Types of provider value-based healthcare

Let’s now explore some of the innovative provider value-based healthcare efforts already underway: 1) accountable care organizations, 2) bundled payment systems, 3) integrated delivery system/provider-sponsored plans, and 4) value-based procurement. Note that this is not an exhaustive list, there are other approaches and types of value-based healthcare that have been tried in the past or are being tested. These four chosen themes, however, give us a good view of the current state of provider value-based healthcare.

1) Accountable care organizations

Accountable care organizations (ACOs) are alternative delivery and payment models that have contributed to improvements in both quality and cost containment. The US government has been a pioneer on this front through its Medicare and Medicaid systems, which pay for healthcare services delivered by the private sector for the elderly and the poor, respectively.


What is an accountable care organization?

An accountable care organization is a network of doctors and hospitals that shares financial and medical responsibility for providing coordinated care to patients in the hope of limiting unnecessary spending. At the heart of each patient’s care is a primary care physician. There are variations in accountable care organizations, but the core defining principles are as follows:

  1. Provider-led organizations with a strong base of primary care that are collectively accountable for quality and total per capita costs across the full continuum of care for a population of patients.

  2. Payments are linked to quality improvements that also reduce overall costs.

  3. Use of reliable and progressively more sophisticated performance measurement, to support improvement and provide confidence that savings are achieved through improvements in care.

Accountable care organizations are distinct legal entities that enter into contracts with public and/or private payers to deliver enhanced healthcare services that improve value for patients, payers, and society more broadly.

Accountable care organizations still use a fee-for-service model, but they do create an incentive to be more efficient by offering bonuses when providers keep costs down. In a shared savings arrangement, a payer/insurer and accountable care organization negotiate a cost benchmark for delivering care to a defined population for a given period of time, usually a year; if actual spending is below the benchmark, savings are generated. Savings are then “shared” between the payer/insurer and accountable care organization according to a predetermined formula.

Physicians and hospitals have to meet specific quality benchmarks, focusing on prevention and carefully managing patients with chronic diseases. To discourage skimping on patient safety and care standards to cut costs, providers are often held accountable by the payer for meeting quality targets in addition to cost benchmarks. Essentially providers get paid more for keeping their patients healthy and out of the hospital.

Accountable care organizations grew rapidly in the US between 2011 and 2018, expanding from less than a hundred to well over 1,000 organizations. As a result, about 32 million beneficiaries (around 10 percent of the US population), is now covered by an accountable care organization.

Source: Muhlestein D et al. 2018, authors’ analysis of Leavitt Partners’ accountable care organization (ACO) database

Source: Muhlestein D et al. 2018, authors’ analysis of Leavitt Partners’ accountable care organization (ACO) database

In the US, accountable care organization reforms have largely led to improvements in care quality, while simultaneously generating cost savings. This means that accountable care organizations have benefited both payers and beneficiaries. Collectively, Centers for Medicare & Medicaid Services (CMS) accountable care organizations produced $836 million in savings, resulting in net savings of $71.4 million in 2016. Performance data showing each CMS accountable care organization’s contract are made publicly available by CMS.

Accountable care organizations are flexible and diverse. The only must-have element is primary care physicians. The group of doctors and hospitals that include primary care physicians are complemented by the services of a non-clinical partner that provides management infrastructure, such as ICT, marketing, payment administration, pricing, and performance monitoring. The nonclinical partner can be an insurer for private accountable care organizations, but they are not in charge of the medical care. Some of the largest health insurers in the US have formed their own accountable care organizations for the private market.


While the US has seen a rapid formation of accountable care organizations, such implementation in Europe is still in its infancy with only a few selected flagship projects, such as Ribera Salud in Spain or Gesundes Kinzigtal (see case example later in this section) in Germany.

