New value-based healthcare payment models could have far-reaching effects on medical laboratories and the testing they provide

Hospitals, physicians, and medical laboratories recognize the transition from “volume to value” that’s underway in the American healthcare system. Fee-for-service payments for clinical services (regardless of whether they are needed or effective) will soon cease and providers will be increasingly paid on how much value they deliver to patient care. This will fundamentally alter the complete care continuum, from hospital stays to pathology consults to clinical laboratory testing services.

One such change involves value-based drug contracts with pharmaceutical manufacturers. According to an article in The Boston Globe, in an effort to reduce the ever-increasing cost of prescription drugs while still “giving patients access to costly treatments,” Harvard Pilgrim Health Care (Harvard Pilgrim)—one of Massachusetts’ largest health insurers with more than 1.3 million members—is negotiating value-based agreements with major pharmaceutical manufacturers. How much money Harvard Pilgrim pays for certain drugs will depend on how much the healthcare organization contributes to curing/improving their patients’ conditions.

Value-Based Pharmaceutical Agreements

Harvard Pilgrim first made news for their value-based drug contracts in 2015 when they contracted with three companies:

• Amgen (NASDAQ:AMGN);
• Novartis AG (NYSE:NVS); and
• Eli Lilly (NYSE:LLY).

Harvard Pilgrim currently has 12 value-based pricing contracts with pharmaceutical companies.  According to a news release, the contracts enable Harvard Pilgrim to monitor “specific criteria in patients following discharge” for the effectiveness of medication. “If the medicines fail to meet the agreed upon outcomes criteria in real patients, Harvard Pilgrim will be charged a lower amount,” the news release states.

The graph above is from an analysis by Avalere Health, a strategic advisory company in Washington, DC, that develops solutions for healthcare. It shows how, according to Avalere, “a majority of health plans are interested in forming outcomes-based contracts with biopharmaceutical manufacturers that tie product reimbursement to patient outcomes.” (Image copyright: Avalere Health.)

These contracts link a drug’s cost to its overall effectiveness in ways that make companies accountable for results in terms of real-world patient outcomes, rather than controlled trial results. Michael Sherman, MD, Harvard Pilgrim’s Chief Medical Officer and SVP of Health Services, stated in the news release that they put drug companies “at risk for delivering” on their promises.

According to Harvard Pilgrim Health Care President and CEO Eric Schultz, value-based agreements between insurance, hospitals, medical laboratories, and drug companies are becoming increasingly important. At the 2017 America’s Health Service Plans (AHIP) Institute and Expo, Schultz stated that in terms of value-based contracting, “right now, it’s all about clinical outcomes,” a FierceHealthcare article covering the event noted. Shultz believes this is a good thing for patients that could positively impact all areas of healthcare.

Harvard Pilgrim is not alone in shifting to value-based healthcare (AKA, value-based purchasing and Pay-for-Performance). According to a news release, the University of Pittsburgh Medical Center (UPMC) Health Plan recently created the Center for Value-Based Purchasing for Pharmaceuticals. According to William Shrank, MD, UPMC Health Plan’s Chief Medical Officer, the Center is determined to evaluate outcomes and effects of the new payment models, which have the potential to “rapidly influence pharmaceutical purchasing nationwide and promote greater value in medication use.”

Can Medical Laboratories Participate in Value-based Models?

The rise of value-based healthcare models affects more than just pharmaceutical companies; medical laboratories nationwide are considering how value-based systems might affect their work and mission as well. In an Orchard Software whitepaper titled, “The Value of the Laboratory in the New Healthcare Model,” Daniel J. Scully, CEO of New York’s Buffalo Medical Group, stated that the “50-million dollar” question for laboratories is “does the laboratory offer enough value in service and speed of results” for the new value-based healthcare models?

Clinical laboratories play such a vital role in healthcare quality—providing accurate diagnosing and crucial monitoring, as well as data collection and risk assessment—they may find themselves affected by value-based healthcare changes. Because of the high costs of equipment and testing, laboratories may also find themselves scrambling to eliminate costs and improve on efficiency, by monitoring resources and testing outcomes in connection to patient needs.

Clinical pathologists may also find themselves more frequently called upon to assist in guiding clinicians to more “effectively utilize lab services to achieve better care,” according to the Orchard Software white paper.

Clinical Associations Say Medical Laboratories Crucial to Success of Value-based Healthcare

The American Association for Clinical Chemistry (AACC) and the American Society for Clinical Pathologists (ASCP) have both addressed what the change to a value-based healthcare system may mean for clinical pathologists.

An ASCP white paper states that clinical pathology data has become increasingly important as “clinical laboratory data are now used to measure provider performance, both individual and organizational, as well as to inform value-based purchasing that optimizes healthcare resources and decreases costs.”

In a position statement, the AACC noted that laboratory testing was crucial to this new model, and that “laboratory professionals are uniquely positioned” to help increase value within healthcare by helping “clinicians identify the most effective testing protocol and interpret the results accurately. Clinical laboratorians can further reduce healthcare costs by developing new, more precise tests to personalize patient care and creating computerized clinical decision support interventions to aid test selection.” Some types of testing, however, particularly expensive molecular and genetic testing, may end up a target of similar value-based agreements between the labs that perform these tests and the provider organizations that use the tests.

Much of the focus on value-based healthcare is currently on value-based pharmaceutical contracts, such as those from Harvard Pilgrim. Nevertheless, clinical laboratories will likely play vital roles in providing care, guiding testing, and evaluating care outcomes under these new payment models. They also could find themselves part of a larger debate concerning overuse of testing or data collection.

Changes to healthcare from pay-for-service to pay-for-value will undoubtedly have far-reaching effects as healthcare fields attempt to cut costs while providing better services. Every clinical laboratory must be proactive in finding its place in these new models.

— Amanda Warren

Related Information:

Harvard Pilgrim Expands Use of Novel Drug Purchasing Deals

Value for Consumer Drugs—Harvard Pilgrim Leads the Way

Harvard Pilgrim Signs Outcomes-Based Contracts with AstraZeneca for Brilinta and Bydureon

UPMC Health Plan Establishes Unprecedented Center for Value-Based Purchasing for Pharmaceuticals

Harvard Pilgrim Signs Second Groundbreaking Contract with Amgen for Repatha

Lilly’s Trulicity Joins Pay-for-performance Trend with Harvard Pilgrim Deal

Advancing Value-Based Healthcare: Laboratory Medicine’s Essential Role

The Value of the Laboratory in the New Healthcare Model

AHIP 2017: Harvard Pilgrim, Eli Lilly CEOs Talk Drug Prices and Paying for Value

Health Insurers Go All in on Value-based Drug Pricing

Health Plans Are Interested in Tying Drug Payments to Patient Outcomes

Harvard Pilgrim Bets on Value-based Drug Payments with New Deals

Harvard Pilgrim to Pay for 2 Autoimmune Drugs Based on Outcomes, Value

Value-based Contracts Key to Solving U.S. Drug Pricing ‘Crisis’

Nearly One-Third of Traditional Medicare Payments Now Based on Value-Based Reimbursement and Alternative Payment Models

Ongoing Growth in Volume of Clinical Laboratory Tests That Support Precision Medicine Due to Physician Acceptance; Payers Still Have Concerns

Pathologists and Clinical Lab Executives Take Note: Medicare Has New Goals and Deadlines for Transitioning from Fee-For-Service Healthcare Models to Value-Based Reimbursement

Up to 50% of Aetna, UnitedHealth Group, and Anthem Reimbursements Go to Value-Based Contracts; Clinical Laboratories Must Implement Value-Based Strategies to Remain Competitive