Pricing and Access for Pharmaceuticals

Value-based drug pricing should be matched by value-based patient access

-- James Robinson, Director


The prices for drugs and biologics are interpreted in quite different ways by policymakers and by innovators. For policymakers whose principal concern is patient access and affordability, prices for drugs and biologics are simply too high. And for those whose principal concern is supporting research and innovation for unmet health care needs, prices for drugs and biologics are not high enough or, at least, are in need of additional support to sustain R&D.  Both sides agree that the price of individual products should be better aligned with the value of extended life and reduced suffering they offer to patients, and to society at large by way of increased productivity and reduced downstream expenditures. They also agree that a willingness by pharmaceutical firms to moderate prices should be matched by a willingness of insurers to reduce barriers to patient access, in the form of physician prior authorization and consumer cost sharing requirements.

BCHT is pursuing a range of research projects and professional educational activities related to value-based pricing and patient access, including innovative and value-based pricing, physician payment methods for drug-related services, insurance benefit designs, and the application of reference pricing to drugs.

PUBLICATIONS     PRESENTATIONS     Reference Pricing for Pharmaceuticals

Value-Based Pricing and Access

Prices create incentives for both innovators and purchasers.  Therapeutic drug classes where prices are high and profits are attractive will attract additional investment and subsequent innovation, as happened for drugs treating rare ‘orphan’ conditions.  Conversely, therapeutic classes where prices are low due to intense competition will be less attractive to investors, as evident in the paucity of new antibiotics.  But whereas high prices are good for innovators, they are bad for purchasers. High prices are also bad for patients. Insurers and pharmacy benefit managers (PBM) seek to reduce use of expensive drugs through formulary restrictions, and patients are less willing to comply with their physicians’ prescriptions if their out-of-pocket cost sharing is high.

BCHT initiatives in this important domain target methods for improving the alignment of drug prices with clinical value; reducing the administrative and financial obstacles to care for drugs priced in line with their value; and analyses of the market dynamics for specialty drugs. 

Alternative Funding Sources for Pharmaceutical R&D

Efforts by public and private insurers to moderate the escalation of specialty drug prices encounter the objection that industry revenues are essential to fund research and development. But industry prices and profits are only one of several mechanisms available for funding pharmaceutical R&D. Others include governmental and philanthropic research grants; commercialization grants for startups; targeted tax incentives; innovation prizes for the achievement of developmental milestones; and special regulatory incentives from the FDA.  This project analyzes the alternative mechanisms for funding R&D and explores potential reforms that would reduce the threat to innovation that may occur as a byproduct of downward pressure on drug prices.


Reference Pricing: Specialty Pharmaceuticals

The Five Principal Stages of Managing Specialty Pharmaceuticals

On the journey from laboratory to bedside, specialty drugs typically undergo five distinct stages: regulatory market access, insurance coverage, pricing and reimbursement, physician prescription, and patient engagement.

If structured appropriately, each stage improves performance assessment, reduces barriers to access, and supports continued research and development. If structured inappropriately, each stage adds to administrative burdens, distorts clinical decision making, and weakens incentives for innovation. Below is a analysis of each stage, and how policy and payment opportunities can enhance the value of specialty drugs. 


Regulation of Market Access

The Food and Drug Administration (FDA) aims to protect patient safety by only allowing safe and effective therapies to enter the market. However, the FDA also aims to promote clinical innovation and patient access to new therapies. This balance between ensuring safety and promoting access can be difficult to strike, particularly for specialty pharmaceuticals.

One solution has been to shift the focus from pre-market clinical studies to post-launch studies. Another has been to lower the evidence bar for severe conditions that lack effective treatments. In order for these solutions to work, it is critical that post-launch studies are conducted, which is not always the case in reality.

Insurance Coverage and Medical Management

Insurance coverage policies and medical management strategies can greatly affect access and use of specialty pharmaceuticals. Insurers can decide to cover certain medications within a class but not others. Examples of medical management that are meant to contain costs include prior authorization, step therapy, and dose limits.

When used appropriately, these strategies enhance value by ensuring appropriate and cost-effective use of medications. When used inappropriately, they can create barriers to access and reduce incentives for innovation.

Pricing and Payment

Specialty drugs sometimes receive a lot of attention because of their high prices. The prices are meant to reflect the cost of research, manufacturing, and distribution, as well as make up for their limited use in a small number of patients. Private payers also subsidize the lower costs paid by public payers and facilities that receive large discounts. The 340B Drug Discount Program(link is external)(link is external) is the fastest growing source of price discounts, that ranging from 25% to 50%.

This tension between innovation and affordability can be counteracted by price competition of new drugs and biosimilars, by policy makers lifting coverage mandates that do not factor in less expensive drugs, and by insurers adopting evidence-based assessment and pricing methods.


