Innovative progress is an important aspect of the pharmaceutical industry. It helps us reach higher standards of care, as well as provide better, more effective medicine to improve the overall health of our communities. Innovation also means finding viable solutions to some of the growing concerns in the field, namely the rising cost of healthcare.
Recently, many big pharmaceutical manufacturers have explored possible models that can help alleviate the burden on both public and private payors. Companies such as Cigna and Johnson & Johnson have already begun to implement one particular model known as ‘pay-for-performance,’ which reimburses payors for the money spent on medicine which is either ineffective or does not perform as expected.
If you’re interested in getting involved in a career in pharmaceutical manufacturing, read on to find out what you should know about the rising pay-for-performance trend.
Pay-for-Performance is Different than the ‘Price per Pill’ Model
In the past, payors and pharmaceutical companies based their payments on the volume of medicine provided, commonly referred to as the ‘price per pill.’ New trends and reforms in the industry—including the pay-for-performance model—are shifting towards a concept known as value-based payment (VBP), which transfers the focus to the achieved outcome of the medicine, rather than the amount or volume offered.
While the concept of value-based payment is not necessarily new, more companies have begun to implement VBP to help justify both their prices and the value of the drugs they manufacturer to the market they’re serving. In the pharmaceutical industry, value is measured in outcome achieved per total cost. Where VPB determines its value differently than a ‘pay per pill’ approach because it focuses on improving product effectiveness rather than expanding the product’s overall reach in the market.
Pharmaceutical Manufacturing Students Should Know about Innovative Contracts
In order to begin implementing value-based payments such as pay for performance, pharmaceutical manufacturers must first incorporate what’s known as innovative contracts.
Innovative contracts operate outside traditional price per pill models, and aim to offset market pressure for the manufacturer, as well as provide a better overall outcome for the payor. Generally, innovative contracts focus on providing faster market and patient access, as well as improving the performance of the drug itself, which leads to a better, more effective outcome for both the pharmaceutical manufacturer and the payor.
Cigna, for example, recently attempted to drive down costs by securing discounts on cholesterol-lowering medication if payors did not see their expected results during clinical trials. Students in a pharmaceutical manufacturing program should note that this pay-for-performance model was a win for both manufacturer—whose drug gains more access within its network—and for the payor, who has greater buyer protection if they use a product which is ineffective.
Pay-for-Performance Models and the Current Pharmacy Landscape
As mentioned previously, pay-for-performance models are gaining significant traction within the industry, with companies like Johnson & Johnson and Cigna introducing more VBP into their business infrastructure. While students in pharmaceutical manufacturing courses can expect to see more companies adopt pay-for-performance in the future, it still faces some challenges within the industry.
Since pay-for-performance relies on innovative contracts to be implemented, these contracts can become very complicated very quickly. VBP is more straightforward when it comes to easily-measurable conditions such as high-cholesterol, which is why Cigna has already begun applying pay-for-performance models. Pay-for-performance becomes more complicated to work with when it comes to treatments with more subjective measurements, because the outcome is harder to predict, which makes companies more hesitant to open themselves to the risk of massive reimbursements.
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