The rapid formation of accountable care organizations is a clear trend towards value-based healthcare in the US. However, the potential effects of accountable care organization implementation on healthcare and society need to be continuously monitored and assessed. Some point out that hospital mergers and provider consolidation are the downside effects of accountable care organization proliferation. Greater market share gives these health systems more leverage in negotiations with insurers, which can drive up health costs and limit patient choice. Others question the effect on healthcare disparity. For example, there is some suggestion that current patterns of physician participation in accountable care organizations risk aggravating disparities in the quality of care received between vulnerable populations and other groups.

Case study

Keystone accountable care organization

Keystone consists of several organizations: the regional health provider Geisinger Health System, two independent hospitals, a medical education organization, and independent physicians. In 2019 the Keystone accountable care organization served about 78,000 beneficiaries, mainly in rural Pennsylvania.

How it works

Keystone’s “health navigator” program relies on community health assistants who undertake home visits, conduct follow up calls, and do email-based outreach to determine if beneficiaries have unmet health or social needs. The community health assistants report these issues to the care team as well as connecting beneficiaries with community organizations for non-clinical concerns.


In 2017 and 2018, Keystone community health assistants undertook more than 23,750 interventions. Keystone feels that the community health assistants also provide indirect support for care activities. For that reason, Keystone is implementing a new field in their care management system to track when community health assistant actions might have prevented an emergency room visit or inpatient admission. Keystone’s program has received positive feedback from both physicians and beneficiaries.

Case study

The Rogosin Institute Program for Education in Advanced Kidney Disease (PEAK)

The Rogosin Institute implemented a health literacy education initiative called PEAK for patients with chronic kidney disease who had end-stage renal disease (ESRD) or were pre-ESRD, as well as education for their own staff and the community.

The Rogosin Kidney Care Alliance joined the Comprehensive ESRD Care model in 2015, which according to a case by the Centers for Medicare & Medicaid Services aims to “identify, test and evaluate new ways to improve care for Medicare beneficiaries with End-Stage Renal Disease.” Based on learnings from patient interviews and a roundtable with community activists and health experts, Rogisin started to develop the health literacy initiative in 2015. The goal was to teach patients about chronic kidney disease and ESRD care in an appropriate way. At the same time, they also set out to improve health literacy across the organization by improving access to resources and demonstrating how health literacy can improve outcomes.

How it works

The PEAK program uses a multidisciplinary approach where patients can discuss medical and non-medical issues. The care concept includes nurse educators, nephrologists, social workers, and dieticians. The nurse educator is responsible for the initial meeting with the patient to provide education about chronic kidney disease and dialysis. The nephrologist oversees all aspects of patient care. A social worker allows the patient to discuss non-medical issues including family and possible financial issues. The dietician educates about dietary considerations. The approach enables the team to communicate complex and difficult information to the patient, while providing better insight into a given patient’s situation to enable more customized care.


Rogosin has determined that the initiative can help reduce care costs while improving quality. Rogosin’s analysis from May 2015 to July 2018 suggested that patients with advanced chronic kidney disease made more informed and timely decisions. For example, “the rates of timely, peripheral vascular access placement and decisions for starting home dialysis have been higher among program participants than among nonparticipants. In addition, the rate of preemptive transplant rates among participants is higher than the national average. These positive outcomes suggest that program participants have responded to the programs."

Accountable care organizations and population health management and care coordination

In both public and private systems around the world, patients typically see a doctor when they are feeling unwell, get treatment, and then do not interact with the health system again until their next illness episode. This model of care – characterized by lack of prevention and coordination of care, over-use of hospitals, and provider fragmentation – hurts healthcare performance and patient outcomes. Specifically, current practices translate into under-investment in prevention, overuse of high-end care, limited tracking of patients with chronic conditions and poor health outcomes. Moreover, the current model is costly.

This is how successful accountable care organizations came to implement two broad care strategies: population health management and care coordination. These strategies help to shift care out of hospitals and emergency departments, and improve patient health outcomes while saving costs from unnecessary healthcare.


