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2017 Healthcare

Industry Outlook
Navigate the Landscape
Avalere Health | An Inovalon Company

Avalere 2017 Outlook Embargoed until Thursday, January 12 at 1 PM ET


Avalere Health | An Inovalon Company


1350 Connecticut Ave., NW Suite 900
Washington, DC 20036

202.207.1300

Page 1

2017 Avalere Health, LLC

View of the Horizon


Dan Mendelson
President
This year will be the start of major environmental changes
for the healthcare industry following a shift in the balance
of power in Washington, DC and the states. We anticipate
repeal of the Affordable Care Act along with broader efforts
to restructure entitlement programs, which introduces the
potential for a range of new tax and other programmatic
ideas. Potential changes in Medicare, Medicaid, and the
individual health insurance markets bring both opportunities
and threats for companies operating in the space.
At the same time, we expect a continuation of many existing trends including, most importantly,
the shift from volume to value in healthcare markets. Medicare and federal government initiatives have
accelerated efforts to pay health plans and providers for value through the introduction of meaningful
quality-based payments. This momentum will position providers in the center of healthcare change,
leading to increased demands for data and a growing role for quality measurement in payment
systems. The way that value is defined and the specifics of value-based incentives will be key to
commercial success.

Policy Change /
Election Impact on Coverage
Drug Pricing Policy

Pursuit for Value /


Value-Based Payment
Quality Measure Development
Post-Acute Care Optimization
Outcomes-Based Contracting
Value Frameworks

Access to Care /
Commercial Benefit Design
Biosimilar Competition
Digital Health

A focus on the consumer is also a major facet of the environment that deserves attention. Digital health
technology will increasingly place the consumer at the center of decision making and change the way
patients access healthcare offering potential for engagement and strategic positioning. At the same
time, lower-cost insurance benefit designs (pioneered in exchange markets) with higher out-of-pocket
costs, more limited access to drugs, and narrower provider networks will continue to spread.
As you navigate this new environment, we look forward to working with you to leverage
Avaleres unique insights and data to devise creative solutions.

Avalere 2017 Outlook Embargoed until Thursday, January 12 at 1 PM ET


Page 2

Election Results Directly Affect


Insurance Coverage
The 2016 election results will have a profound impact on
certain aspects of healthcare policy, including individual market
coverage under the Affordable Care Act (ACA), Medicaid
program operations and funding, the future of private health
plans in Medicare, and fee-for-service Medicare payment
reductions. Overall, Congress and the new administration are
likely to embrace policies that cap government spending and
put more control into the hands of the states.

Government Markets Have Grown Under the ACA

Policymakers are likely to pursue


changes that cap government
spending and grant additional
flexibility to states and the
private sector.
Repealing and replacing the ACA is a top legislative priority for
2017, but full details of a replacement plan remain uncertain.
Insurance exchanges, individual and employer mandates, plus
the Cadillac and industry taxes are all likely to be discarded.
However, some of the insurance market reforms may be
maintained along with tax credits for coverage. The likelihood
of complete repeal of the Medicaid expansion is low, but
significant changes to the program are possible. Of the 31
states and DC that have expanded, 16 will have Republican
governors in 2017. Policymakers are likely to pursue broader
program reforms that allow states more flexibility either via
the waiver process or wholesale changes to federal program
rules. Additional efforts to limit spending in Medicaid are
expected to center on block grants or per capita caps.

Change in Enrollment by Source


of Insurance, 2013 to 2016

Avalere 2017 Outlook Embargoed until Thursday, January 12 at 1 PM ET


Policy Change / Election Impact on Coverage

Page 3

Expert
Perspective

Impact

Q: What do you expect to be included in an ACA replacement plan?


A: State-run high-risk pools are widely cited as an alternative for insuring chronically ill
individuals with complex health problems. Many replacement plans would also maintain
pre-existing condition exclusions while broadening the age rating bands. The key question
will be what level of tax credits are available to help pay for insurance premiums, since
subsidies have been a top driver of ACA enrollment among low-income individuals.
Q: How will these changes impact the cost of individual insurance?
A: Premiums in exchange markets rose rapidly in 2017 in response to low enrollment
and high healthcare needs among participants. Replacement plans are likely to
reduce regulation of benefits and increase flexibility of rating rules in an effort to lower
premiums. However, subsidies for coverage may also go down.

Health Plans /
ACA repeal will create broad disruption in the
individual market, and health plans will need to
redesign products to compete under new market
rules. In Medicaid, managed care is widely used
in most states, and health plans may experience
downward pressure on their payments from states
if block grants or other caps are implemented.
Providers /
Providers, particularly hospitals, have benefited
from ACA coverage expansions with a reduction
in uncompensated care and higher treatment
volumes. Changes in coverage or payment
rates without corresponding reductions in ACA
payment cuts could pose significant risk.

