Pharmaceutical manufacturers face an economic transformation as payors look more toward value-based – as opposed to transactional, unit-based – models for drug reimbursement.  This value-based revenue model presents enormous implications for the future of pharma and biotech, impacting everything from innovation, clinical trials, pricing, and marketing.

The Health Research Institute at PwC surveyed 100 health plans and pharmacy benefits managers to look at possible ways pharmaceutical and biotechnology companies could boost economic and clinical evidence, unlock value, and increase transparency with health care organizations. Results are published in their report Unleashing Value: The changing payment landscape for the US pharmaceutical industry.

The following five forces fuel this shift:

  1. A “big bet” made by the drug industry on high-priced biologics.
  2. Health care insurer preference shifting to outcome-based – as opposed to unit-based – payment.
  3. Real world drug effectiveness data now available to hospitals and insurers.
  4. Employer and health plan awareness of the correlation between properly prescribed drug use and decreased medical costs.
  5. The spread of information and drug option transparency and its influence on consumer choice.

Considerable barriers exist when fostering a collaborative relationship including issues around mutual trust. The study found very low insurer confidence in pharma formulary submissions, with just five percent of respondents confident in drug-industry-provided economic data when deciding on formulary placement and coverage.

The PwC study also found that, when making private insurer formulary decisions, participants identified three primary influences: generic availability, the physician’s expert opinion, and regulatory guidance. For formulary placement consideration, 60 percent of insurer respondents strongly agreed that pharma and biotech should demonstrate significant clinical benefit when compared to branded or generic treatments, with 45 percent necessitating a clear cost savings argument.

While just 16 percent of health plans currently use novel payment and contracting models, 37 percent expect to support one or more alternate models, such as one based on patient outcomes, within the next three years. The top two barriers for implementing such strategies are concerns about increased negotiating complexity and lack of data infrastructure.

To read or download the full report and chart pack, click here (PDF).