Advancing Access to Better Patient Care

How HEOR Helps in Value-Based Pricing and Reimbursement?


“Value-based” pricing and reimbursement is at the core of healthcare reforms in many parts of the world, especially in the US. What does value mean? The value here refers to “patient outcomes” or “benefits realized by a patient” for every dollar spent. There is immense pressure on pharmaceutical companies and other healthcare providers to demonstrate the value of the drugs, medical devices and other healthcare services provided to the patient. Policymakers and payers (insurance companies) now expect pharmaceutical companies and healthcare service providers to prove how patient outcomes have improved with certain treatment options, and how these outcomes are better compared to other alternatives. There has been an increase in outcomes-based or value-based contracts in recent years. These contracts are much similar to “Payment for Performance” models that exist in many other industries. Although it sounds simple, there are several challenges involved in value-based pricing and reimbursement. Also, there has been a high level of skepticism if the value-based pricing model is practical. This post discusses these issues in detail.

What is the Difference Between Pricing and Reimbursement?

Before going into details of value-based pricing and reimbursement, let us understand the key difference between two confusing terms

  • Pricing is the amount charged by healthcare service providers in exchange for services or products.
  • Reimbursement is the money that insurance companies pay willingly to the plan subscribers. Each insurance plan differs in terms of benefits. 

A Brief Background on Value-based Pricing and Reimbursement

Earlier, the volume of services provided was considered as a major rewarding factor by insurance companies. However, now the trend has changed, and the providers are being paid for offering innovative solutions to improve the health of patients, at low costs. One of the key examples of this is the value-based pricing program (VBP) introduced by the Centers for Medicare and Medicaid Services (CMS), which offer lucrative incentives to health care service providers. This program offers payments based on the quality of services offered. During the reimbursement, the payers take into account various factors such as the best practices adopted by a healthcare provider and patient outcomes.

Advantages of Value-based Pricing and Reimbursement

The following are some of the advantages of the value-based care system.

  • Improvement in Quality of Healthcare: Quality is the prime focus of value-based pricing. So, healthcare providers are driven to evaluate their practices and refine them regularly to meet the changing healthcare requirements.
  • Higher Patient Satisfaction: Value-based pricing is an objective-driven concept. The satisfaction of patients is at the core of this value-based care concept. Several health care administrators utilize patient satisfaction surveys to measure the performance of a healthcare service provider. These surveys provide for a cost-effective method for measuring patient outcomes.
  • Minimizes Medical Errors: Medical errors have been one of the prime concerns among insurance providers. Medical errors can have major impacts such as loss of reputation, legal liabilities, patient dissatisfaction and financial loss. With value-based pricing, there is a real incentive for care providers to improve the quality of services and cut down medical errors.
  • Improved Financial Performance: By cutting down errors and a conscious effort to improve care performance, there is an opportunity to efficiently use funds and avoid costly ineffective treatments. In conventional fee-for-service models, healthcare providers were focused on quantity than quality. For the sake of high payment, these healthcare service providers administered a multitude of tests and possibly ineffective treatments, with little focus on outcomes. As a result, now employers are focused on buying insurance plans that provide incentives to care providers based on the quality of service provided. This in effect improves financial performance for all stakeholders – health care providers, insurance providers, employers and patients.

Thus, value-based pricing and reimbursement or value-based care system offer value to everyone involved right from the pharmaceutical companies, insurance players, patients, and healthcare organizations. However, the transition to value-based care model comes with its own challenges.

Challenges in Value Based Pricing Implementation

While value-based pricing approach is an attractive proposition, there are several implementation challenges to overcome. The key challenges include:

  • Lack of Data: Although all medical industry players right from pharmaceutical companies to healthcare service providers use various types of electronic records, the data is not structured or uniform enough to provide insights on economic models and their outcomes. Analytical systems and big data processing will need to be implemented to consolidate this data and perform meaningful analysis to gain actionable insights and real-world evidence (RWE).
  • Resistance to Change: Although key decision-makers in the healthcare industry are gaining insights on the importance of value-based pricing, there is still some resistance among them to adopt it completely. This is partly due to the lack of understanding of the full potential of outcomes-based research and its implementation. Outcomes-based research is a broad term that considers various data sources to analyze the value created. Many healthcare service providers are still following decades old health care practices and are not well aware of the role of health economic modeling tools, utilization of real-world evidence, and so on.

Both these challenges and the concept of value-based pricing emphasizes on the importance of healthcare economic research and evidence generation. This becomes only possible when you partner with a reliable partner like Black Rock Health. The company been helping healthcare players in achieving a seamless transition from traditional quantity-based models to value-based care models. Black Rock Health utilizes its deep understanding of the global healthcare landscape and various health economic modeling tools to provide value to its customers.

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