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Implications of value-based care for the life sciences industry

Out of the many conversations surrounding rising healthcare costs and billing of excessive or medically unnecessary services and procedures, value-based-care has emerged as an approach that mitigates current costs and, when implemented appropriately, can lower future costs. With the reach of value-based care impacting all parties directly and indirectly involved in the healthcare system, life sciences companies should consider the impact this ‘new normal’ will have on their relationships with hospitals and payers.

The shift towards value-based care is a signal the healthcare industry is becoming more aligned with the core values on which many life sciences organizations were founded. Additionally, these values represent a key component of the value-based care system, providing the tools and devices necessary for providers to deliver high-quality medical care to patients, as well as potentially help hospitals receive increased incentives and payers reduce their spend. [1]

With the advent of value-based care, selection and administration of the correct medical device is now more connected to the economic health of the organizations purchasing them.

Value-based care strategies

Life sciences companies should consider new and creative strategies to ensure they can continuously assess and respond to the unique payer and hospital concerns in a value-based care market.

Outcomes-based contracts: Watershed moments for any life sciences company include obtaining coverage from a large, nationwide payer and reaching high levels of product utilization among hospitals. During this era of value-based care, there has been a shift in the pathways through which these goals are achieved. More companies are choosing to restructure their hospital and payer agreements to become outcomes-based rather than a traditional fixed-price/unit-based contract. With the amount of contract fees received often tied directly to patient outcomes, these types of contracts place considerable risk on all parties, especially life sciences companies whose products’ effectiveness may influence their future relationships with other payers and providers.

Value-based payer contracts are often structured around the following three agreements:

  1. Payer grants the product coverage
  2. Payer begins migration of enrollees with target patient profile from existing care to life sciences product
  3. Payer grants additional fees to life sciences company based on outcomes of migrated enrollees[2],[3]

In addition to upholding the essence of value-based care and appealing to the key concerns of payers, risk-sharing contracts provide a ‘guaranteed’ utilization, knowing a certain proportion of insured enrollees will engage with the product and, at best, experience positive outcomes reaffirming the payer’s decision for coverage. As positive outcomes are proven over time, life sciences companies have the opportunity to fortify their payer relationships and develop additional partnerships and contract arrangements.

Value-based hospital contracts include more revenue-risk opportunities for both parties, especially the hospitals who are at risk of incurring additional costs should adverse events occur as a result of the product. For this reason, value-based hospital contracts often contain the following agreements:

  1. Hospital purchases agreed upon amount of product, likely at a discounted per unit price
  2. Hospital utilizes product for patients with target patient profile
  3. Any services related to negative patient outcomes from product use will be paid for by the life sciences company and/or the hospital receives refund from the life sciences company for purchased products[4]

Life sciences companies can see this model reap dividends when their products result in positive clinical outcomes, improved hospital efficiencies and cost-effectiveness, which all align with the core impacts the companies strive to achieve.   

Development of software products to improve inefficiencies: In addition to partnering with payers and providers to increase product utilization and establish value through outcomes-based contracts, life sciences companies can add to the value-based care shift through the creation of software platforms that address challenges to efficiency, operations and delivery of quality care. Among the most prevalent technological gaps payers and providers are challenged with are the ability to better manage and access trustworthy data, the presence of  pathways for safe and efficient exchange of data across various sources and the ability to assess financial costs and utilization trends. Additionally, systems that are able to help identify and prioritize situations that require intervention and project opportunities for additional value generation, such as through service improvement initiatives and expense reduction targets, further enhance the potential impact on the user organization.[5]

Software solutions that help payers and providers achieve their internal goals of improved patient outcomes, reduced expenses and improved data quality represent an integral piece of the puzzle in the value-based healthcare system payers and providers strive to actualize.

Strategic non-healthcare partnerships: Because value-based healthcare focuses on creating a more efficient and effective healthcare system and population, the need for innovation in developing new products and processes is greater than ever. This has led companies to broaden their focus from one-time treatment delivery solutions to a more holistic patient journey perspective. With this broadened scope, life sciences companies are providing more value-based solutions to the gaps payers and providers face, such as patient adherence and monitoring, outcomes monitoring and inefficiencies in traditional operative procedures.

A result of partnerships with traditional technology and electronic organizations, these innovative solutions do everything from predict patient management solutions to provide clinicians with real-time remote patient monitoring technology to optimization of healthcare data infrastructure. [6],[7] The innovations borne from these partnerships enable more precision in the identification, response and delivery of healthcare to patients at the provider and payer levels. Through maximizing their resources and skills, strategic partnerships can incorporate lessons and strategies from other industries to help life sciences organizations answer the industry’s most pressing challenges in a value-focused healthcare system.[8]

Adapting with value-based care change

Although the concept is not a new one, the surge in the value-based care movement has created an opportunity for life sciences companies to further distil what and where value is gained or lost for different players in the industry. Whether the product is a medical device, pharmaceutical drug or software technology, life sciences companies should use this shift as an opportunity to take a more active role within the value-based care conversation and incorporate a value-based care perspective into the framework of their interactions with clients and counterparts.

For more information on this topic, or to learn how Baker Tilly specialists can help your organization with value-based care strategies, contact our team.

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[1]https://www.beckershospitalreview.com/healthcare-information-technology/medtech-innovation-amiss-unless-it-serves-health-systems-transitioning-to-value-based-care.html

[2] https://medcitynews.com/2018/09/heres-four-types-of-value-based-contracting-with-providers-that-companies-can-pursue/

[3] https://decisionresourcesgroup.com/blog/medical-device-companies-responding-value-based-healthcare/

[4] https://www.forbes.com/sites/siemenshealthineers/2017/02/10/new-healthcare-model-reframes-relationships-risk-sharing-between-providers-and-companies/#3059953c3243

[5] Population health platforms to enable value-based care programs: a practical approach for health plan and provider collaboration –soon to be published whitepaper by Baker Tilly

[6] https://www.waterstreetpartners.net/blog/healthcare-partnerships-playing-to-win-in-medtech-dealmaking

[7] https://www.nasdaq.com/articles/how-google-helping-make-advances-medical-technology-2018-11-29

[8]https://info.zs.com/thepacemaker/collaborating-with-command-the-elevation-of-medtechs-commercial-ops-to-a-strategic-partner

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