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Are Value-Based Agreements the Solution to High Drug Prices?

May 26, 2020

ShafrinBy Jason Shafrin, PhD, Healthcare Economist

Drug prices are high. We should only be paying high prices for drugs that have a major impact on patient health and quality of life. Ergo, we should be paying for drugs with value-based agreements (VBAs), right?

It turns out the answer is not so simple. A paper by Dubois, Westrich, and Buelt (2020) argues that VBAs have their place, but one should not expect them to revolutionize drug reimbursement. There are three principal limitations of VBA which explain their reasoning.

First, for VBAs to meaningfully affect overall health care spending, there need to be enough products that meet the ideal criteria for a value-based contract. Second, the drugs that meet these criteria need to represent a meaningful share of health care spending. Third, contracts need to be designed with enough financial risk to actually influence spending…it seems unlikely that each of the limitations above can be sufficiently addressed to the extent that solely using the VBA model will result in meaningful change to the US health system. Instead, VBAs offer an opportunity for the US health system to achieve higher value for dollars spent when implemented in combination with other value-based payment mechanisms and policies that disincentivize low-value care.

In short, VBAs are a useful tool in some situations—perhaps gene therapies where outcomes are easily observable and treatment costs are high—but due to the administrative cost and implementation challenges, they will never make up the majority of drug reimbursement.

Commentary posted with permission from Dr Shafrin.

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