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  • The Role of Bundled Payments in Transforming Value-based Healthcare Delivery

    The Role of Bundled Payments in Transforming Value-based Healthcare Delivery

    The transformation of healthcare from volume-based to value-based mode has encouraged public and private payers to reform reimbursement models emphasizing on accountability for care quality and healthcare costs. Thanks to the ever-increasing healthcare costs, payers and providers are increasingly preferring bundled payments over fee-for-service (FFS) payment structures. (1,2)

    Bundled payments, also known as episode payments/case rate/package pricing, are defined as, “the reimbursement of healthcare providers (HCPs), such as hospitals and physicians, on the basis of expected costs for clinically-defined episodes of care”. (3,4) Bundled payments are the alternative payment models (APMs), designed for paying multiple providers for coordinating the total amount of services required for a single, pre-defined episode of care. The model is already a popular method for encouraging value-based care without fully engaging providers in downside financial risk contracts.(1)

    There are two types of bundles, viz. retrospective and prospective. A retrospective bundle combines a reconciled budget with the payer or “convener” as a financial integrator of the fees paid out instead of putting the responsibility upon one provider. This arrangement is created on an FFS system and is retrospective, since providers first receive their usual FFS payments, which is followed by the receipt of an additional payment after assessment of their total costs and savings. However, these cost assessments may take over a year to complete. Retrospective bundles comprise of the most prevalent bundled payment system, because they are easier to understand, administer, and execute.(2)

    A prospective bundle pays a fixed price for a set of services covered in the bundle before rendering any or all of the services. An average cost per episode of care is assessed on the basis of historical data and/or regional costs and payment is delivered to providers when an episode is initiated, rather than waiting for its completion. Adjustments to payments are made taking into account other factors, such as outliers, excluded episodes, and so on. (2)

    However, bundled payments are facing several challenges. Their implementation has led to alienation of providers as they have often cited concerns over both the process by which costs for episodes are determined and the ability for smaller healthcare organisations to comply with the process. Having said that, there is still a chance for HCPs to lower their costs and improve the standard of care. Yet, success with bundled payments calls for close coordination between multiple providers over a fluctuating timespan, something that many providers struggle with. To overcome this, the organisations implementing bundled payments must identify the eligibility of recipients through monitoring and tracking. For this, specific tools can be integrated; for e.g., a supporting IT environment, patient tracking, care process redesign, and physician engagement.(2)

    Some examples of the existing bundled payment systems are the Bundled Payments for Care Improvement (BPCI) initiative (2013), the Comprehensive Care for Joint Replacement (CJR) model (2016), and a recently launched and BPCI Advanced initiative (2018) – all of which have been introduced by the Center for Medicare and Medicaid Services (CMS). (5) An example of an area where bundled payment models are showing promising results is the joint replacement procedures. Several providers have reported cost savings, predominantly in post-acute care costs, under the CJR payment bundle.(5)  According to a recent JAMA study (2017), CJR has saved US taxpayers $5,577 or 20.8% per joint replacement care episode for 3,942 patients. (6)

    An increasing number of healthcare leaders are exploring the potential for bundled payments for reward, thanks to: a) the promise of the early BPCI bundles, b) the government’s recently renewed commitment to these models, and c) the combined knowledge gained from early pilots. In fact, evidence suggests that payers are predicting bundled payments to account for 17% of payments by the year 2021. (7) Moreover, large ­employers, crushed by high insurance costs, are directly negotiating bundle pricing. These are the indicators of bundled payments being a key APM in value-based care strategies.(5)

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    References 

    1. LaPointe J. Understanding the basics of bundled payments in healthcare. July, 2016.
    2. Guldin M. What are bundled payments and are they here to stay? December, 2018.
    3. Miller J. Package pricing: Geisinger’s new model holds the promise of aligning payment with optimal care”. Managed Healthcare Executive. June, 2008.
    4. Satin DJ, Miles J. Performance-based bundled payments: potential benefits and burdens. Minn Med 2009; 92(10):33–5.
    5. NEJM Catalyst. What are bundled payments? February, 2018.
    6. Navathe AS, Troxel AB, Liao JM, et al. Cost of joint replacement using bundled payment models. JAMA Intern Med 2017; 177(2):214-222.
    7. Value-based payment hits tipping point. 2016.