Q: How would states respond to capped Medicaid funding?


A: Each state would need to craft a custom solution to address budget pressure
that could include eligibility cuts, changes to benefits, or reductions in provider
reimbursement or health plan capitation rates. States with more limited programs tend
to fare better under budget caps relative to states with very generous programs and
higher costs.

Exchanges are already unstable.


While repeal is unlikely to take effect
before 2019, some markets could
collapse sooner.

Consumers /
The majority of Americans receive care via
employer coverage, which is largely unaffected
by the ACA. Those currently enrolled in
exchanges or Medicaid may experience a
significant impact, though changes are unlikely
to take effect before 2019.

Caroline Pearson

Avalere 2017 Outlook Embargoed until Thursday, January 12 at 1 PM ET


Policy Change / Election Impact on Coverage

Page 4

Drug Pricing Threat Diminished


But Not Forgotten
As insurance benefits across payer types continue to shift
liability for drug costs to consumers, it is not surprising that
many consumers rate drug prices as their primary concern
in healthcare. Public focus is also amplified by the growth of
spending on prescription drugs in Medicaid and Medicare.

Underlying Causes of Concern about Drug Prices


Will Continue to Drive Policy Focus
Policy activity is more likely to focus on transparency, market-driven
solutions, or changes to limit public program spending.

Political attention to drug prices


will continue to be driven by public
interest, but the focus will be on
market-driven solutions rather than
price caps.
Under the new administration, market-driven approaches to
addressing drug prices are likely to be debated and enacted
in the context of potential entitlement reform as well as
under vehicles like the re-authorization of the Food and Drug
Administration (FDA) User Fee Acts. These could include
policies to support broader use of outcomes-based contracts,
reforms to FDA, or ongoing efforts to increase transparency in
the system.
Rising spending in Medicare continues to attract attention and
could lead to benefit design changes aimed at stemming costs
in Parts B and D. While the proposed Part B demonstration
will not move forward, broader efforts to increase competition
and management of drugs in Part B could be considered. Also,
the Medicare Payment Advisory Commission (MedPAC) has
recommended a series of Part D changes that would benefit
some patients but increase costs for other beneficiaries.

Avalere 2017 Outlook Embargoed until Thursday, January 12 at 1 PM ET


Policy Change / Drug Pricing Policy

Page 5

Expert
Perspective
Q: Are there persistent risks for drug makers in this policy environment?
A: Congress and the new administration may feel pressure to act on drug prices in
2017, but they are likely to gravitate toward policies that promote competition, such as
accelerating drug approvals for therapeutic areas with limited treatment options. As the
year progresses, lawmakers may need pay-fors to achieve other policy goals without
increasing the deficit, and could look to the biopharmaceutical sector as a source of
offsets. Finally, state action on transparency is likely to continue.
Q: How are companies voluntarily addressing concerns over prices?
A: Pharmaceutical companies are organizing internally to align with a value strategy that
will guide everything from government affairs engagement to go/no-go decisions about
product. For some products, they are also rethinking rebate arrangements with health
plans to pursue outcomes-based contracts. A few companies have released public
statements including commitments to limit price growth to single digits.
Q: What should companies do now to position for the future?
A: The election focus on drug prices was driven by public concern. That scrutiny will not
go away, and industry should use the opportunity to propose meaningful solutions that
support long-term innovation.

Scrutiny over drug prices


is not going away, but industry
has an opportunity to propose
meaningful solutions.

Impact
Manufacturers /
Drug companies need to continue preparing
to defend against offsets and state-level
transparency initiatives that could harm product
development and profitability. Companies may
want to recommend reasoned policies supporting
transparency, outcomes-based contracts, and
improvements to FDA approval processes.
Health Plans /
Health plans continue to focus on managing
costs, including drug spending, particularly
as the specialty drug pipeline is anticipated
to grow. Payers are beginning to engage in
various strategies, including outcomes-based
contracting, and may support policies that
allow deeper rebates and encourage more price
transparency in the market.
Consumers /
Consumers will continue to be exposed to drug
costs, particularly if benefit designs become
less generous as part of ACA reforms. This will
continue to put pressure on health plans and
manufacturers.

Elizabeth Carpenter

Avalere 2017 Outlook Embargoed until Thursday, January 12 at 1 PM ET


Policy Change / Drug Pricing Policy

Page 6

Value-Based Payment Becoming Reality


for Providers
Value-based payment will continue its march from concept
to reality in 2017 as public and private payers increasingly
adopt these models across a wide array of conditions and
provider types. While the specific vehicles used to implement
payment reform could change in the future, there remains broad
bipartisan support for models that move away from fee-forservice and toward paying for quality improvement and
cost control.

