Value-Based Arrangements

We are living in a Golden Age of medicines and discovering more drugs that help people live longer, healthier, more active lives. However, rising costs and chronic disease rates place significant pressure on patients and the health care system.

We know we need a solution to this problem, and we're working with other health care stakeholders to explore new ways to ease cost burdens and to deliver better health outcomes for patients.

One of these solutions is implementing value-based payment arrangements. Value-based arrangements ultimately aim to help patients get affordable access to the medicines they need. Unlike the traditional fee-for-service model, which bases payment strictly on the number of products sold, value-based arrangements link reimbursement to specific health outcomes.

For example, if a medicine shows certain clinical results, such as a specific measure via a lab test or a decrease in symptoms, then the biopharmaceutical company pays a smaller rebate, or discount, to health insurers. If the medicine doesn't work as effectively as the biopharmaceutical company believed it would, then they pay more money to the health insurer.

Value-based arrangements provide a number of benefits:

  • Patients get the medicines that deliver the best outcomes for their specific health needs. Medicines in value-based arrangements are generally made available based on how well they work in specific patient subpopulations. So patients can get care that is more personalized and, possibly, enjoy reduced cost-sharing.
  • Pharmaceutical innovators learn how medicines work in real-world patient experiences, which helps them develop future treatments for breakthrough discoveries.
  • When patients take the most effective medicines, it keeps them healthier and out of the hospital, which saves health insurers money.

Value-based arrangements for medicines are still relatively new, but in order to better facilitate these arrangements, we need to update and improve outdated and unclear laws and regulations. Lilly is dedicated to helping address these barriers and champion more value-based arrangements.

Value-Based Arrangements Can Transform Health Care

Today’s guest blog comes from Mark J. Nagy, Vice President, Global Patient Outcomes and Real World Evidence, Eli Lilly and Company and David B. Nash, M.D., MBA, Dean, Jefferson College of Population Health

The U.S. Food and Drug Administration (FDA) recently finalized guidance to help biopharmaceutical manufacturers communicate about their products with payers, to support value-based payment models. This development will likely accelerate the continued shift toward a value-driven health care system that has been decades in the making. As health care costs continue to increase, there is even more urgency to deliver care that emphasizes quality over quantity. Prescription medicines are in a unique position to drive this trend.

To better understand the value and potential of these arrangements, let’s look at how they can advance health care delivery and outcomes.

Value-Based Arrangements: An Overview

Value-based arrangements link reimbursement for health care services and treatments to clinical outcomes. This differs from the traditional fee-for-service model, which bases payment on the numbers of treatments or services provided.

In a value-based arrangement, an insurer might reimburse a doctor based on the overall quality of care and how well outcomes improve – not just the number of patients treated. Using medicines as an example, this means manufacturers are reimbursed based on how well a drug actually works for patients.

The rising costs and rates of chronic diseases, such as diabetes, are putting added pressure on the health care system. Fortunately, these arrangements put patients at the center of treatment. Given the complexity of our health care system, and the many stakeholders involved in patient care, collaboration by physicians, payers, and manufacturers is central to success.

Value and the Future of Health Care Delivery

A growing number of providers and payers have shifted from volume to value-based payments. By 2018, the Department of Health and Human Services aims to tie 90 percent of Medicare payments to value. More than half of all health systems report receiving value-based payments for care, and a quarter plan to enter these arrangements in the next one-to-three years.

Medicines are reimbursed through a traditional volume approach, but the pharmaceutical industry is moving toward a value-driven health care system. Recent regulation and legislation, such as the Quality Payment Program established by the Medicare Access and CHIP Reauthorization Act (MACRA), signal a need to ensure that value-based arrangements are fair to both patients and manufacturers. 

And there is momentum in value-based arrangements for medicines. A recent analysis found that, as of April 2018, there are nearly 40 publicly disclosed value-based arrangements for innovative medicines. And for every arrangement announced, there are three not publicly disclosed.

In fact, Lilly signed its first value-based arrangement in October 2014. There have been 12 signed in total, with five completed and seven ongoing. These are across therapeutic areas and with partners like Humana and other payers.

Paving the Way for Continued Progress

Given our system was designed in the fee-for-service era, we must address barriers to accelerate the adoption of more value-based arrangements. The recent FDA guidance is a substantial, positive step forward. But to create a fully conducive environment for value, the government must continue to establish clearer regulations, safe harbors and guidance.

This can include new statutory or regulatory safe harbors to the Anti-Kickback Statute that more clearly protect value-based arrangements. It’s also important to address amendments, such as Best Price and Average Sales Price in Medicaid and Medicare, so that government drug pricing mechanisms are compatible with commercial pricing under value-based arrangements.

By taking steps to advance more arrangements, and an information infrastructure that encourages them, we can modernize our health care system and improve the health of millions of people.


Did you notice a new name at the top of this post? LillyPad is proud to partner with a variety of guest bloggers from around the world, and we're committed to hosting a range of viewpoints on our site. However, please note that the views contained in this post belong to its author and are not necessarily endorsed by Lilly.