    Written by: Ms. Tanvi Laghate

    MarksMan Healthcare

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  • Importance of Tapping Payer’s Data to Document the Effect of a New Therapy

    Importance of Tapping Payer’s Data to Document the Effect of a New Therapy

    Traditionally, the pharmaceutical industry has always been dependent upon the ‘push’ strategy for successful market access for products. The drug approval process, involving submission of data on efficacy, safety, and tolerability to the regulatory agencies, used to be simple; which ended with the drug being marketed to the targeted physicians and dispensed by pharmacies post approval. Thus, this whole process involved a limited set of stakeholders, viz. physicians, regulatory agencies, and pharmacies. Conversely, over the years, the market access landscape has evolved primarily due to two factors: (1)

    1. Rising healthcare costs owing to an increasing prevalence of chronic diseases, growing geriatric population, and higher prices of new therapies
    2. Competitive pricing and reimbursement environment

    This has further led to the emergence of a new and diverse set of stakeholders over the years, i.e. the ‘Payer’(s), increasing the complexity of drug access to the market in general, and to patients in particular. Payer exercises the greatest degree of control over pricing and reimbursement for any new drug, and will continue to dominate the market access scenario to ensure successful market access. (2,3)

    Pharmaceutical advancements are increasingly conflicting as countries attempt to accommodate healthcare costs via different tools. New criteria for recognizing unique drugs and differences among those within the same therapeutic area or concerning the same molecule are being introduced, even though ‘price’ remains the main driver. (4) There is a surge of criticism towards the increasing prices of drugs that adds growing pressure on pharma companies and manufactures to limit future price increases, and eventually on payers to be more cost-effective in their approach to setting budgets and managing costs. (5) Global pharma operations need to keep up with the pace of these changes to approach pharma tendering as a strategy that spans pricing and commercialization.

    In order to document the effect of a new therapy in the real world, pharma companies are trying to justify prices by tapping payer’s data. Payers encourage pharma to collect post-launch evidence of product performance in the real world, thus turning it in pharma’s favor. This can help verify a price agreement or even clarify uncertainties about the clinical and/or safety outcomes outlined at registration. (6)

    The successful market access will involve collaborative team work between sales and marketing departments. The strategy itself should be well equipped to respond to market evolution and also, to accommodate all known interactions. There is no ‘one-size-fits-all’ solution. The challenges in the market will constantly vary as per the product, therapy area and the setting in which the treatment will be used.i,vi

    Payers are increasingly focusing on “real-world” outcomes to form their decisions, encouraging new policies to be formed, in order to assimilate evidence from different sources. These policies prioritize the evidence that goes beyond information collected during clinical development in randomized controlled trials (RCTs), required by regulatory authorities for marketing approval. ‘Administrative data’- that normally use retrospective or real-time patient data – are an example of the real world data sources, as they are collected primarily for reimbursement, but contain some clinical diagnosis and procedure use with detailed information on charges. Retrospective analyses (longitudinal and cross-sectional) of clinical and economic outcomes at patient, group, or population levels can be performed with the help of claims databases. Such analyses can be performed in short time and at low costs. (7)

    In conclusion, payer data from real-world such as claims data can most certainly impact the sound coverage, payment, and reimbursement decisions. It is critical that payers recognize – a) the benefits, limitations, and methodological challenges in using these data, and b) the need to carefully consider the costs and benefits of different forms of data collection in different situations.

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    References

    1. Kumar A, et al. Pharmaceutical market access in emerging markets: concepts, components, and future. Journal of Market Access & Health Policy 2014; 2:10.3402/jmahp.v2.25302.
    2. McClearn C, et al. Big pharma’s market access mission. Deloitte University Press; 2013.
    3. Arx RV, et al. Leveraging success factors for market access in the life sciences industry. Capgemini Consulting and Cegedim dendrite; 2009.
    4. Skinner JS. The costly paradox of healthcare technology. September, 2013. 
    5. Pharmaceutical pricing and market access 2017.
    6. Wechsier J. Measuring the value of prescription drugs. Pharmaceutical Executive 2017; 37(5).
    7. Garrison LP Jr. Using real-world data for coverage and payment decisions: The ISPOR Real-World Data Task Force Report. Value Health 2007; 10(5):326-225.

