Affordable Care Act:
3 big payer insights

The Affordable Care Act brings significant changes to the way the manufacturing community operates, and for the last few years, we've examined its intents and consequences to the contracting and compliance landscape.

Recently, however, I was delighted to gain some input from the payer side at CBI’s Reimbursement and Access Congress in Philadelphia. Understanding the challenges from that side of the table sheds new light on how contracts are viewed and managed. Below are a few nuggets I found particularly interesting:

1. The system has fundamental problems
Healthcare costs are currently growing at roughly 6 percent, compared with overall CPI growth of 2.4 percent. Fundamentally, this is unsustainable at the macro level, creating an imperative to control costs at every level of the healthcare system. Considering that drug expenditures are roughly 30 percent of healthcare spend, a shift in the related contract arena is inevitable.

2. Payers must shift toward efficient spend
One of the more obvious foci for payers is a drive toward generic alternatives. Currently, generics account for 70 percent of all prescriptions dispensed, but only 16 percent of dollars spent on prescriptions. To continue to lower spending, the industry goal is to achieve 85 percent generic fill rates by 2016. Considering the infamous patent cliff coincides with this date, this is unsurprising.

Payers are also closely examining distribution efficiencies, with a push toward mail-order distribution. Some payers are exploring either establishing or acquiring their own specialty pharmacies as a way to control costs on these expensive therapies.

3. Payers must push for changes in contracts
As payers increase their focus on drug spend, other levers are being employed. First, more contractual caps on price increases are being instituted. Being able to efficiently manage price escalation in contracts is going to be more important for manufacturers, then, as the days of hefty (and profitable!) regular price increases are rapidly coming to a close.

Second, in order to provide reimbursement for new drugs and therapies, demonstrated value is becoming more important. This implies that manufacturers will need to demonstrate the value of their medicines in terms of the final result in the patient/population. This shows a movement toward outcomes-based contracting or risk-sharing models, where access and payment are determined by empirical data, agreed to by the stakeholders.

This is currently manifesting itself in the Accountable Care Organization space. While still relatively new, ACOs currently provide coverage for 14 to 23 million people under private health insurance deals -- and this is expected to increase. (UnitedHealthcare is a prime example, expected to double the number of ACO contracts in the next five years.) The very name implies a focus on the end result for the consumer, and to achieve those outcomes, data at all levels is going to be crucial: from the script being written, filled, and paid, to patient adherence, to the outcome of therapy.

As a point of note, 11 percent of Medicare Fee-for-Service comes through ACOs today, and this is expected to increase.

To be sure, in the short run, negotiating and executing these agreements will not be without difficulty. There will be new data requirements, new forecasting models, and new performance metrics to be defined and employed. At the same time, there are real emerging opportunities for manufacturers to engage in effective and profitable relationships with these stakeholders.

What’s your thought on the push toward cost control in pharmaceutical spend? What do you see coming next? Or do you have any payer insights to add? Let us know in the comments.