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Two decades ago, our system for getting drugs from doctors’ prescription pads to their patients was in desperate need of a revamp. If someone had told the health care industry then that electronic prescribing would become common practice, many would have been skeptical at best. Yet this method is now the way that most people get and fill their prescriptions.

Today, the growth in health care spending is pushing the entire health care system to the breaking point. Both public and private payers, such as insurers and large corporations, are seeking new ways to shift away from paying for individual services, which rewards volume. One approach gaining traction is paying for services that provide real value for patients. In just a few years, value-based prescribing could become the dominant way to reimburse health care providers for the work they do. But many of those initiatives don’t include medications.

Physicians and payers have called for more outcomes-based drug pricing arrangements. These tie reimbursements to innovation and the value the drug provides, such as how well a drug reduces hemoglobin A1c (a measure of blood sugar) among people with diabetes, or alleviates skin plaques among people with psoriasis, or reduces fracture rates among those with osteoporosis, to name a few examples.


Yet the execution of such programs is limited to a handful of agreements between payers and drug makers, each one unique to the parties involved. Barriers to outcomes-based drug pricing include defining the metrics that determine a drug’s value, the challenge of sharing appropriate outcomes data, and the administrative burdens involved in handling and transmitting the data to assess whether the agreed-upon value was achieved.

Given the current fury over drug prices and the probability that it will only escalate, payers and the pharmaceutical industry must overcome these challenges and find ways to agree on a value-based drug reimbursement system. Without it, government price controls could become a reality, which I believe would stifle innovation.


Lessons learned by the industry as it moved from handwritten prescriptions to electronic prescribing could provide a road map for the expansion of value-based reimbursement for pharmaceuticals.

In the early days of that shift, I was working at a pharmacy benefit manager and also moonlighting as a retail pharmacist. I can attest to the hand-written prescriptions that often required some type of prior authorization or previous therapy in order to be covered by insurance. I also saw patients experience sticker shock when they saw how much they had to pay for a drug; some would walk away without getting their medication. Couple that with pharmacists having to decode illegible physician handwriting and the ever-multiplying number of available pharmaceuticals, and it was a prescription for disaster.

A small number of physicians quickly adopted electronic prescribing. But huge hurdles made it difficult for most physicians to join in. The main barrier was a lack of universal electronic standards for sending prescriptions from doctors to pharmacies and for sending prescription coverage information from payers to pharmacies.

The foundation for a solution was built when key stakeholders, including pharmacy benefit managers, retail pharmacies, health plans, and private insurers, put aside their competitive differences to achieve a common goal with agreed-upon outputs and transmission standards. Pharmacy benefit managers — CVS Caremark, Express Scripts, and Medco Health Solutions — came together to fund RxHub, a platform for providing information about prescription insurance coverage across multiple payers in a consistent format.

Not to be outdone, the National Association of Chain Drug Stores and the National Community Pharmacists Association united to form Surescripts, which provided a single channel for transmitting prescriptions to multiple pharmacies.

Overcoming their competitive natures, these industry groups decided to merge the two platforms into one, now known as Surescripts. That established a dominant network managing electronic prescribing transactions between payers, physicians, and pharmacies.

Government incentives for the adoption of electronic health records under the Affordable Care Act were added to these efforts and, against all odds, what seemed like an intransigent system underwent dramatic change. Today, electronic prescribing accounts for more than 75 percent of all prescriptions.

The current standoff on the stagnation of outcomes-based drug pricing arrangements should take a page out of the electronic prescribing playbook. Now is the time for payers and drug makers to find common ground and establish a path that will lead to the expansion of value-based reimbursement of pharmaceuticals.

The key steps to expand value-based reimbursement for drugs beyond unique, limited agreements should include establishing primary metrics at a medication class level for measuring the value of a drug for both patients and payers, as well as determining its benefits for society as a whole. Such metrics include better effectiveness, fewer side effects, increased quality of life, extension of life, and the ultimate outcome — cures.

With such information in hand, agreements can be made about the type of data and file sharing that will be needed. An independent, third-party hub that oversees these transactions could help accelerate adoption, efficiency, and eventual industry-wide innovation. And a carrot from the federal government, such as financial incentives within the Medicaid or Medicare programs, could fast-track the acceptance of value-based prescribing. These actions could result in a greater portion of medication reimbursement tied to the true value of drugs.

No doubt there will be other challenges to address. But what is most important is capturing the opportunity to create an infrastructure that moves value-based reimbursement beyond individual agreements and into widespread use.

If the industry doesn’t embrace this challenge now, the government may take it out of their hands in the near future.

Larry Blandford, PharmD, is executive vice president and managing partner at Precision for Value, a company that provides services and infrastructure to support life sciences companies as they develop new products in the age of precision medicine.