CMMI Has Accelerated Payment and Delivery


Reform in Public Programs

Vehicles like CMMI could be modified


under a new administration and
Congress, but momentum for payment
reform will continue.
The Center for Medicare and Medicaid Innovation (CMMI) has
proposed nearly 50 demonstration programs, including three
mandatory Medicare payment models currently slated to launch
in 2017; although, the new administration and Congress may
halt some of them. These models would establish bundled
payments for specific conditions, including joint replacement
and cardiac conditions. Implementation of the Medicare Quality
Payment Program will likely move forward as planned and tie all
Medicare physicians payments to performance. It will further
encourage providers to enter into advanced alternative payment
models (APMs). As the payment landscape transitions, attention
will pivot to how providers begin to enact changes in the way
care is delivered to achieve better results.

Avalere 2017 Outlook Embargoed until Thursday, January 12 at 1 PM ET


Accountable Care Organizations (ACOs) have proliferated


across payer types, although the highest enrollment is
in commercial ACOs.

Pursuit for Value / Value-Based Payment

Page 7

Expert
Perspective
Q: How much impact have early value-based models had on cost?
A: Although we have seen relatively modest overall impact of the new APMs in terms of
bending the cost curve, those results mask variation across providers. We are actually
seeing a big impact for those providers that are prepared to bear risk and a small impact
for those playing catch up.
Q: What tools do providers need as they prepare to face more APMs?
A: New ACO service providers are emerging to support providers with a combination of
technology, data infrastructure, and ancillary care management services. These entities
help fill existing gaps in provider capabilities, including data reporting internally via
performance dashboards and externally to payers.
Q: How are providers using data to inform care delivery?
A: They are focused on using data to identify high-risk patients, determine individual
care needs, and deliver services differently. Those data capabilities can also extend
human resources via care management support services aligned to varying levels of
patient need.

We are now at the point where


value-based payment isnt just
experimentation it is the way
providers need to operate.

Impact
Providers /
Value-based payment shifts responsibility for
cost management and quality improvement
to providers, which must change the way they
deliver care to improve results. Providers will
increasingly seek support from third-party
vendors to supply real-time data and strategies
that improve care delivery.
Health Plans /
Adoption of value-based purchasing in public
programs reinforces similar activities being
pursued by private health plans and can effect
greater change in provider behavior. However, the
proliferation of discrete value-based payments
with different incentives and quality measures
brings the risk of creating provider confusion.
Consumers /
Consumers will need to evaluate how patient
priorities are measured and rewarded in
value-based payments, including whether the
outcomes used as a basis for provider payment
are meaningful to patients.

Josh Seidman

Avalere 2017 Outlook Embargoed until Thursday, January 12 at 1 PM ET


Pursuit for Value / Value-Based Payment

Page 8

In Response to Gaps, Quality Measures to


Proliferate Rapidly
In order to pay providers and health plans for delivering highquality care, there must be accepted, meaningful quality
measures to assess performance. However, the existing
measure development process is slow and costly. It requires
significant financial investment to develop a measure and
shepherd it through to endorsement and there is no
guarantee that the measure will be linked to payment in any
public program. As a result, today there remain significant
measurement gaps for certain diseases, settings of care, and
patient-reported outcomes.

QCDRs May Lead to a Multitude of Quality Measures


Relative to Standard Approach
Standard Approach

Because of the rigorous evaluation by the national


consensus organization, the current process is
lengthy, costly, and leaves gaps in the system.

QCDR Approach

In order to fill those gaps, the QCDR approach


allows professional societies to develop
measures that are relevant to their specialty.

QCDRs empower provider groups


to define what quality means to
their profession, but may lead
to a plethora of redundant or
discordant measures.
In an effort to fill these gaps, the Medicare Quality Payment
Program provides a mechanism to generate specialty-focused
measures to fulfill reporting requirements through qualified
clinical data registries (QCDRs). By allowing providers to choose
which measures they report on, the new process eliminates
measure endorsement and stands to produce a proliferation of
measures that have not been evaluated by a third party.
Providers will also require improved information technology (IT)
systems to handle these new reporting requirements across a
multitude of measures. New medical technologies will need to
align with these measures to achieve commercial success.

Avalere 2017 Outlook Embargoed until Thursday, January 12 at 1 PM ET


Pursuit for Value / Quality Measure Development

Page 9

Expert
Perspective

Impact

Q: How will the advent of QCDRs empower the provider community?