    MarksMan Healthcare

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  • Facts & Fiction – Branded v/s Generic Controversy – India

    Facts & Fiction – Branded v/s Generic Controversy – India

    All branded drugs are of good quality – Fiction
    Majority of the branded drugs are of good quality – Fact

    All generic drugs are of good quality – Fiction
    Majority of the generic drugs are of good quality – Fact

    All pharma companies take pro-patient initiatives – Fiction
    Few pharma companies take pro-patient initiatives – Fact

    All doctors make their cut out of prescription – Fiction
    Majority of doctors make their cut out of prescription – Fact

    All pharmacists are qualified for their job– Fiction
    Few pharmacists are qualified for their job – Fact

    All MRs are qualified for their job– Fiction
    Few MRs are qualified for their job – Fact

    All patients look for affordability over quality – Fiction
    Majority of the patients look for affordability over quality – Fact

    Government dreams to take pro-patient initiatives – Fact
    Government’s steps to make them happen – no less than any fiction

    We all know where the double standards lie in every “Fact & fiction” mentioned above.

    Fact of irony is that inspite of India being the “Generic capital of the world”, patients are not able to afford healthcare. If it would have been all about patients:

    • Government must had central regulatory check on the quality of marketed generics
    • Pharma must not had followed unethical practices
    • Doctors must not had taken prescription cuts
    • Diagnostics must not had bribed doctors
    • Pharmacists must not had differentiated on various brands of same generic, and most importantly…

    “PATIENTS, WHO SHOULD BE IN THE CENTER OF HEALTHCARE SYSTEM, MUST HAVE KNOWN ABOUT THEIR DISEASE IN TOTALITY”

    Patient’s 3 desires in this order: – Hanno Wolfram on twitter

    1. learn what the diagnosis is
    2. learn what the disease does to them
    3. understand what to do against it

    Any patient engagement initiative has to anchor around these three patient needs!

    The million dollar question is who would like to take the responsibility first?

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  • Whose Stent is it Anyway?

    Whose Stent is it Anyway?

    Bioresorbable stents have effectively been pulled from the European market by Abbott and will now be available only in “clinical registry setting at select sites/institutions” in Europe, where they will be monitored till a review in 2018. India has been among the largest markets for these stents in recent years. The development comes in the wake of several studies showing that bioresorbable cardiac stents are not only not superior to existing drug eluting stents (DES), but might even have worse outcomes in some ways. No further BVS (bioresorbable vascular scaffolding) stents will be provided to non-registry sites after 31st march 2017 and these sites have been instructed to cease implants and existing inventory will be removed,” stated an advisory from Abbott, which is “working jointly with the European Regulatory Agencies” to address concerns of increased risk of stent thrombosis and longer duration of use of blood thinners for those implanted with BVS compared to those with DES. These were the risks the studies had highlighted.

    This is a new addition to the whole stent controversy which is doing rounds in the healthcare industry since quite a while now. In February 2017, the National Pharmaceuticals Pricing Authority (NPPA) capped prices of stents according to quality: bare metal stents to cost no more than ₹ 7,260, while drug eluting stents and biodegradable stents were capped at ₹ 29,600. The ceiling prices came into effect immediately and were also applicable to all stocks in the trade channel. The government also stipulated that a manufacturer intending to stop production will have to inform the NPPA at least six months in advance.

    While many cardiologists thought of this move to be good, it certainly needed more thought. The move sparked panic in the city’s medical circles. The problem being the doctors have no alternative now because Abbott is the only supplier of bioresorbable stents in India. Over 8000 bioresorbable stents are used in India annually, over a thousand of them in Mumbai alone. The decision to use a particular stent involves the life and death of the patient on the angiography table. According to industry officials, four or five types of drug eluting stents are available in the market that are priced based on the innovation and technology. Advanced stents are more expensive than the base products. By no means can we underplay the fact that certain blockages call for good deliverability of the stents and therein the use of appropriate stents. Labeling them all into one category will kill the scope for further newer innovations.

    After the government’s decision to slash prices and enforce a single ceiling price for all the different variants of drug-eluting stents, manufactures and distributors started pulling off the high-end stents across the country. This is because manufacturers who took back their stock for re-labeling of prices did not return them. Doctors said the shortage inconvenienced a small group of patients with complex blockages in the artery. Scores of angioplasties in Mumbai were put on hold after Abbott Pharma withdrew bioresorbable stents from all hospitals, claiming it could not afford to sell the stents at prices mandated by the NPPA when they reduced prices of stents by over 75%. Before the cap on prices, Abbott used to sell bioresorbable stents at around Rs 1.9 lakh a piece.

