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Alternative Payment Models May Drastically Affect Drug Manufacturers, Reduce Innovation

Web Exclusives - Alternative Payment Models

Chicago, IL—As the healthcare system transitions from volume-based to value-based reimbursement, the question concerning industry is, “How will emerging payment models influence revenue?” The answer may not please the manufacturers of cancer drugs.

According to a recent study, the implementation of Alternative Payment Models (APMs), such as Medicare’s Oncology Care Model (OCM) and Episode-Based Payment, could significantly affect manufacturer revenues, which in turn may influence the access to new therapies and investment in research toward new anticancer therapies.

“Based on these data, if we were to move to some of these payment models, the impact on industry could be quite drastic,” said Jennifer M. Hinkel, MSc, Partner, McGivney Global Advisors, Wayne, PA, at the 2017 ASCO annual meeting. “Drug manufacturers must consider all of the unintended consequences of reimbursement reform. Companies taking a huge financial or revenue hit, for example, could end up shifting practice patterns or affecting the amount of money that industry has to reinvest.”

Payers are moving from fee-for-service reimbursement models toward value-based APMs, Ms Hinkel suggests. Although much attention has been given to the economics of oncology providers, less attention has been paid to the possible effects on drug manufacturers.

With this in mind, Ms Hinkel and colleagues modeled the financial impact of APMs as a function of volume and price factors in sales of a cancer drug. Volume factors included utilization patterns and market share, whereas price factors included launch price, price increases, and mandated and negotiated discounts. The model described the 3 APM categories of Buy & Bill Plus (similar to OCM), Episode-Based Payment, and Third-Party Buy & Bill.

“With this dynamic model, we can generate hundreds of different scenarios depending on characteristics of a given drug and predictions of policy environment,” said Ms Hinkel.

Across all scenarios, Episode-Based Payment resulted in revenues averaging 34% below baseline forecast at the 10-year mark, whereas widespread adoption of the OCM (Buy & Bill Plus) resulted in revenues averaging 66% below baseline at the same time period. On the other hand, Third-Party Buy & Bill resulted in revenues averaging 100% of baseline at the 10-year mark, Ms Hinkel and colleagues noted.

Clinical differentiation of drugs was another significant factor influencing the impact on revenues. Drugs with a low level of clinical differentiation (ie, those in a competitive market space) fared far worse than highly differentiated drugs in all APMs modeled.

“Highly clinically differentiated drugs may still take a bit of a hit in these scenarios, but there is definitely lower price pressure,” said Ms Hinkel, adding that providers are also preparing for a possible detriment to their bottom line.

“Under the buy-and-bill model, high revenue is what sustains the entire practice. If practices can’t recoup the cost of delivering these agents, though, their patients could be shifted to 340B hospitals, or they might be sent away for care,” she said.

Policy proposals, according to Ms Hinkel, should consider the impact across health system stakeholders and the intended and unintended potential consequences. Transitions to APMs, for example, may discourage physicians from prescribing newer or more innovative drugs, or may discourage the market from investing in more innovative drugs.

“If the Oncology Care Model becomes the dominant payment model rather than episodic payment, it’s probably better for practices’ economics and for industry as a whole,” said Ms Hinkel. “However, regardless of what becomes the prevailing model, it will be critical for us to understand the long-term impact—how companies will have to adjust pricing and come up with new strategies, and what will happen to the delivery market in terms of more consolidation or site-of-care shift.”

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Last modified: June 11, 2020