A Review of Alternative Payment Models and their Impact on Health Care

The current U.S. drug-reimbursement model is built on rebates, but these rebates often don’t address key problems, according to a presentation from Jane Barlow, MD, MPH, MBA, and colleagues at AMCP Nexus 2019.

According to the presenters, these problems include matters of drug performance and patient outcomes, the durability of the drug effect, the true value of the drug, personalization of medicine, alignment with value-based payment strategies in other areas of health care, and buy-and-bill drugs. The presenters noted that alternative contracting is expected to be most common in extremely expensive therapies. They go on to say that a large number of these high-cost therapies are coming for rare disease treatments, including orphan drugs and cell/gene therapies.

The presenters added that the average increase in intra-category competition is now 65% due to the biotech super-window from 2012 to 2018, as well as many overlapping approaches to the same problem. More numerous competitors within markets for this small patient populations, leading to revenue streams with shorter tails, more difficult launches, and the compression of market multiples.

Risk-sharing contracts are less likely in oncology, with the oncologists having the power of choice rather than the payer. Compendia are frequently used as a basis for coverage rather than just FDA approvals; compendia guidelines are both up-to-date and allow wide latitude for providers. Buy-and-bill techniques provide significant income for oncology, but this effect is less pronounced in other specialties. Oncology practices are widely distributed as well, with many call points and room for local preference.

ICER and Alternative Contracts

Barlow went on to list key regulation, data, and strategy as the three challenging areas for alternative contracts, adding that the easiest contracting measures to assess may not always be the most important and that different data sources bring different levels of complexity. The presenters said that ICER is increasingly the de facto health technology assessment for the U.S., being the closest thing we currently are to a standardized evaluation approach. The following points were raised regarding ICER in health technology assessment.

  • Moved from niche to coverage of virtually all new drugs
  • Payers routinely and formally use ICER reports in their P&T process
  • Moving towards policy, too: taking worldwide lead on HTA of curative therapies
  • The process is increasingly standardized, transparent
  • Look at value from 2 perspectives: Long-term value-for-money (QALY) and short-term affordability

Alternative contracts could impact price, necessitating engaging the administrative, strategic and structural barriers that to be addressed to facilitate alternative financing tactics. Because many new treatments are for orphan diseases with expedited FDA review, they bring a concomitantly high medical expense on top of the therapy cost, and due to the emergence of value-based contracting in most aspects of the delivery system, the presenters suggested that now is the time for alternative payment models.



Longman, R, Barlow, J, et al. Alternative Payment Models: Transitioning to Pay for Value. Presented at: AMCP Nexus 2019; October 29 – Nov 1; National Harbor, MD.