Reimbursement Report

The Best Value Proposition. Ever.

By Jessica Holmes
August 6, 2015


• Categories: Market Access, Reimbursement Report

Any life science company that is not actively defining or redefining its technology’s value proposition—appealing to payers’ wants while addressing customer needs—risks losing a competitive edge to companies that are incorporating the radically changing reimbursement environment into their commercialization strategy.

The U.S. healthcare system is in a state of flux, and changes are happening at an increasingly vigorous pace. If manufacturers are not developing value propositions based on the extensive changes taking place in the healthcare reform and reimbursement landscape, those companies may miss the opportunity to position their technology in the framework of The New Normal. The New Normal consists of several overarching concepts:

1. Healthcare payments tied to ‘value’ (i.e., quality of care and/or cost-savings
2. Increased accountability and transparency
3. Consolidation and alignment of healthcare stakeholders

Broken down, these concepts provide a roadmap for medical technology companies to identify and message those elements of the changing healthcare landscape affected by their technology to the medical and payer communities.

First, the emerging pay-for-value environment incentivizes providers of care (individuals and institutions) based on improvements in process of care or patient outcomes and, at times, the cost-effectiveness of that care. These quality- and cost-based initiatives in the government and commercial payer arenas can manifest as either a carrot (bonus payments) or a stick (payment penalties). Either way, significant dollars are often at stake through programs that tie reimbursement to the overall value of care delivered to a given patient population. Life science companies whose technology can contribute to improved patient outcomes and/or cost-effectiveness should convey these attributes through their value proposition, taking into consideration customer reimbursement challenges and opportunities.

Second, increased accountability and transparency are altering the way in which care is delivered and purchased. The notion of accountability is critical and spans from floor to ceiling. Individual patients are expected to make more informed decisions regarding the care they receive/purchase, while payers and policy-makers at the highest levels are transforming care delivery and payment models. And, in the space between, healthcare providers are charged with greater accountability to integrate clinical and economic initiatives for their payer-partners and the patients they serve. In conjunction with increased accountability, an unprecedented amount of information is now being collected and analyzed, with select data made publicly available. This transparency—demonstrated through such websites as Hospital Compare (medicare.gov) and The Leapfrog Group (leapfroggroup.org) —is designed to allow for better decision-making by all parties involved in the healthcare system. The value proposition for technologies that improve care delivery, particularly those that have a measurable impact in areas of medicine targeted in the near term (e.g., reduced hospital admissions/readmissions, infection rates or costly follow-up care), should message this information in a way that resonates with the various target audiences, whether providers or payers.

Finally, consolidation and alignment among payers and providers is changing the organizational structure of the healthcare system as a whole. Along with high-profile mergers/acquisitions among health plans (e.g., Anthem’s purchase of Cigna and Aetna’s purchase of Humana), some of the more significant changes include: hospitals buying other hospitals, hospitals buying physician groups, and insurance companies buying both hospitals and physician groups. Alignment of payers and providers to create new types of organizations such as accountable care organizations (ACOs) and integrated delivery networks (IDNs) is shifting financial risk from payers to providers of care. Value propositions for many new and existing technologies should take these innovative partnerships into account, since progressive organizational structures may scrutinize medical devices, biotechnology and drugs differently than traditional healthcare organizations.

Ultimately, successful life science companies are and will be those that endeavor to understand and embrace the profound reforms characteristic of The New Normal. By integrating the impact of new care delivery and payment models in the approach to commercialization and value proposition development, medical technology companies can demonstrate their true value to the medical and payer communities, and go beyond The New Normal in an effort to become The New Extraordinary.