March 1, 2019
The Honorable Lamar Alexander
U.S. Senate Committee on Health, Education, Labor, and Pensions
428 Dirksen Senate Office Building
Washington, DC 20510
Dear Chairman Alexander:
The National Pharmaceutical Council (NPC) appreciates the opportunity to share research and information outlining actionable solutions to reduce the cost of health care nationwide. We share your interest in identifying market-based solutions for improving health care delivery and addressing low-value care.
NPC is a health policy research organization dedicated to the advancement of good evidence and science, and to fostering an environment in the U.S. that supports medical innovation. NPC is supported by the major U.S. research-based biopharmaceutical companies. We focus on research development, information dissemination, education and communication of the critical issues of evidence, innovation and the value of medicines for patients. Our research helps inform critical health care policy debates and supports the achievement of the best patient outcomes in the most efficient way possible.
NPC has a broad body of evidence-based research and resources that may help to guide and inform future policy discussions focused on addressing health care spending and improving value, access and innovation. There are three main points we wish to address:
- There is no silver bullet, or singular solution, that will solve the low-value care problem;
- New benefit designs and alternative payment models offer market-based solutions to address wasteful spending and low-value care; and
- A holistic approach to addressing health care spending is needed.
There is no silver bullet, or singular solution, that will solve the low-value care problem
As you have identified, a significant share of U.S. health care expenditures is inappropriately allocated toward interventions that deliver low or no value to the patient. Additionally, there is significant spending on administrative functions that do not make our system as efficient or effective as it could be. All told, the U.S. spends twice as much on low-value care as we do on high-value care. Unfortunately, there is no singular solution to address low-value care – the bureaucratic and highly complex nature of the U.S. health care system makes it difficult to adopt and implement solutions quickly.
In “Reducing Low-Value Care,”  research led by NPC and published on the Health Affairs Blog, we indicate that “[b]eginning to understand where there is consensus on how to define and measure low-value care is an important step in efforts to reduce the clinical harm and the spending associated with low-value care.” Through this research, we identify three market-based solutions for how administrators and clinicians can address low-value care:
- Reduce medical errors. To reduce errors, focus on improving care processes and reducing care fragmentation; recognize that errors are of utmost priority and obvious low-value care that should be addressed separately and immediately.
- Resolve pricing issues. Reliable pricing and quality information are key to addressing variation in both medical services and medicines; and
- Avoid overuse/overtreatment. To see the greatest reductions in spending, reduce low-value care that is circumstance-dependent while protecting patient access in situations when care may offer benefit.
Additional findings from this study suggest there is enough agreement in specific areas to begin substantial efforts to decrease low-value care, even though some disagreement remains on aspects of how to define and measure the subject.
New benefit designs and alternative payment models offer market-based solutions to address wasteful spending and low-value care
NPC appreciates the HELP Committee’s interest in identifying market-based solutions and its acknowledgment that too many barriers to innovation drive up costs. As policymakers and other health care stakeholders continue to explore new policy solutions to address health care spending and promote value-based payment, it is important that these policies do not inadvertently restrict health care innovation or impede patient access to needed health care services and treatments. There are several examples of potential market-based approaches that are helping to move the needle on addressing low-value care. These include value-based insurance design, value-based agreements, and alternative payment mechanisms.
Value-Based Insurance Design (V-BID)
V-BID is a model of insurance design that provides more generous coverage for services that offer known, evidence-based value and less generous coverage for those services where value is low. V-BID shifts the focus from “how much” to “how well” we spend health care dollars.
Driven by the concept of clinical nuance, V-BID recognizes that medical services differ in the benefit they provide, as well as the benefit each individual patient experiences from a particular service. The concept of clinical nuance and condition-specific benefit design is especially relevant for specialty medications. Specialty medications tend to deliver great clinical benefits and have higher costs. However, the cost of specialty medications, as opposed to the clinical benefit and ultimate value, has been the sole focus of typical approaches to insurance design, as well as many debates on health spending. V-BID, though, offers a way to account for clinical nuance and the fact that “many specialty medications deliver improvements in health and health-related quality of life at prices that are lower or competitive with many commonly accepted medical interventions.”