    In July 2016, the health ministry included stents in the National List of Essential Medicines (NLEM) after the court demanded action on a public interest petition filed by advocate Birender Sangwan who sought price control on stents. The petitioner alleged that the government and the NPPA are being “insensitive and irresponsible” towards the people by not taking any steps to fix the price of the medical device which is allegedly being sold at high price in the country.

    While the maximum retail price (MRP) of a stent manufactured abroad and made in India could be similar, starting anything at over Rs 1 lakh, the cost to the patient could vary by a wide margin. While there is an MRP in the Indian market, at times stents are sold to hospitals at prices much lower, especially in the case of domestically manufactured stents. The Delhi high court had directed the central government to fix the MRP and a ceiling price by March 1, 2017, for coronary stents, used to treat narrowed or weakened arteries in patients.

    Additionally, health activists started debating if profit-driven medical institutions will actually pass on the benefit to patients, or find ways to recover the considerable cost difference from them. Despite the NPPA order, activists opined that the benefits being successfully passed on to patients depend on awareness. They believe that unnecessary angioplasties have been common but may increase due to the price control.

    As per a rough estimate, about 15% of the patients a cardiologist sees in his OPD would need an angioplasty, but in most corporatized hospitals, doctors are actually given targets of 40% for conversion. It won’t be surprising if hospitals hike costs of other disposables required in angioplasties like the balloon, wire, connectors and special syringes, and increase hospital stay cost. There is also a fear that more stents would be used on a patient. The lack of standard treatment protocols means there is always a risk of un-indicative procedures being performed. Such malpractices are already there due to commercialization of the medical field. The NPPA order is laudable, but when the government regularizes one thing, the industry discovers another way of making profits; and with regulation of stent prices, there could be more push towards even bypass surgeries. The answer to this problem lies in awareness. If something has been brought under price control, it does not mean it will be of bad quality. Consumers need to understand this and question each and every part.

    With the entire wrangle over the stent prices and stent shortage in the market eventually de-prioritizing ‘patient care’, one question keeps hovering over us. Whose stent is it anyway??

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    MarksMan Healthcare

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  • Cost Effectivity or Affordability: What Should be Prioritized in India?

    Cost Effectivity or Affordability: What Should be Prioritized in India?

    Rapidly rising cost in healthcare is an increasing cause of concern across the world. Indian healthcare is also experiencing a change, with increasing focus on better quality of medical care services.

    As per the available information, the healthcare spending per capita per annum in India has been observed to be about $109, with total healthcare spending in the range of 4.9% of the country’s GDP. Most of the spending occurs from the private sector with public sector contributing to a mere $ 19 per capita per annum. Concurrently, the average spending per capita per annum in the United States during the same time frame has been found to be approximately $4271 whilst for the United Kingdom, the spending is $ 1675. These figures clearly indicate that healthcare in India is fairly cheaper, a strong reason for a growing medical tourism market in the country. However, when compared with paying power parity and affordability, the cost of medical care is escalating. It is worthwhile to note that as per World Bank estimates, more than 44% of Indian population earns less than one dollar a day.

    In India, a silent crisis in access to essential medicines confronts most patients who seek treatment of acute and chronic diseases. Close to 40% of Indians live on less than US $1 per day and most of them pay Out-Of-Pocket (OOP) for using healthcare. OOP spending in India is over four times higher than public spending on healthcare. Unexpected illness can have a catastrophic effect on the family of the ill person: direct out-of pocket payments could push 2.2%% of all healthcare users and one-fourth of all hospitalized patients, into poverty in a year.

    In addition, most Indians pay for medicines – a key factor that can contribute to the impoverishing effect of OOP payments for healthcare. According to the World Health Organization (WHO), an estimated 649 million people in India do not have regular access to essential medicines. Public provision of these medicines is poor; the median availability of 30 essential medicines in six states in India varied between 0% and 30%. Patients are forced to buy medicines from the private market, a compulsion that often spells calamity for those who can ill afford the twin burdens of sickness and healthcare costs.

    Drug regulatory agencies all over the world approve medicines for use in their countries on the basis of an evidence-based process which evaluates the data on their efficacy (obtained through randomized controlled trials) and safety. In India, in light of the public health problems that we face, the widespread poverty and high OOP expenditure incurred by patients, the drug regulatory authorities have an additional responsibility: to ensure that the medicines being approved for manufacture serve the public health needs of the country and are cost-effective. Moreover, patients value quality, safety and cost-effectiveness of a medicine; it matters little to them whether the medicine is branded or unbranded and whether it is promoted through the retailer or the doctor.

