years," KFF proposes a transition period for payer-provider adaptation.
For Nevada’s Public Option participants, a transition could be particularly helpful as carriers will be expected to "use ... payment models that increase value for persons enrolled ... and the State," including pay-for-performance, while offering aggregate reimbursement rates that are "comparable to or better than ... Medicare." America's Health Insurance Plans (AHIP) joined a variety of opponents, responding to the legislation this way:
"Creating a new set of health plans that look identical to other plans but with capped reimbursement rates does not address the underlying high costs of care, and will only serve to raise costs outside of the individual market as health care providers seek higher reimbursements to remain whole."
SB 420 also requires participating carriers to "[d]emonstrate alignment of networks of providers between the Public Option and Medicaid managed care, where applicable" and for current Medicaid and Public Employees' Benefits Program providers to participate "in at least one network" for the Public Option.
Despite pushback, it is unlikely that the state's current and largest plans would decline to participate. HPN, Silver Summit, and Anthem are the likely candidates to cover this as-yet un-served sliver of the market, given their size and that they also offer Medicaid plans in Nevada, with those providers required to participate in at least one Public Option network. The state's current Medicaid plans are required to bid. This sliver will be larger if the subsidies offered by ARPA are not made permanent—a move that many (including AHIP) support. If not, the Public Option's participating health plans are looking at two different cost scenarios within the 5%–15% lower premiums to be achieved over time.
There is evidence, however, that plans with Medicaid lines of business tend to be more successful on the exchanges. While commercial plans tend to enter the Medicaid market slowly, the Urban Institute and Robert Wood Johnson Foundation have found that:
Medicaid insurers tend to lower and maintain lower premiums across the marketplace
"Preexisting relationships" with providers who serve lower-income populations is advantageous and adds to member volume
This is true for providers as well, who gain leverage from existing contracts
Managed Medicaid plans often have lower administrative costs and more utilization controls, which give their commercial-only counterparts more runway to adopt
The dynamics answer an important question, one that could be framed: What is the business model of plans that know how to succeed on the ACA marketplace? Consistent marketplace participation is another important consideration for Nevada's new Public Option success. Beginning in 2021, three or more plans participated in the marketplace for the first time since 2015. Only one to two plans participated in most of the state between 2016–2019 with a portion of the Las Vegas Metropolitan Statistical Area (MSA) flip-flopping between lesser and fewer plans over time.
While the ship may have sailed given that SB 420 is now law, implementation will reinvigorate discussion that could lead to compromise. Pre-passage proposals from opponents included:
Enrolling Nevadans in existing, subsidized programs they are already eligible for. However, plans and other opponents—including AHIP—contend that the sliver would still be just a sliver and that state policymakers should "focus on getting the most vulnerable populations enrolled in the affordable coverage that is currently available." This includes the 65% of Nevadans who are eligible for but not enrolled in either Medicaid or a current zero-cost exchange plan. Conversely, and accurately, "[t]here is simply a portion of the population who will not enroll."
Along these lines, providing additional State-initiated subsidies or initiatives to support existing options. These include a 1332 waiver or a more automated eligibility process for Medicaid and Exchange plans, encouraging easier enrollment.
With the Public Option, the state could largely be hedging its bets and creating a more permanent, homegrown solution if exchange-plan subsidy increases disappear after 2022 and in light of past perpetual challenges to the ACA. The latter may be waning, however, given the Supreme Court's June 2021 ruling that essentially dismissed the latest challenge because the plaintiffs' claims lacked merit of injury.
Conversely, claims that the Public Option would erode the stability of current marketplace and employee plans may be exaggerated. Is that likely to occur if all 0.5% of eligible Nevadans (less than 15,000 people—many of whom may be unemployed and not receiving company coverage)—are enrolled in the Public Option? The Public Option could increase awareness of and enrollment in the existing Medicaid and exchange plans which may appear more trusted by comparison—particularly given Medicaid’s continuously open eligibility period and recent marketplace open enrollment extensions.
So, will what happens in Nevada stay in Nevada or will others join the Silver State and its predecessors (Washington and Colorado) in these stop-gap efforts? It will be a space worth watching as Nevada lawmakers, payers, and providers come to the bidding and bargaining table later this year.