The life science industry has yet to see if the new president’s promises to repeal and replace the Affordable Care Act and lower drug prices by negotiating with pharma companies will come to fruition. In the meantime, the entire healthcare sector, from payers to patients, watches and waits with uncertainty.

Regardless of the politics, the emergence of value-based care has been a long time in the making. There has been a continuous and growing pressure on cost transparency looking at the value for the price paid. Does the drug cost value equate to the benefit people receive? “There is continued focus to prove and demonstrate value for the care provided and received,” says Stacey Empson, principal, PwC.

Empson was part of a recent roundtable discussion sponsored by the PwC Health Research Institute (HRI) highlighting the pressing health industry issues in the U.S. for the coming year.¹ According to Trine Tsouderos, managing editor, HRI, three value-based care themes will dominate in 2017: adaptation, innovation, and collaboration.

Adapt for value
On his first day in office, Donald Trump signed an executive order easing the individual mandate of the ACA. But the life science industry is still waiting to see what “repeal and replace” will look like, and will have to adapt accordingly to continue to provide value. “Many pieces of the ACA are interrelated and the administration hasn’t given much thought as to what repeal and replace is going to look like,” says Sandi Hunt, principal, PwC. “We know there is a provision for preserving the allowance of pre-existing conditions and for allowing the coverage of adult children up to age 26 while getting rid of the individual mandate. From an actuarial perspective, those don’t go together. You can’t have cheaper coverage and more comprehensive coverage and not have people in the risk pool. Our clients (payers) want to do know what they should be doing in the absence of clarity and if there is a risk of waiting to see how things develop.”

Mike Cohen, principal, PwC, says that providers are worried access may be pulled back simultaneous to efforts to reduce costs. Many worry this could place burdens back on providers for uncompensated care. “Providers are tightening their belts while recognizing the need to provide durable value to the system. They don’t want to invest in value-based care if they don’t see ROI,” he says.

Donald Trump also made drug prices a central theme of his campaign, promising to negotiate with drug companies to bring down those costs. Some argue that the administration’s push to reduce drug prices could have a freezing effect on future innovation. “The whole industry wants to see prices drop except for the drug companies,” Cohen says. “Some are concerned that if prices come down too much there will be a freezing effect where we see reduction in investment in early trials that would lead to innovation.”

In addition to ACA issues, Tsouderos points out that adapting for value in coming year will include pharma partnering with patients to build trust and ensure regulatory success. According to a PwC survey, a large percentage of patients claim they will share data with drug companies about how well their treatments are working.

Innovate for value
Technology will be a disruptive force in healthcare. These include the Internet of Things, artificial intelligence, and drones. Last year, projects commenced to use drones to deliver blood and other medical supplies to Tanzania2 and medicine to Rwanda.³

Blockchain is another technology identified as a possible healthcare disruptor going forward. Just recently, IBM’s Watson Health artificial intelligence unit entered a development agreement with FDA to explore using blockchain technology to securely exchange patient-level data from electronic medical records, clinical trials and health data from mobile devices and wearables.⁴

Another area of growing interest in remote locations is telemedicine, the remote diagnosis and treatment of patients by means of telecommunications technology.

At the Capitol Hill Senate Confirmation Hearing of Tom Price (R-GA) for Health and Human Secretary, he said, “Telemedicine is an exciting innovation that allows individuals in rural and underserved areas access to intellectual capital and resources from a clinical standpoint to make decisions about patients. Telemedicine is vital and we need to accentuate the ability to use telemedicine. It’s often not compensated so clinicians eat the costs that help patients but make it more difficult to provide quality care.”⁵

As an orthopedic surgeon, Price has a physician’s perspective on IT. As a Congressman, he introduced legislation aimed at reducing burdens of Health IT regulations placed on physicians, particularly those related to electronic health records.⁶

In addition to technical innovation, experts envision collaborative innovation to spark as government and pharma work together to battle against infectious diseases. “These types of drugs are priced cheaply and the revenue stream is short,” says Chan Harjivan, principal, PwC. “And with increased focus on improved and restrictive use of antimicrobials, that revenue stream gets even shorter. There is now greater collaboration among pharma companies, diagnostics companies, consortiums and regulators to reduce the cost of R&D and improve diagnostics. There is also talk among these groups to figure out ways to incentivize pharma companies to develop new antimicrobials.”

Whether it’s innovation through technology or collaboration, Empson says companies are hiring chief innovation officers to drive these projects and ensure that there is buy-in from the senior level.

Build for value
According to Tsouderos, while mean total spending on prescriptions has increased since 2005, mean out-of-pocket spending on prescription drugs for privately insured individuals has dropped slightly. “But if you listen to the media and the political noise around this, you would think that number has gone up dramatically.”

The drug industry is responding to this noise around drug prices with moves to put the brakes on themselves—to self regulate. For example, Allergan’s CEO published a social contract with patients that committed to price increases of single digits once per year.⁷ KaloBios Pharmaceuticals promises to limit their increases to no more than the rate of inflation.⁸ And Novo Nordisk will not to raise the list price of any drug by more than single-digit percentages annually.⁹

“And we are hearing from the new administration that they will try to put the brakes aggressively on drug prices,” says Tsouderos. “We will see what that looks like, but in the meantime, we will continue to see drug companies moderate drug prices as a result of this outcry.”

The Department of Justice and the Federal Trade Commission has been scrutinizing mergers and acquisitions in the healthcare industry. “Despite the change in administration, which might bring a different approach to M&A in healthcare, we think there will be a flurry of alternate transactions, such as partnerships, clinical affiliations, and strategic partnerships, These are not M&As but other ways to partner up in the industry, and with companies outside of the industry.”

According to the 2017 Nice Insight Contract Development and Manufacturing Survey, about one-fourth of respondents’ projects are outsourced to a strategic partner. Additionally, 72% of respondents are either very interested or interested in becoming a strategic partner with a CDMO.¹⁰

More unique and progressive partnerships are the result of seeds sewn dating back to the first Bush Administration, and Empson says that value-based care is a trend that will continue regardless of what happens at the federal level. Tsouderos agrees, saying, “Value is a larger movement than Washington, D.C.” 

References

1. PwC Health Research Institute, Top health industry issues of 2017: A year of uncertainty and opportunity, Jan. 18, 2017.
2. Kelion, Leo, Drone-based blood deliveries in Tanzania to be funded by UK, Dec. 29, 2016, http://www.bbc.com/news/technology-38450664.
3. Toor, Amar, This startup is using drones to deliver medicine in Rwanda, The Verge, April 5, 2016, http://www.theverge.com.
4. Mearian, Lucas, IBM Watson, FDA to explore blockchain for secure patient data exchange, Jan. 11, 2017.
5. Price, Tom, Capitol Hill Senate Hearing for Health and Human Services, Jan. 19, 2017.
6. Barker, Shruti, Incoming HHS Secretary Tom Price Brings Physician-Focused Perspective to Health IT, Dec. 16, 2016.
7. Our Social Contract with Patients, Sept. 6, 2016, http://www.allergan.com/news/ceo-blog/september-2016/our-social-contract-with-patients.
8. KaloBios Announces New Product Pricing Model, April 11, 2016, https://globenewswire.com.
9. Silverman, Ed, Novo Nordisk becomes second major drug maker to limit price hikes, Pharmalot, Dec. 5, 2016.
10. 2017 Nice Insight Contract Development and Manufacturing Survey, www.niceinsightcdmo.com/buying-trends.aspx.