VISTAS 2023 - Drive the Momentum - October 18-20, Caesars Palace, Las Vegas - Learn More
Outcome based pricing banner image

The Power of Outcome-Based Pricing

by: Bob Steller | December 11, 2019

In February of 2019, CEOs and senior executives from seven major pharmaceutical companies met with the Senate Finance Committee about drug pricing. During that meeting, AstraZeneca CEO Pascal Soriot discussed how value-based agreements have the potential to transform how medicines are priced and reimbursed in the U.S., and in doing so, triggered a host of discussions across the industry on the topic. And with healthcare costs averaging nearly 18% of the U.S. GDP spend, the message was welcomed by many.

The reason value-based agreements have created buzz is because gene, cellular and immunotherapies are risky endeavors for drug developers. To enable research, development and access to these high-priced drug therapies, biopharmaceutical companies understand that the way they do reimbursements must change. One way is for the patients (and their insurance providers) to make milestone installment payments. This means that if a drug continues having a positive impact on the patient, the payer would continue making the payments.

Another approach is for the payer to pay the high fee, such as $1 million, at the start of treatment. If the drug company works with 100 patients and the treatment cures 70% of the 100 patients, then the drug company keeps that $70 million. However, if 30% of the patients saw little-to-no benefit from the drug, the drug company would return between 80% and 100% of the fee to those 30 payers.

Collaboration: Improving Patient Outcomes

Quality of patient care is the catch-phrase that has gained traction in the healthcare world over the past decade. When outcome-based pricing is used, the patients, payers, providers and pharma companies are all aligned in sharing the risks, while measuring the patient’s health gains against the total cost of care. Shared goals for outcome-based pricing include:

  • Accessible and effective treatment protocols
  • Patient adherence to medicine protocols
  • Fewer hospital readmissions, and
  • Reduced hospital stays.

In short, the patient is the focus. But every party has skin in the game:

Pharmaceutical companies: The Healthcare Executive Group listed costs and transparency as their number one concern for 2020. They’re trying to please shareholders as they research and develop the next groundbreaking, widespread drug therapies, not to mention specialty drugs. While specialty drugs are just 12% of all prescriptions, the AMA reports that they reflect 72% of total drug spending. (

Healthcare providers: The healthcare providers are trying to minimize readmissions, while optimizing cost-effective care and treatment protocols. The payers are financing drug treatments for which they have limited-to-no information about their efficacies. Historically, they have financed treatments with a 50% to 60% chance of having a positive patient outcome. Plus, the pharmaceutical manufacturers are facing the problem of profitable drugs coming off patent, leaving them without a competitive advantage, while pumping billions of dollars into research and development on drugs that are slow to show a return on investment. All these conflicting priorities place undue pressure on these key stakeholders to find a better way; to build a better mousetrap.

The patient: While patients do not always adhere to medication protocols—after all, a whopping one-third of prescriptions written are never filled—today’s sensors and health devices simplify and incentivize patients, by automating and tracking the patients’ adherence to measure their accountability and the accuracy of outcome studies.

Historically, our drug reimbursement system was designed to pay for small-molecule drugs, rather than expensive genomic drug therapies. Shifting drug reimbursements to outcome-based payments will enable the research and development of costly drugs to fight rare diseases.

As a matter of course, the need will increase for calculating internal and external data sets, both structured and unstructured, digesting multiple data sources to then identify the reimbursement amounts in real time. The right software solution will be mandatory for sustaining this business model across the entire value chain. And that is where Vistex solutions shine.

To learn more, download our outcome-based pricing eBook here.