Risk-bearing provider entities like accountable care organizations are the canaries in the coal mine for industry and they’re heralding a more challenging time for drug companies. In data included in an upcoming Access & Reimbursement report on acute coronary syndrome, we’re seeing the design of these kinds of bodies become increasingly problematic for industry.

We surveyed 30 pharmacy and medical directors whose health insurance plans currently contract with ACOs and the responses point to where pricing and reimbursement will be headed in a few years. For industry, that direction appears to be one of greater scrutiny.

First, we learned that the pharmacoeconomic models used by payers are more challenging for industry in these ACOs. Whereas they commonly rely on cost of illness or cost-minimization analysis for their traditional commercial plans, payers tell us they’re more likely to leverage cost-utility and budget impact models in their contracts with an ACO. This is an important change because that requires a completely different value prop on the part of industry and may ultimately be used to drive down prices. The focus on budget impact alone should drive concern on the part of emerging blockbuster therapies as payers and ACOs seek to cut costs. On a related note, we’ve already seen how industry has reacted to pharmacoeconomic reviews of therapies by the Institute for Clinical and Economic Review where examination of cost-effectiveness has been in some cases reduced to industry being forced to fight over methodology instead of focusing on marketing their therapies.

Secondly, despite Republican control of Congress and the White House, the push for use of these risk-bearing contracts with providers like ACOs isn’t going away. In fact, responses from payers tell us that their use will either stay the same or increase despite the change in administration. Clearly, the horses have already left the barn on this issue and pharma needs to understand that physician cost-sensitivity will only increase over time.

Thirdly, and this goes without saying, but risk-bearing contracts will continue to push for using the least-expensive therapies. With metrics including prescription drug costs, the widespread use of shared savings payouts is incentivizing physicians to think twice about their drug of choice. Cardiologists, in particular, are already telling us they’re looking more at cost-effectiveness data. While large providers take on greater risk, they’ll change the prescribing habits of their physicians.

So what does this ultimately mean? I like to look at entities like ACOs as the testing ground for innovation. What is currently being used in risk-bearing entities will ultimately spill out into the broader payer universe. Industry needs to be monitoring this and be ready to defend their therapies on the ground rules set by the payer, whether it’s a cost-effectiveness argument or a budget impact one.

I don’t like leaving industry with such a downcast prognosis so here’s one bit of advice. The reason payers like ACOs is because they can shift risk to the provider group. They want to do the same to industry. Of the insurers that we surveyed, 40% said the pharmaceutical companies in the cardiovascular market could partner with them on implementing performance-based contracts. In a separate, recent report, we saw this concept – which is wildly underreported because the deals are confidential – taking off in heart failure and other indications. ACOs and other bodies are putting more skin in the game as the saying goes and it may drive pharma to do the same.

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