    India and its pharmaceutical industry have acquitted themselves very creditably on the global platform. Indian generics account for about 40% of the anti-retroviral medicines provided globally. Worldwide, these low-cost high-quality medicines are a lifeline to millions of people. There are an estimated 10,563 manufacturers in India, and more than 65,000 formulations. These numbers look impressive but the paradox is that, at home, large portions of the population lack access to even the most essential drugs. The limited funds available are frequently spent on ineffective or unnecessary medications. The money spent on overpriced medicines is very often also a waste of precious resources. Since these medicines outnumber those which are cost-effective, they directly impact the availability of and access to essential medicines.

    To address the anarchy of drug prices which is impoverishing people, we need a comprehensive cost-based system, and not the market-based system of price regulation. The drug approval system in India needs to be overhauled on the lines suggested by the recent parliamentary committee which looked into the functioning of the CDSCO. The process of drug approval needs to be rigorous, evidence-based, transparent, and in line with the interests of public health in India. The present predicament, of poverty of access to medicines amidst a plenty of overpriced, non-essential medicines which worsen poverty, should not be allowed to continue to imperil the lives and health of Indians.

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  • Vaccine Use – Costs and Concerns – Indian Perspective

    Vaccine Use – Costs and Concerns – Indian Perspective

    Vaccines are important preventive medicines for primary health care, and a critical component in a nation’s health security. Although international agencies such as the World Health Organization (WHO) and the United Nations Children’s Fund (UNICEF) promote global immunization drives and policies, the success of an immunization program in any country depends more upon local realities and national policies.

    The market for vaccines in India shows immense potential. The country has not only been self-sufficient in meeting its domestic requirements but has also emerged as a leading global exporter of vaccines across the world. The Indian vaccine industry began as a network of state owned manufacturers supplying basic childhood vaccines to the national immunization program. India’s vaccine production sector is likely to expand dramatically to an estimated size of $871 million by this year which was estimated to be $350 million in 2011, says a report by GBI research.

    India articulated its first official policy for childhood vaccination, a policy that was in alignment with the WHO’s policy of “Health for All by 2000” (famously announced in 1978 at Alma Atta, Kazakhstan) and introduced six childhood vaccines (Bacillus Calmette-Guerin, TT, DPT, DT, polio, and typhoid) in its immunization program. Measles vaccine was added much later, in 1985, when the Indian government launched the Universal Immunization Program (UIP) and a mission to achieve immunization coverage of all children and pregnant women by the 1990s. The last few years have brought many achievements for the Indian vaccine industry. A new bivalent oral cholera vaccine, meningitis-A vaccine, and an indigenous Japanese encephalitis (JE) vaccine were developed by Indian manufacturers in collaboration with international partners and are now licensed in India. In March 2014, India received its polio-free certification from WHO, in line with the disease being eradicated from the country. Recently, Bharat Biotech, an Indian vaccines manufacturer, has announced a breakthrough in developing the world’s first Zika vaccine. The company is now looking to seek regulatory approvals to expedite further clearances.

    Vaccine pricing strategies usually consist of a set of process that include but not limited to- carrying out the target population analysis; constructing a vaccine target product profile (TPP) and comparing it to projected or actual TPPs of competing vaccines; determining vaccine positioning in the marketplace; estimating the vaccine price-demand curve; calculating actually vaccine costs (manufacturing, distribution, and research and development); accounting for various legal, regulatory, third party and competitor factors; overall product portfolio; pricing objectives; and pricing structure. The routinely administered vaccines in India which are usually administered by infants and children (BCG, Hep-B, Measles, chicken pox, Rota virus, pneumonia vaccines, etc) are priced between Rs 150 to 4,000. However, prices may vary due to change in brands and/or different vaccine administration charge and consulting fees of the doctor.

    In recent decades, however, a number of privately owned firms have emerged, which have completely transformed the industry landscape. Their biggest success factor is similar to the approach that has been followed by Indian generic pharmaceutical manufacturers. This model involves concerted efforts to develop vaccines for not only tropical neglected diseases, but also cheaper alternatives of vaccines that are already available in the West. Despite its recent growth, however, the Indian vaccine industry still has a number of challenges to address. Even though the market is growing continuously, India is lagging behind its global peers in terms of vaccine coverage with a significant number of lives lost due to vaccine preventable deaths.