Strategies of a new care model centered on primary care

Population health management

  • Prevention and proactive outreach

  • Ease of patient access to care

  • Patient engagement and education

  • Risk stratification

  • Disease management

Care coordination

  • Managing patient transitions, including referrals and counter-referrals

  • Multi-disciplinary, team-based approach

  • Continuity of care

  • Integrated care records

Population health

Population health has been defined as "the health outcomes of a group of individuals, including the distribution of such outcomes within the group". The goal of population health management is to improve patient outcomes and increase health capital. Other goals include preventing disease, closing care gaps, and cost savings for providers.

Integrated care model

Integrated care is part of a broader shift away from fragmentation and towards an approach focused on improving population health across local systems.

Source: The King’s Fund 2018

Source: The King’s Fund 2018


NHS England renaming “accountable care systems” to “integrated care systems”

NHS England changed the name of accountable care systems to integrated care systems in 2018.

This change reflects firstly the controversy the term accountable care systems brought with its (misguided) association to a risk of privatization, and secondly the fact that reforms towards improving integrated care are not just a recent import from the USA, but indeed have a long history in the NHS.

You can read more on NHS England importing ACO from the US.

Case study

Integrated Care Model Gesundes Kinzigtal

Gesundes Kinzigtal Ltd (Gesundes Kinzigtal) is a privately run health management company that operates an integrated care system in rural southwest Germany and serves a middle to lower-income population with a high proportion of chronic diseases.

The program follows the Triple Aim goals of improving population health, improving the patient experience of care, and reducing unnecessary costs on the way, with a focus on patients with complex needs.

How it works

Providers in the Gesundes Kinzigtal organization developed a shared savings contract with insurers to provide population-based care for a region with varying care needs. The model includes strong stakeholder engagement, electronic integration across providers, patient involvement and empowerment, and data-driven management. The model focuses on patients with high needs and high costs, as the German health system does not manage the care for this population group well, but it also emphasizes prevention, health promotion, and public health to generate value for the population in the long run.

Physicians (and other health professionals) get support in managing complex patient situations and lifestyle changes and are paid for extra time spent on management. Physicians receive advanced education on caring for patients with multiple chronic conditions. The program also empowers doctors to better manage their patients’ care through local electronic integration and a range of health and social services. Providers have access to each other’s data on patients’ medication, use of antibiotics, and polypharmacy, and are encouraged to make comparisons.

Patients are at the center of the program and are free to participate. They codesign an individualized, integrated health and social care plan for managing their multiple chronic conditions with the help of their doctor-of-trust and trained health coaches employed by the regional health management company. The program provides access to a range of health and community services that support their care plan. The doctor-of-trust and the health coaches work closely with the patient on self-management and on strategies for appropriate lifestyle changes. This program focuses on high-need, high-cost patients but also emphasizes prevention, health promotion, and public health to generate value for the population in the long run.


For 11 years, sustained improvements in health outcomes, including lower hospitalization rates, higher life expectancy and higher mean age at the time of death than in a control group, and 92 percent patient satisfaction rate – all exclusively financed out of shared savings (after start-up financing for the first year). The total cost savings were ~$38.2 million (USD 2014 from 2007–2014), a cost reduction of 7 percent per insured person in the ninth year (2014) of the project (€5.5 million total, $7 million USD 2014).

The independent evaluation of Gesundes Kinzigtal’s work in 2014 found that the actual costs of the insured in the region were almost seven percentage points lower than the expected costs. Another independent evaluation also drew positive conclusions finding that there was a decline in overuse, underuse, and misuse of healthcare in many indications in the region, and at the same time they observed an increase in healthcare quality.

2) Bundled payments

Transitioning from the status quo to an accountable care organization may be too drastic a healthcare reform for stakeholders. There are other ways to drive efficiency and promote value without taking such a big risk for healthcare providers, and many choose to move towards value-based healthcare through a multi-tiered approach and processes.

For example, the idea behind bundled payments is that instead of focusing on population health, cost savings can be achieved by focusing on the reduction of hospital services. By including services from multiple healthcare providers within the fixed target price, bundled payments incentivize care coordination and efficiency.