V-BID is being piloted by the Centers for Medicare and Medicaid Services within its Medicare Advantage plans. The impetus is to move toward value by the development and implementation of patient-centered solutions that allow access to medications at an affordable cost.
A related approach toward encouraging access to high-value care is to provide pre-deductible coverage for medicines used to treat common chronic conditions. This could lower out-of-pocket costs and increase medication adherence for patients. However, enabling this approach would require a modification to the current Internal Revenue Service (IRS) safe harbor for Health Savings Account (HSA) eligible high-deductible health plans (HDHPs) to include chronic disease medications.
Value-Based Agreements (VBAs)
VBAs offer another approach to addressing rising health care costs. In this approach, health insurance payers and biopharmaceutical manufacturers enter into value-based agreements that link the price of prescription medicines to patient outcomes. The goal of such agreements is to shift health care payment from volume to value by linking payment to outcomes. The following research by NPC and its research partners addresses the opportunities and challenges associated with VBAs:
- Value-Based Arrangements May Be More Prevalent Than Assumed.” This study, conducted in partnership with researchers from the Duke Margolis Center for Health Policy, surveyed manufacturers and payers about their experience negotiating and implementing VBAs between 2014-2017. This analysis found that most VBAs (about 3 in 4) are not publicly announced and therefore, previous analyses that rely solely on publicly available data likely underestimate the commitment of biopharmaceutical manufacturers and payers to adopting value-based payment approaches. The study also notes several barriers to implementing value-based contracting, including regulatory barriers like the anti-kickback statute and Medicaid Best Price.
- “Regulatory Barriers Impair Alignment of Biopharmaceutical Price and Value.” This analysis found that much progress has been made in the area of VBAs, but there are still regulatory and legal barriers standing in the way of advancing value-based agreements in health care. NPC research has identified not only the challenges biopharmaceutical manufacturers and both public and private payers face when developing value-based agreements, but also potential solutions to enable both parties to effectively share risk.
Alternative Payment Mechanisms
As new policies for addressing health care spending are considered, it’s critical that proposed solutions do not unintentionally impede scientific research and innovation. Scientific research and innovation are pivotal elements to the development of transformative therapies, but the innovation should not stop with science. To ensure that promising treatments are delivering the best outcomes for patients, we need innovative thinking about the business side of health care as well. NPC has conducted studies on alternative payment mechanisms that can help address health care costs while improving patient access to needed medications.
- “Insurance Switching and the Mismatch Between the Costs and Benefits of New Technologies.” This analysis examines the disconnect between the short-term budget impact of innovative treatments and their downstream effects on payers and society. This study identified several financing challenges related to new innovative therapies and underscored the potential policy implications associated with contemporary health care payment mechanisms. Using an analysis of hepatitis C as an example, this study found that new curative therapies require substantial upfront investment, but reduce long-term costs significantly compared with years of living with the disease and its complications. However, immediate budget implications have led many insurers, including state Medicaid programs, to limit access to such therapies. This example illustrates that payers may decide to limit access, thus deferring the costs to future payers like Medicare, adding costs to the health care system and delaying access to treatments.
- Are Payers Ready to Address the Financial Challenges Associated with Gene Therapy?” This research underscores the need to implement new alternative payment approaches in conjunction with “well-developed risk management mechanisms upon which payers traditionally rely.” However, alternative financing approaches should be tailored to specific disease and therapy characteristics to be effective and could best be implemented as value-based agreements, provided the implications of the Medicaid Best Price provision and anti-kickback statute concerns are addressed.
More innovative and potentially curative therapies for life-threatening cancers and genetic disorders are now available or will be soon. But science is getting ahead of the health care system, which is not prepared to sustain the costs associated with these transformative treatments. The work of the MIT NEWDIGS FoCUS program, “focused on enhancing the capacity of the global biomedical innovation system to reliably and sustainably deliver new, better, affordable therapeutics to the right patients faster,” is of particular interest. NPC and a diverse set of collaborators are working with the MIT program, recognizing that “developing and delivering new, effective and affordable drugs to patients is a complex challenge involving manufacturers, regulators, payers, providers, academic researchers and patients—all of whom are operating within a dynamic social, political and economic environment. While the approach that each stakeholder takes may be appropriate in isolation, the divergent actions within this innovation ecosystem compromise our collective ability to serve the needs of patients effectively.”
