Could a subscription model spur innovation in US healthcare?

The current reimbursement system in the United States discourages some forms of innovation in healthcare. A good example is the development of new antibiotics that are not needed now but may be needed in the future. A subscription-based pricing model can address this issue.

Standard reimbursement methods for innovation may create incentives for the development of high-value innovations in healthcare. One solution is the development of a “Netflix-like” subscription model that requires a subscription fee to be paid for access to medicines and treatments. Such models are already in use in the UK, Australia and Sweden.

Consider antibiotics. Developing new antibiotics to save lives should be good business, especially as the threat of drug-resistant microbes creates a constant demand for new drugs. New antibiotics must compete with low-cost generic drugs that keep prices low for most clinical uses. Moreover, new antibiotics, even if they may be of great value in the future needed to treat pathogens that are resistant to current therapies, do not currently have clear advantages over existing drugs. cannot set a higher price.

Individual patients and health plans also underestimate new antibiotics. This is because they do not consider the public health implications of protecting the general public from drug-resistant microbes when determining the price they are willing to pay.

Due to their low prices, antibiotics seem like a bad gamble, and many pharmaceutical companies refuse to develop antibiotics despite their obvious long-term value to patients and society. The result is a very thin pipeline of potential new antibiotics.

The Pasteur Act, currently under consideration by the US Congress, proposes to expedite the development of new antibiotics through a subscription model. Such pricing models could become an increasingly important feature in the health sector to stimulate valuable innovation and improve access to new therapies, especially very expensive therapies such as gene therapy. There is a nature.

To make the subscription model work more effectively in healthcare, innovators and leaders can do at least three things.

1. Clarify your purpose.

There are two types of subscription models. The first is helping create valuable options, such as stockpiling antibiotics for the rise of drug-resistant pathogens. The second is to extend access to expensive treatments to people who otherwise might not reach the market. The state of Louisiana used this second type of subscription model to give Medicaid and incarcerated people access to her hepatitis C antiviral medication.

Each model relies on a different kind of trust. The options model works only if subscribers (public and private payers) believe that the new treatments they are prepaying for will work as advertised. Part of the opposition to the Pasteur Act stems from the fear that subscription fees will be spent on inferior medicines. Increasing trust in the value of options is key to making this subscription model acceptable to governments, payers and providers.

The access model starts with treatments that everyone already agrees are of value to patients and aims to make them available to the widest possible patient population. Essentially, in exchange for a subscription fee, the pharmaceutical company agrees to make the drug available at a low unit price. The issue of trust here is different. Pharmaceutical companies must believe that their subscribers can reach patient populations that were not achievable with traditional pricing.

2. Negotiate carefully.

Both types of subscription models are applications of a common pricing strategy economists call two-part pricing. This strategy is familiar to anyone who has been to a bar with a high cover charge but relatively low drink prices, or a health club with a membership fee and a small per-workout surcharge. The high membership fee guarantees the company earnings regardless of how many drinks they drink or the exercise classes they attend.

A two-part tariff has several advantages. In the case of new antibiotics, pharmaceutical companies can make a profit even if payers or providers have spares of the drug. A two-part pricing strategy can also increase market size compared to traditional dose-by-dose volume-based pricing.

However, negotiating subscription fees is difficult because the fees determine how value is distributed between innovators and consumers. Too high a subscription fee allows pharmaceutical companies to make even higher profits than traditional pricing. In contrast, an overly aggressive “take or leave” offer by a large purchaser may result in lower profits for pharmaceutical companies than traditional pricing.

By agreeing on a few principles upfront, you can successfully negotiate a subscription fee. For example, parties can set limits on the use of bargaining advantages. Such leniency could take the form of rules or understandings that associate revenue under subscription models with a portion of revenue under traditional pricing. Alternatively, the parties may agree to share equally the added value created by the subscription model.

3. Align with professional and social norms.

Our research on innovation shows that healthcare providers and society at large may greet potentially valuable innovations in health with indifference or contempt if they do not comply with professional and social norms. I understand. Particularly provocative are new clinical or business practices seen as promoting financial gain at the expense of ethical obligations and obligations. A case in point is the nationwide negative reaction to health maintenance organizations (HMOs) in the United States in the 1990s. At the time, HMOs were extremely unpopular and routinely cast as villains in popular entertainment.

There was a similar reaction to the subscription model. Some of the most effective opposition to the Pasteur Act comes from doctors who perceive the scheme to be ethically questionable because it advances the financial interests of pharmaceutical companies at the expense of patients.

In contrast, Louisiana’s access model is widely seen as making life-saving drugs available to people who otherwise could not afford them. It has been praised by Gottlieb and many others as a way to reduce health inequalities.

Subscription models are accepted to the extent they are seen by providers and the general public as promoting treatment and wellness goals. Payers and innovators should keep this lesson in mind when designing their models. Good.

The United States is a country of extraordinary innovation. The challenge for the healthcare sector is to use its capabilities to make healthcare better and cheaper. New reimbursement methods for innovation, such as subscription models, play a key role in addressing this challenge.

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