What is a bundled payment?

A bundled payment generally refers to a lump sum paid to providers for a predefined episode of care. It is a one-off or periodic lump-sum payment for a range of services delivered by one or more providers based on best practices or following clinical pathways with an increasing emphasis on outcomes. Bundled payments can be supplemented with shared-savings and shared-risk components based on pay-for-performance structures. There are many different types of bundled payments. They can, for example, be episode-based for acute or elective care activities (such as hip and knee replacements), or periodic-based for patients with chronic diseases (such as diabetes or chronic obstructive pulmonary disease).

An episode of care involves the entire care continuum for a single condition or medical event during a fixed period. It includes all acute and post-acute care delivered by hospitals, physicians, skilled nursing facilities, and other providers participating in a care pathway. Episodes of care commonly involved in bundled payments are:

  • Joint replacement

  • Labor and delivery

  • Myocardial infarction

  • Urinary tract infection (UTI)

  • Pacemaker

  • Congestive heart failure

  • Stroke

  • Sepsis

Case study

Bundled Payments for Care Improvement

In 2013 the Centers for Medicare & Medicaid Services (CMS) launched its largest national bundled payment program, the Bundled Payments for Care Improvement (BPCI) initiative.

How it works

BPCI Model 2 covers all Medicare charges for both hospitalizations and post-acute care (PAC), which includes acute inpatient care (readmissions), office or other (for example physical therapy) visits, outpatient facility care, or durable medical equipment. BPCI participants select the surgical procedures or medical conditions to bundle. Hip and knee replacements are the most commonly selected surgical procedures, and congestive heart failure (CHF) is the most common medical condition. Medicare continues to pay on a fee-for-service basis, but the cost is reconciled after the episode closes.


Dummit and colleagues used Medicare claims data and patient surveys to study how BPCI participation influenced cost and quality for hip and knee replacements. They found that BCPI hospitals achieved average per-episode savings of $1,166 (4%) over similar non-participating hospitals. The largest savings were in post-acute care, particularly skilled nursing facilities (SNFs) and inpatient rehabilitation facilities (IRFs). They found no differences in 30 and 90-day mortality and readmissions rates between BPCI and non-BPCI hospitals. Patient-reported outcomes (including satisfaction, improvement in activities, and pain) remained either unchanged or modestly improved in the BPCI group.

In a study of a five-hospital integrated system, Navathe and colleagues demonstrated the ability for bundled payments to lead to even larger savings at top performing hospitals and provided more detail on how hospitals responded to bundled payments for hip and knee replacements. They found that average per-episode payments decreased by 21% from 2008 to 2015, with statistically significant decreases only during BPCI participation. In line with Dummit’s findings, the study found no effect on readmissions or emergency department visits. From 2009 to 2015, the proportion of episodes with readmissions decreased from 6.4% to 5.0%, the proportion with ER visits decreased from 7.4% to 6.5%, and the proportion of episodes with prolonged length of stay (PLOS) decreased from 22.4% to 7.3%.

How did the hospital system achieve these savings? Using the health system’s internal cost data, the authors found that post-acute care accounted for 49% of savings, with 51% achieved through reductions in internal hospital costs (implants, blood supply, and room and board). Reductions in internal hospital costs did not result in savings to Medicare, which pays these expenses in a prospective system. The finding is striking because hospitals already have an incentive to reduce internal costs under the prospective system, which suggests that the financial incentives under BPCI (gainsharing) were especially powerful in motivating surgeons to standardize implant use and hospital costs through alignment with the hospital.

The evidence to date suggests that bundled payments yield favorable results for surgical conditions such as hip and knee replacements, which are elective (planned) and have predictable cycles of spending and defined quality metrics. However, bundled payments for medical conditions have yet to achieve savings or improve quality. The potential unintended consequences of bundles have not yet been observed.

