Digital Therapeutics – A Potential Game Changer in Value Based Drug Purchasing agreements

Value based drug purchasing

With the year ending, The Centers for Medicare and Medicaid Services(CMS), United States of America, declared the implementation of a revolutionary rule that supports value-based purchasing arrangements for Medicaid drugs. The new rule, officially to be implemented in January 2022, promotes value based purchasing agreements between payers, states and drug manufacturers where a drug will have multiple price points based on evidence based outcomes eg. reduced hospitalizations, reduced check ups etc. This will help private payers & states to pay based on a drug’s outcome and not a flat fee, thus saving a lot of capital.

Now, Let’s talk about How a possible alliance with Digital Therapeutics(DTx) can positively impact RWE effectiveness.

DTx has gained strong momentum during the pandemic where people have adapted to the digital medium to monitor their health. The emergence of DTx has proved beneficial especially in reducing lab visits, treatment adherence and subsequently better clinical outcomes.  From the Payer’s perspective, reduced hospitalization of the patient would mean cost saving for the overall cost of care, reduced In- Patient Department (IPD) incidences. Till date with the standard purchasing agreements, often Private Payers and states ended up with rising hospitalization and admission costs(On top of high Drug purchase prices). With the new Value based purchasing agreements prioritizing evidence or outcome based pricing, Payers can strongly negotiate outcome based contracts with pharmaceuticals, saving millions of dollars for federal and state entities. Lower Clinical outcomes and thus lower drug prices can help them offset increase in admission or hospitalization cost of care.  This incentivizes Pharma/Drug manufacturers to invest smarty in achieving better real world outcomes.

This is the exact area of specialization for Digital Therapeutics to augment the standard clinical trials with Real world data and effectiveness.

How can a DTx help in value based drug purchasing model?

  • Pharmaceuticals : By enabling them increase a Drug’s Real world effectiveness with a holistic digital health ecosystem of health coaches, Health Care Practitioners and software as a medical device.
  • Payor : Reducing Cumulative medical expenditure by reducing the risk of readmissions for Patients where lower health Outcomes have been observed
  • Patient : Improving Quality of life in the longer term

The new rule is stark opposition to the traditional system of fee-for-service or pay per visit. Instead, it proposes a provider to pay for outcome or easily said, wellness of the patient. The implementation of this rule could prove to be a game-changer in the country’s healthcare sector and set things straight for the drug manufacturers, commercial payers, and reduce misuse or abuse. Under the current regulations, the drug manufacturer faces restrictions in developing value-based payment therapies for their product and to report their Medicaid (A USA specific program that assists the poor for medical aid) best prices to CMS. The latest development, payers and pharma companies agree on the cost of a drug on the basis of value achieved rather than the volume produced. This will boost and incentivize the manufacturers to design new therapies on requirement basis, as opposed to the three-decade old regulation, shared CMS administrator, Ms Seema Verma. (2)

A marriage between DTx and Value-based drug purchasing agreements could lead to a fruitful association. Primarily because the agreement encourages negotiations for drug prices based on evidence-based outcomes, a salient feature of DTx. It will also open a channel for the patients to choose innovative therapies as per requirements. With enhanced quality and appropriate pricing, the outcomes derived would increase patient adherence, be more centred and effective.

When the VBP model is implemented in the USA next year, it will hopefully set the right precedent and encourage other economies to adapt the model. A robust VBA model coupled with advanced DTx could prove effective for the healthcare systems in every country.