A holistic approach to addressing health care spending is needed
In February 2018, NPC launched the Going Below the Surface (GBTS)  initiative, a research-first endeavor dedicated to unearthing and examining the drivers of health care spending in the U.S. NPC has assembled a diverse group of stakeholders as part of the GBTS Forum committed to asking the difficult questions while moving past the finger-pointing that is often found in these dialogues. Should health care resources be shared equally or geared toward the few who are most ill? Do we need to “dis-invest” in certain areas so that we can further “invest” in others? Collectively and collaboratively, the goal of the GBTS Forum is to provide clarity on how best to optimize health care spending so that patients receive the right care while simultaneously providing the right incentives to sustain next-generation innovation to improve patient well-being and health system efficiencies. Among the GBTS Forum’s first projects is to examine low value care as well as expand the dialogue regionally via townhall style programs. NPC also supports and serves on the Health Affairs Council on Health Care Spending and Value to help broaden the discussion. The Council is being co-chaired by your former Senate colleague from Tennessee, William Frist, MD, along with former FDA Commissioner Margaret Hamburg, MD.
Lastly, according to new research, it is important to consider a disease-focused approach when it comes to addressing health spending. We do not need blunt policy tools, as the management of some diseases is cost-effective, while others are not. What we need to do is develop policies that empower key stakeholders to make necessary changes at the disease level.
In conclusion, NPC shares your goal of identifying market-based solutions for improving health care delivery and addressing low-value care. We recognize that there is not a singular solution to solving this problem and are hopeful that market-based policy solutions, including implementing new benefit designs and alternative payment models, will move the needle in the right direction. To truly make progress on all the above, we need to remove barriers to value-based care and address other policy solutions aimed at low-value care. We also must ensure that all policy options under consideration align with free market principles and protect biopharmaceutical innovation.
Thank you for your consideration of our comments. We would be pleased to meet with you to expand further on our input, share our research, and continue this discussion. We also would be very pleased to have you, or a member of your staff, join one of the GBTS meetings to dialogue further on the tangible solutions. The combined impact of smaller changes can add up to significant outcomes.
President and Chief Executive Officer
National Pharmaceutical Council
Attachment: A Summary of NPC’s Current Research Portfolio
 Mafi J, Russell K, Bortz B, Dachary M, Hazel W, Fendrick M. Low-Cost, High-Volume Health Services Contribute The Most to Unnecessary Health Spending. Health Aff (Millwood). 2017 Oct 1;36(10):1701-1704
 Beaudin-Seiler B, Ciarametaro M, Dubois RW, Lee J, Fendrick M. . (2016). Available at: https://www.healthaffairs.org/do/10.1377/hblog20160920.056666/full/
 NPC Infographic. Available at: https://www.npcnow.org/publication/how-can-administrators-and-clinicians-reduce-low-value-care
 Fendrick MA, Buxbaum J, Westrich K. (2014). Available at: https://www.npcnow.org/publication/supporting-consumer-access-specialty-medications-through-value-based-insurance-design
 Center for Value-Based Insurance Design Center, University of Michigan. (2016). Available at: http://vbidcenter.org/a-dynamic-approach-to-consumer-cost-sharing-for-prescription-drugs/
 Mahendraratnam N, Sorenson C, Richardson E, Daniel G, Buelt L, Westrich K, Qian J, Campbell H, McClellan M, Dubois R. Value-Based Arrangements May Be More Prevalent Than Assumed. Am J Manag Care. 2019;25(2):70-76
 National Pharmaceutical Council. (2018). Retrieved June 25, 2018, from: https://www.npcnow.org/publication/regulatory-barriers-impair-alignment-biopharmaceutical-price-and-value
 Cutler D, Ciarametaro M, Long G, Kirson N, Dubois RW. (2017). Insurance Switching and Mismatch Between the Costs and Benefits of New Technologies. Am J Manag Care. (12):750-757