Further reading on bundled payments

Analysis of bundled payment (RAND)

What are bundled payments? (NEJM Catalyst)

3) Integrated delivery system/Provider sponsored plans

Alternatively, some organizations have gone beyond accountable care organizations. Institutions that fully integrate the roles of both payer and provider represent one such new model. In the US, a number of private payers are forming closer partnerships with provider networks or, in some cases, acquiring them outright to move directly into care delivery. Together, many providers have launched their own health plans; the United States currently has 150 provider-owned health plans, with about 10 to 20 new entrants each year. This type of industry-driven consolidation may be another way that the value-based healthcare model will begin to spread.

The guiding business model and philosophical goal of the integrated delivery system is to serve as a self-contained healthcare ecosystem, with the ability to contain the entirety of the patient experience to coordinate care and manage population health. Examples of integrated delivery systems include Kaiser Permanente (see case example later in this section), Mayo Clinic, Cleveland Clinic, and Intermountain Healthcare.

Many of the earliest and most prominent health insurance companies such as Kaiser Permanente were formed by provider organizations that under careful care coordination and conservative practice were able to offer comprehensive benefits from a limited network of providers at competitive prices. Few new plans have gained enough enrollees to effectively manage risk, achieve economies of scale in plan administration, or have an impact on competition and price in their local markets. Thirty-seven provider-sponsored health plans have formed since 2010, and only four were profitable in 2015.

Case study

Kaiser Permanente

Kaiser Permanente is a non-profit integrated managed care consortium with more than 10.6 million members in the US.

How it works

Key organizational features include its role as both insurer and provider of primary and specialty care and the use of capitated budgets for members’ care across regions. Among other things, integration of care at Kaiser Permanente is supported by population risk stratification, an emphasis on prevention and self-management, disease management and the use of care pathways for common conditions, case management for patients with complex needs, extensive use of technology and population data, and a model of multispecialty medical practice where unplanned hospital admissions are seen as a ‘system failure’.

Over the past decade, Kaiser Permanente has shifted its focus from people with long-term conditions and the most complex needs ‘at the tip of the triangle’ to all of those for whom it has responsibility. It uses data about the population it serves, available through its system-wide electronic health record, to understand members’ health needs and the distribution of health outcomes. Using these data, Kaiser Permanente offers a range of interventions tailored to the needs of different individuals and population groups to support people to remain healthy and to deliver the right treatments when they become ill.


One example of this is Kaiser Permanente’s approach to preventing and treating heart disease. It has focused heavily on preventive interventions like smoking cessation, promoting exercise and other lifestyle changes to reduce the risk of developing heart disease across member populations. Between 2002 and 2005 in Northern California, Kaiser Permanente helped reduce the prevalence of smoking among its members by 25%, compared with a 7.5% reduction across California as a whole.

As well as focusing on improving members’ health, Kaiser Permanente has been involved for a number of years in efforts to improve the ‘total health’ of the broader communities it serves. For example, to help improve the availability of healthy food, Kaiser Permanente supports food stores in deprived areas to stock fresh fruit and vegetables, sets up farmers’ markets at Kaiser Permanente facilities and in the community, and works with local schools to offer healthier food and drink options for pupils.

Kaiser Permanente has been able to provide employers with health benefits that are, on average, 10–20% more cost effective than traditional managed-care plans, while delivering outstanding quality. In 2012–2014, its health plans took the top three spots in the US National Center for Quality Assurance (NCQA) Medicare plan rankings, and the company’s commercial plans were in the top 10% of the NCQA’s ranking of national commercial plans. In addition, Kaiser Permanente consistently has the highest member satisfaction in its markets.

4) Value-based procurement (VBP)

Health service provider organizations such as hospitals usually spend a significant portion of their expenditure on purchasing medical devices and medicines. As part of healthcare reform, it is only rational for us to focus on this spending and to explore ways to achieve better health outcomes more cost effectively


What is value-based procurement?

Value-based procurement is an approach that delivers tangible, measurable financial benefit to the health system over and above a reduction in purchase price, and/or a tangible and measurable, improved patient outcome derived through the process of procurement (tendering, contracting, clinical engagement, and supplier relationship management).