Physician Prescription and Care

As prescribing entities, physicians play an important role in the use of specialty pharmaceuticals. The way that physicians are reimbursed for these drugs has a significant impact on prescribing behaviors. Currently, physicians make the most revenues on drugs that require infusion in the office and use surpluses there to cover other services that are poorly reimbursed. Ideally, physicians should be reimbursed for three activities:

- Office services and visits, including treatment management and modification

- Office-infused speciality drugs

- Time spent on patient education

By changing the manner in which physicians are paid for specialty pharmaceuticals, incentives can be aligned to provide patients with the best available care.

Patient Engagement and Cost Sharing

Patients play large role in the value of specialty pharmaceuticals through their actions. For patients to get the most of these expensive drugs, they must manage their condition through education, lifestyle, and medication adherence. 

Depending on the structure, cost-sharing for patients can either increase or undermine their level of engagement. High cost sharing through copayments or coinsurance should only be used to encourage the use of less expensive alternatives when they are available


There are a number of ways to increase the value of specialty drugs. By targeting policies and practices at each of the five stages, patients will have improved access to drugs that are safe, effective, and affordable.

For more details on the specialty drug study, read: Specialty Pharmaceuticals: Policy Initiatives To Improve Assessment, Pricing, Prescription, And Use

Value-Based Physician Payment in Oncology

What is Value-based Care?

New payment mechanisms aim to improve coordination of care and reduce the cost of cancer treatment. Value-based care is a form of reimbursement that ties payments for care delivery to the quality of care provided, and rewards providers for both efficiency and effectiveness.

Value-based Care in Oncology

Specialty cancer drugs are some of the most expensive on the market. As with other specialty drugs, payment methods for cancer drugs require striking a balance between controlling cost and assuring patient access. Current payment structures include fee-for-service reimbursement for physicians; cost-plus reimbursement that limits what will be paid by the insurer for the covered expenses of office-infused treatment; and mixed reimbursement for professional, or ancillary, services provided by a hospital or other inpatient program.

As value-based payment expands to include cancer treatment, payers strive to compensate physicians for holistic care, and to reward the use of lower cost drugs when therapeutically equivalent treatments are available.

For more details on value-based physician payment in oncology, read: Value-Based Physician Payment in Oncology: Public and Private Insurer Initiatives


Case Studies

Anthem, Aetna, Medicare, and UnitedHealthcare have conducted case studies of oncology payment initiatives to determine the applicability and limitations of value-based payment in cancer care. 

These initiatives did not use Bundled Episode of Care, a payment model that covers all patient care received in the course of treatment for a specific illness, condition or medical event. However, they did take a step toward this type of payment. The use of bundled payment methods may potentially expose physicians to excessive financial risk.

 - Anthem

The Anthem Cancer Care Quality Program builds on fee-for service instead of replacing it.

  • Physicians receive a $350 month payment for each patient who is being treated according to initiative requirements.
  • The monthly payment serves incentivizes physicians to submit clinical data and adopt Anthem-approved drug pathways.

 - Aetna

Aetna’s Oncology Solutions program:

  • Increases the percentage markup applied to generic chemotherapies and
  • Offers a bonus to practices that manage costs.

 - Medicare

Medicare launched a 5-year Oncology Care Model with approximately 200 physician practices.

  • The initiative encourages physician practices to invest in capabilities that improve care coordination and quality.
  • Medicare provides monthly payments to support care management, and performance-based bonuses for improvements in efficiency and quality.

 - UnitedHealthcare

The UnitedHealthcare Oncology payment program supplements fee-for-service with a lump-sum payment, and provides performance-based bonuses linked to trends in cost.

  • Each drug is reimbursed without any markup
  • UnitedHealthcare provides a lump sum equal to revenue w/o use of expensive drugs.

Learn More About Value Based Payments In Oncology!

Sachs R, Bagley N, and Lakdawalla D. Value-Based Pricing for Pharmaceuticals in the Trump Administration(link is external)Health Affairs Blog. April 27, 2017.

Lee JL, Fischer MA, Shrank WH, et al. "A Systematic Review of Reference Pricing: Implications for US Prescription Drug Spending(link is external)." Am J Manag Care.  2012;18(11): e429-437.

Stargardt T. "The Impact of Reference Pricing on Switching Behaviour and Healthcare Utilisation: The Case of Statins in Germany(link is external)." Eur J Health Econ. 2010;11(3): 267-277.

Chuck Farkas and Preston Henske. Reference Pricing for Drugs(link is external). Forbes. April 14, 2006.

Kanavos P and Reinhardt U. "Reference Pricing For Drugs: Is It Compatible With US Health Care?(link is external)" Health Affairs. 2003; 22(3): 16-30.

Austin Frakt. To Reduce the Cost of Drugs, Look to Europe(link is external). The New York Times. October 19, 2015.