A view from the Center

Deloitte's Life Sciences & Health Care Blog

What does value mean in health care?

This weekend I bought a new pair of running shoes at my local running store. While they were not especially cheap, I think I will get a lot of use out of them – they were custom fitted to my foot and should get me through the spring and summer running season. I have a mental calculation that if I buy an article of clothing or footwear and wear it enough times, it will have been a good value buy. But as a health care consumer, it is not as easy to make the same calculation. What does good value mean in an industry where the stakes are much higher (life or death) and more uncertain (whether the therapy will work for me or whether I’ll get better on my own) and insurance shields me from much of the costs?

The question of value in health care was on the agenda at the recent America’s Health Insurance Plans’ (AHIP) Policy Conference, which I was fortunate enough to attend. While the entire agenda was very interesting, the sessions I found most engaging took on the question of how to consider and assess value in the US health care system, especially as it relates to spending on high cost specialty drugs.

Recent reports have found that spending for prescription drugs is picking up, even after a slowdown in spending on other areas. Altarum reported that spending for prescription drugs makes up 10 percent of the total spend, and reported spending growth in January 2015 reached almost 12 percent.

Whether this is good news or not depends on where you sit. Certainly from the perspective of the life sciences industry, this is good news. Measuring the return from pharmaceutical innovation 2014, published by the Deloitte UK Centre for Health Solutions with support from Deloitte Consulting LLP, also revealed a positive trend: the return on investment from drugs is improving. On the other hand, AHIP represents health plans and thus a payer perspective. From a consumer perspective, the Deloitte Center for Health Solutions 2013 Survey of US Health Care Consumers showed that as consumers take on more health care costs and choice-based health markets develop, value will likely become a driving force that shapes their perceptions, decisions, and long-term relationships with health care providers, payers, and other stakeholders. Value, for consumers, increasingly extends beyond price to include the quality of the patient-family experience and interpersonal interactions.

The main topic taken on by the panel at the conference was whether the additional cost of these high cost drugs is “worth it.” This speaks to a key issue of how to think about value. Each of the panelists approached the notion of value in a different way:

Quality-adjusted life years: The first speaker, a physician in academic medicine, focused on cost-per-quality-adjusted life year. This metric considers value in terms of additional years (or months) gained, taking into account disability and other issues that affect quality of life. He made the observation that the economic incentives in drug development have been to develop products for which high prices can be charged in niche areas.

What the government can afford: The second speaker, from a pharmaceutical benefit management (PBM) firm, defined value in terms of public spending through federal and state budgets. To him and many others, higher spending in health care means that government has less money available for other valued services, like education. He also presented a framework for assessing value called the incremental cost-effectiveness ratio, which maps individual products based on their clinical effectiveness and price. For many PBMs, the value proposition is negotiating hard on price and shifting patients to products with lower prices.

What an individual can afford: The third speaker came from a consumer organization. To him, value represents the amount that Medicare beneficiaries spend on drugs and how that compares with their income (one report shows that half of Medicare beneficiaries have an income of $22,000, and cost sharing for some of the new specialty drugs can range from $7,000-12,000). His organization offers a number of recommendations, many of which focus on lowering drug prices.

Survival rates: A fourth speaker from a pharmaceutical manufacturer articulated value in terms of the longevity we all enjoy because of drug therapies. To her, drug therapies can prevent higher spending on care in other settings like hospitals. The Congressional Budget Office (CBO), which tends to be more conservative in its predictions on savings, acknowledges this point in its estimate that a 1 percent increase in use of prescription drugs in Part D can cause Medicare spending on medical services to fall by roughly 0.20 percent. She urged the audience not to single out drugs and to consider all sources of cost and value in the health care system.

Return on research and development (R&D): Later that day in a different session, one more speaker addressed the question of spending for drugs, proposing that policymakers could consider tying biopharmaceutical companies’ potential revenues for a drug to the amount of money invested in R&D. In his proposal, manufacturers that changed lower prices relative to R&D costs would gain a longer period of exclusivity.

What I find so interesting about these diverse perspectives is that each has validity. Stakeholders agree that health care spending in general, not just on drugs, is an impending crisis. Society is looking for better value for the money spent on health care. As an individual, I want drugs available to take care of my health care conditions, and I don’t want to pay too much for them out of pocket.

But I also understand that if we want investors to put their money into biopharmaceutical companies, they need to see opportunities for profit. A flexible regulatory environment may stimulate more investment.

Finally, from a political perspective, this Congress has signaled strong interest in bringing new cures to the market through the 21st Century Cures initiative (see the March 3, 2015 Health Care Current).

The sessions and discussion around some of these issues during the breaks and other networking opportunities at the conference allowed me to tune into a multitude of different perspectives on value and how to define it. In a health care environment that is increasingly focused on value-based care, stakeholders should continue to articulate what value means to them. These continued discussions will likely influence evolving payment models, future funding and priorities for federal agencies and future strategies for advancing biomedical innovation.

Stakeholders will come to the issue of defining value and measuring it with different vantage points. I think a lot can be gained by articulating those perspectives and having an open dialogue. All aspects of value are important – just as I considered my budget, color, taste and utility in valuing a pair of shoes.

Read the entire Health Care Current here and subscribe to receive weekly updates.

(Sources: Altarum Institute, “Health Sector Economic Indicators,” March 6, 2015; Kaiser Family Foundation, “Medicare Policy,” June 2011; Congressional Budget Office, Offsetting Effects of Prescription Drug Use on Medicare’s Spending for Medical Services, November 2012)

Author bio

Sarah is the managing director of the Center for Health Solutions, part of Deloitte LLP’s Life Sciences & Health Care practice. As the leader of the Center, she drives the research agenda to inform stakeholders across the health care landscape about key trends and issues facing the industry. Sarah has more than 13 years of government experience and has deep experience in public policy, with a focus on Medicare payment policy.