Public procurement in Europe is evolving swiftly. A new public-procurement directive encourages the evaluation of tenders on the basis of end-to-end costs and price-quality ratios. At an EU level, procurement is increasingly viewed as a tool for fostering innovation and growth. Public procurement refers to the process by which public authorities, such as government departments, local authorities, or public hospitals, purchase work, goods, or services from companies. In the EU, the Boston Consulting Group estimated that approximately 70% of medical technologies are purchased through procurement.

According to the Boston Consulting Group and MedTech, hospital expenditure on medical devices and medicines amounts to approximately 20–30% of total expenditure, leaving 70–80% on other expenses. The latter expenses are mainly the cost of service provision. Increasingly, more focus is being placed on how innovative procurement systems can contribute to bringing down the inefficiencies in this area through decreasing treatment complications, errors, patient dissatisfaction, and adverse experience.

How procurement can drive efficiency

The focus on procurement had previously been on driving down the purchase prices of medical devices and drugs. However, it has become clear that procurement can have a much greater impact on driving efficiency through its active involvement in healthcare delivery.

By purchasing innovative technologies that improve efficiency and quality of care and reduce the total cost of care delivery, procurers can make the healthcare process itself more efficient, thus improving the overall outcomes of healthcare delivered, including the long-term effects on patients and on health systems. This is why value-based procurement is seen as key to a more holistic approach.

According to the Boston Consulting Group, which has conducted global benchmarking studies on medical technology companies during the past decade,

“The majority of outcome variations are attributable to practice variations: healthcare professionals perform at different levels of competence that reflect their experience, judgment, and capabilities. Some 70% of healthcare costs are related to care provision (5% to 10% of costs are for medical products, and 15% to 20% are for pharma products), and, according to our research, nearly one-third of those costs stem from inefficiencies. Thanks to its innovations, therapeutic and business expertise, and deep relationships with providers, medtech—more than any other industry, even pharmaceuticals—can help improve both elements of the value equation.”

Source: Boston Consulting Group study, moving beyond the milkman model in Medtech 2017

Source: Boston Consulting Group study, moving beyond the milkman model in Medtech 2017

Case study

The English National Health Service (NHS)

The English National Health Service (NHS) is conducting pilot projects on value-based procurement and shares some of the lessons learnt to date. They summarize that the key challenge has been that whilst the NHS wants to buy “value”, a better understanding of how to translate their offerings to meet customer needs is required. Therefore successful proposals need to meet the following characteristics:

  • Be relevant to patient needs

  • Include realistic claims supported by robust evidence

  • Convey measurable project benefits with clear outcomes

  • Demonstrate support and early engagement with clinical, financial, and commercial stakeholders – this is essential

  • Communicate a partnership approach to delivering a solution rather than a traditional sales pitch

  • Provide assurance that claims will be delivered.

The NHS says that additional understanding is required as they look to move towards true partnership working with shared objectives and incentives. This is integral to the adoption of value-based procurement, yet currently buyers and suppliers are incentivized to achieve short-term savings and sales targets respectively. The change in mindset and practice required to adopt VBP is quite drastic.

The NHS project team are actively working with healthcare stakeholders to review how this could be addressed, but consideration is required by industry to demonstrate how they can incentivize and organize representatives differently to deliver value.

Better public procurement can help reduce the pressure on health budgets in EU member states, deliver better value, and foster the development of better-quality products and innovations, however many challenges lie ahead that need to be tackled together.

Case study

Hospital Sant Pau, Catalonia

Until 2014, the hospital called for bids whenever it needed to buy implantable cardioverter defibrillators (ICDs). The relationship with the company that supplied the devices therefore ended at the time of delivery and did not take advantage, for example, of the huge amount of data that these devices send in real time to the manufacturer’s servers. The cardiologists would download these data from the implantable cardioverter defibrillator during each patient’s periodic appointments. As a result, all patients had to visit the hospital regularly, regardless of whether they had problems or not.