    According to UNICEF, vaccination coverage varies considerably from state to state, with the lowest rates in India’s large central states. Differences in uptake are geographical, regional, rural-urban, poor-rich and gender-related. On average, girls receive fewer immunizations than boys and higher birth order infants have lower vaccination coverage. UNICEF works closely with the Indian government on its Universal Immunization Programme (UIP). Introduced in 1985, the UIP has made great progress in expanding Routine Immunization (RI) coverage across the country, and today, it is one of the largest programmes of its kind in the world. The UIP supports national and state governments to boost routine immunization (RI) and supplementary immunization, including for polio, measles, and Japanese encephalitis. It also supports the introduction of new vaccines such as Pentavalent, Hepatitis B and rubella.

    Despite such a bright picture, vaccinations for babies are proving to be excellent money-spinners for doctors, especially the newer ones that have not been recommended by the government and are not even a part of the National Immunization Programme. The profit margins are much higher for the non-mandatory vaccines and doctors are made to prescribe those in order to position these unnecessary products.  Costs of vaccines and vaccination coverage have been big issues in India in recent years, as the country’s healthcare system has expanded and demand for treatments increased, with very little vaccination coverage. Despite price caps and some discounting on the part of big pharma, some therapies remain too expensive for Indian patients to afford. If irrational vaccines with high costs enter the market without being a part of the national immunization programs; the patients are likely to face the challenges of spending huge amount of money.

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  • How Can We Cap Skyrocketing Pharmaceutical Prices: The Even Bigger Question?

    How Can We Cap Skyrocketing Pharmaceutical Prices: The Even Bigger Question?

    To most connected with the pharmaceutical industry, it is a common knowledge that the cost of prescription medicine, even traditionally, has always defied the law of gravity. However; what is alarming today is the steep increase in the cost of specialty drugs that target everything from multiple sclerosis to cancer, blood pressure, and even erectile dysfunction.

    In India, the controversy on price control has picked up speed once again following the Supreme Court’s verdict that existing prices are set at unreasonably high levels. Accordingly, the National Pharmaceutical Pricing Authority (NPPA) has expanded the National List of Essential Medicines and the total number of drugs now affected by price controls is a whopping 700!!! Amongst the new products included are those used in treatment of diabetes (gliclazide, glimepiride, sitagliptin and voglibose); high blood pressure (amlodipine and telmisartan); and high cholesterol (rosuvastatin). Additionally the government has asked the pharmaceutical manufacturers to continue producing drugs unless they receive a nod from regulators to stop production.

    The pharmaceutical manufacturers are distressed by these stingy policies of Indian government. They argue that price control alone cannot ensure accessibility to medicine. The government needs to look at alternative methods such as universal healthcare coverage as well as increase its spending on healthcare to address the issue of accessibility.

    While these stingy pricing policies of the Indian government ensure that drugs in India are cheap, often way less expensive than the cost of the same medications in the U.S. or Europe they create another less obvious but nevertheless important downside – they delay the entry of new pharmaceutical products into the Indian market.

    It has been estimated that it takes almost five years for even half of new pharmaceutical products launched in the US to come to market in India. The Indian government must therefore decide the importance of lowering the price of available drugs, given that such policies will delay how quickly its citizens will get access to new ones.

    There is a need to strike a balance between the two important goals, of controlling costs versus expanding access.

    In my opinion price control alone cannot improve the accessibility to medicines. Value based pricing can be considered as a part of the solution to the rising price of prescription medicines. Under value-based pricing agreements, payers and pharma companies agree to link payment for a medicine to value i.e. patient outcome achieved, rather than volume.

    Getting a handle on value based pricing is however not that straightforward. Successful value-based pricing arrangement mandates a clear definition of when the medication works, and when it does not work. The process involves collection of value attributes (e.g., outcome or performance variables of interest) and subsequently aggregating and converting (using a decision rule) to evaluate whether the value metric was achieved. Data collection would need to be initiated early in the product life cycle. The basis of the higher price is always based on incremental value over other treatment options.

    Some drug companies use comparative data and indication-specific pricing to favor “clinically superior” medicines and make sure their treatments are covered across the board. An interesting example is that for erlotinib (Tarceva), a drug that extends life in patients with lung cancer by an average of about 4 months, but for only 12 days in patients with pancreatic cancer. So in indication-specific pricing, one would pay differently for the drug depending on which indication it is being given for.

    Drug pricing is no doubt a complex calculation but value based pricing can be looked upon as a one part of the solution to strike the delicate balance between availability and affordability of essential medicines.

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