Growing concerns over the high cost of new and innovative drugs and devices have led to increased interest in developing value-based payment (VBP) arrangements for these medical products, with the goal of achieving better outcomes at a lower overall cost than the current fee-for-service (FFS) system. These payment reforms aim to align pricing and/or payments more directly to evidence on outcomes and costs. As with VBP reforms for healthcare providers, implementation of VBP arrangements for medical products might be meaningfully viewed on a spectrum ranging from modest incremental FFS payment adjustments based on expected value, to contracts that involve substantial accountability and risk sharing for health outcomes and total costs for a population of patients. More advanced models rely on a combination of quality of care measures, clinical or patient-reported outcomes, utilization outcomes, and measures of spending intended to reflect value. Yet, while a growing share of health care payments are shifting to value-based approaches in other parts of health care, most VBP arrangements for drugs, devices, and other medical products are modest, involving limited performance-based adjustments in conjunction with predominantly FFS payments.
Some of the most notable hurdles to more advanced VBP arrangements for medical products involve current U.S. laws and regulations designed to address appropriate concerns about overuse, misuse, and excess spending associated with medical products in FFS payment systems. As we move away from FFS, these aspects of the current U.S. statutory and regulatory landscape not only complicate VBP implementation, but in some cases prevent their adoption.
Major concerns include:
All of these barriers could benefit from clarification of current guidance, as well as from regulatory and legislative reforms to foster a more certain environment for the adoption of payments for medical products that shift substantially away from FFS. These shifts would align with major health care payment reform initiatives for providers, and could create more assurance and support for innovative products to deliver higher value to patients.
The Duke-Margolis Center for Health Policy, working with a broad-based Consortium—composed of patient advocates, payers, manufacturers, and providers, as well as experts on regulatory affairs, law, and policy — analyzed the legal barriers to meaningful VBP arrangements involving medical products, noting situations where stakeholders may be able to utilize the existing and emerging regulatory environment to develop and implement VBP arrangements.
Based on our analysis, we recommend that the Food and Drug Administration, Office of Inspector General, Centers for Medicare & Medicaid Services, and Congress take certain steps to advance legal certainty and incentivize the further development and adoption of meaningful VBP arrangements for medical products. Regulatory innovation to address these obstacles should match and support the innovations in 21st century technologies and healthcare organizations, by providing a clear pathway for aligning manufacturers and healthcare providers behind payment approaches that deliver better outcomes and avoid unnecessary healthcare costs.
Below is a summary of regulatory and legislative recommendations:
FDA Regulation of Manufacturer Communications
Medicaid Best Price