In 2016, the Agència de Qualitat I Avaluació Sanitàries de Catalunya (AquAS)—the Catalan Agency for Health Information, Assessment, and Quality—and Hospital Sant Pau in Barcelona procured a service related to implantable cardioverter defibrillators, with a four-year contract worth €10 million.

How it works

AquAS followed an innovative procurement format called competitive dialogue, which stated the needs of the service and expected companies to suggest solutions to them. Both total cost of ownership and delivering outcomes beyond the device were core criteria for this tender.

A new service contract, which included devices, technical assistance, and a new remote monitoring center for patients with implantable cardioverter defibrillators, was put in place with two providers.

Under the new model, the company not only sells the implantable cardioverter defibrillators but also supplies, monitors, and maintains the devices remotely for four-year periods. The company collaborates closely with the hospital by sharing all ICD data in real time, thereby allowing hospital professionals to review these data periodically without having to schedule an appointment for the patient if no problem is detected. This system benefits the patient and, by saving resources, the hospital.

In turn, the supplier works closely with hospital professionals to meet patients’ needs and can add new implantable cardioverter defibrillators that were not initially included in the contract, thereby accelerating the pace at which available innovations are introduced. Unlike the previous model, this contract gives the company security, allowing it to introduce innovations and become more competitive.


The new approach led to a drop in outpatient visits and complications, and increased collaboration along the care pathway. This successful case is now being replicated both with other hospitals in Catalonia and for other services related to cardiology.

Value-based pricing

Even though this course will not go into detail about the price setting of medicines and medical devices, the concept of value-based pricing is briefly explained in this section as this is another term that is used frequently and often confusingly in the context of value-based healthcare.

Value-based pricing is first and foremost about “pricing”, which is of key interest to the industry in terms of profitability and competitiveness, and to the patients and payers in terms of affordability and accessibility.


From the general marketing and business view point, value-based pricing is defined as “the method of setting a price by which a company calculates and tries to earn the differentiated worth of its product for a particular customer segment when compared to its competitor.”

For products that have a large demand and a market, it is clear that the industry would benefit from investing in developing them. In contrast, such incentives have been lacking in the past for, say, orphan products for rare diseases. This is why an increasing number of countries are adopting regulations and incentives to encourage the development of orphan products for rare diseases as observed in emerging gene therapies. The industry, the government, patients, and other stakeholders are posed with the challenging question of what the willingness to pay for such a product is. There is demonstrated willingness to pay higher prices for these health gains compared with those for more common diseases, but how far can this go considering the limited resources available?

Healthcare decision makers will want to maximize the benefits from their fixed annual budget, following the basic microeconomic principle of comparing marginal benefit and marginal cost. This comparison yields the incremental cost-effectiveness ratio as used in health technology assessment (HTA). Economic value is generally defined in terms of health gained (for example, quality-adjusted life-years or QALY) plus cost-offsets assessed over the time horizon of impact.


What is health technology assessment (HTA)?

Health technology assessment is the systematic evaluation of the properties, effects, and/or impacts of health technologies and interventions. It covers both the direct, intended consequences of technologies and interventions and their indirect, unintended consequences.

Achieving optimal health requires investments in medical care, public health/prevention, and social programs. Due to limited resources, decisions must be made regarding how to prioritize and pay for these efforts. Health technology assessment plays a role in helping to prioritize these essential needs.

Many stakeholders use output from the health technology assessment process. These include:

  • Government payers and other agencies

  • Private health insurers

  • Patients

  • Caregivers

  • Doctors, nurses, and other healthcare providers, including medical societies

  • Manufacturers of health technologies

  • Hospitals

  • Researchers

How health technology assessment is used differs from country to country. In the US, a formal health technology assessment is not required for coverage or widespread use, while in the UK all new technologies must undergo a thorough clinical and economic review by the National Institute for Health and Care Excellence (NICE) before they can be made available to patients and clinicians in the National Health Service.

There is no doubt that technological progress is bringing exciting new opportunities to keep people healthier and save lives. This is also one of the factors driving the cost of healthcare. Gene therapy is an example of such technological progress that questions the way the value of a cure is assessed and how it is priced, reimbursed, and paid.


What is gene therapy?

Gene therapy involves changing the genes inside your body's cells to treat or prevent disease. Genes contain DNA — the code that controls much of the body's form and function. Genes that don't work properly can cause disease.

Gene therapy replaces a faulty gene or adds a new gene in an attempt to cure disease or improve the body's ability to fight disease. Gene therapy holds promise for treating a wide range of diseases, such as cancer, cystic fibrosis, heart disease, diabetes, hemophilia, and AIDS.

Although gene therapy is a promising treatment option for a number of diseases, the technique remains risky and is still being researched to make sure that it will be safe and effective. Gene therapy is currently only being tested for diseases that have no other cures.

Of those gene therapies currently marketed in Europe, the average list price is USD $634,000 (or around €560,000) per course of treatment (from a range of $358,000–$1,212,000). The manufacturers state that the time and high development costs associated with gene therapies, combined with the often small target patient population, justify the expense. Gene therapies are tailored to individuals and, unlike many other treatments, cannot be batch-made; they also involve complex administration methods. At this stage, it is unlikely that their high prices will be substantially reduced anytime soon.

Achieving the “right” pricing, reimbursement outcomes, and payment for gene therapies that satisfy all stakeholders will likely remain challenging. The industry requests a price that reflects the resources necessary for developing such expensive, risky, and time-consuming products. The decision makers and payers need to feel that they are getting value for money. The patients are waiting for access to the most effective and innovative treatments.

The cost of gene therapies is one of the main challenges. Even though the lifetime cost of these treatments may be reasonable and fall under the established cost-effectiveness thresholds, payers still need to accommodate high prices in the budget while the cure is uncertain.

There are many unanswered questions. A few of them include:

  • How do we define a cure?

  • Are gene therapies safe long-term?

  • Who should be financing the risk of uncertainty associated with gene therapies?

  • Should we pay more for a cure for certain patient populations (for example children)? Is this ethical?

  • What are the patients´ view of these treatments?

Discussions continue among patients, healthcare providers, decision-makers, payers, and the industry to ensure that innovative treatments become available and accessible to the individuals who need them.

Managed entry agreements

Managed entry agreements (MEA) are contractual agreements between the marketing authorization holder (MAH) and healthcare payers that are introduced when decisive “yes” or “no” conclusions on price and reimbursement could not be made due to uncertainties about the clinical evidence and/or financial impact of a drug. Several countries apply managed entry agreements and different terminology and typology is identified, but the common factor is that managed entry agreements allow market access of drugs by sharing the cost of uncertainty between the payer and the marketing authorization holder. Managed entry agreements are often used and regarded as an attractive mechanism for market access of oncology drugs as they allow for coverage of new medicines while managing uncertainty around their financial impact or performance.


Managed entry agreements in Sweden

In 2014, managed entry agreements between Swedish healthcare payers (county councils), the reimbursement authority (the Dental and Pharmaceutical Benefits Agency TLV), and pharmaceutical companies were introduced to facilitate early and equal access to treatments. MEAs complement the value-based pricing system for out-patient drugs and enable stake-holders to negotiate risk-sharing agreements. In the period from January 2015 to August 2019, agreements were made for 56 products during the studied time period (45 ongoing), mainly in the fields of hepatitis C (n = 10) and oncology (n = 14). Uncertainties addressed in ongoing agreements included the size of the treated population (10), treatment duration (13), and effectiveness (9). The mechanism for risk sharing was limited to refunds based on patient numbers, duration, or just flat-rate refunds. The estimated refund in 2018 was 50% of total sales. The study concluded that the main driver behind risk sharing in Sweden so far seems to be affordability rather than managing uncertainty.

Next section
III. Measurement