A: From the professional society perspective, the ability to define quality for themselves is
a huge gift. For instance, hematologist/oncologists can say, This is what good quality care
looks like for us, and begin reporting on it and being paid for it.
Q: Is there a threat of overproliferation of measures?
A: Absolutely. You may have four different specialty societies creating redundant
measures for diabetes. How is the federal government going to pick among them and
aggregate the data to assess good quality care? From providers perspectives, they will
need better IT systems to streamline operations as they report on a growing number of
measures.
Q: What will be needed to build a more effective measurement system?
A: Measure development is a means to an end, not the final destination. Creating more
measures simply to meet requirements for more data reporting will not achieve higher
quality. We need to encourage a system that elevates strategic partnerships to develop
measures that are both meaningful and relevant to patients, to define how good quality
care is delivered by providers, and properly incentivize attainment of those goals.

There is an opportunity for


stakeholders to define, measure,
and reward quality care that
appropriately uses medical
technologies and ultimately
improves patient outcomes.

Providers /
The administrative burden of quality measure
reporting is a concern for providers. However,
QCDRs are becoming a preferred reporting option
in the short run, as they give providers greater
flexibility to report on measures that may be more
relevant to their practices. Still, the proliferation
of measures without harmonization may create
an overwhelming reporting burden for providers
as well as for the federal government, which
will need to aggregate the data to determine
benchmarks.
Consumers /
Consumers can benefit from the development
of more measures that increasingly focus on
outcomes rather than process particularly
measures that address priority areas, such as
functional status, quality of life, and shared
decision making.
Manufacturers /
Quality measures can impact a products uptake
and utilization. QCDRs shift power to specialty
societies to define quality and determine whether
and how the use of drugs and devices is included
in the measures.

Kristi Mitchell

Avalere 2017 Outlook Embargoed until Thursday, January 12 at 1 PM ET


Pursuit for Value / Quality Measure Development

Page 10

New Models of Care Demand Optimal


Use of Post-Acute Care
Currently, Medicare spends almost $60 billion annually on
post-acute care, helping beneficiaries recover from inpatient
hospitalizations. Utilization of post-acute care varies significantly
across the country and by payer, which can have a profound
impact on cost and quality.

Optimizing Patient Placement Using


Data-Driven Analytics
To help facilities determine optimal site placement, Avalere and Inovalon are
using data from millions of Medicare patients to assess where patients will fare
best after a discharge.

For instance, hospital discharge patterns vary greatly between


Medicare fee-for-service (FFS), in which care is less tightly
managed, and Medicare Advantage (MA) and commercial
payers, which more proactively direct site-of-care selection.
Patients enrolled in MA and private health plans are almost four
times less likely to be discharged to post-acute care compared
with Medicare FFS beneficiaries.

Post-acute providers have an


opportunity to partner with hospitals to
improve performance and lower costs
as payment reform continues.

LTACH:
Long-Term Acute
Care Hospital
IRF:
Inpatient
Rehabilitation
Facility
SNF:
Skilled Nursing
Facility
No PAC:
Post-Acute Care

Increasingly, payers and providers are seeking to optimize


post-acute care patterns to improve patient outcomes, reduce
readmissions, and lower costs. In order to ensure patients
are getting the care they need, hospitals are identifying highperforming post-acute care partners to help them improve care
transitions and care coordination after discharge.

Avalere 2017 Outlook Embargoed until Thursday, January 12 at 1 PM ET


Pursuit for Value / Post-Acute Care Optimization

Page 11

Expert
Perspective

Impact

Q: What is driving the increased focus on post-acute care utilization?


A: The post-acute care industry is shifting as new models of care are creating incentives to
better coordinate care across settings. Previously, care was siloed and each care setting
would treat the patient independently with little regard to the patients long-term outcomes.
Today, new models are driving providers to work together to fill these gaps.
Q: What are hospitals doing to ensure patients get the care they need?
A: Increasingly, hospitals are focusing on what is happening outside their four walls.
Hospitals are developing relationships with post-acute care providers to ensure that they
are appropriately managing the critical time period after a hospitalization.
Q: What tools can help facilities make this decision?
A: Despite working together more closely, providers often struggle to identify which
post-acute care settings are most appropriate for which patients. To support optimal site
placement, facilities need access to data that can help them determine where patients
will fare best. By combining clinical expertise with data-driven analytics, it is possible to
reduce readmissions by identifying a patient-centered care pathway to
optimize placement.

Most hospitals dont know where


their patients go after discharge.
Success under bundled payments
hinges on directing patients to
high-performing post-acute
care providers.

Providers /
Hospitals will look to collaborate with postacute care providers that can help them manage
changes in payment policies at a low cost while
delivering the best outcomes. By investing in
wraparound care management services that
reduce readmissions, post-acute care providers
can make themselves effective partners to
hospitals participating in bundled payment
programs.
Consumers /
Matching patients to the optimal level of care
after hospital discharge can help minimize
complications and provide the necessary level of
supportive services. In some cases, discharging
patients to the home, rather than an institutional
setting, may be a more appropriate option.
Health Plans /
Payers increasingly understand that by actively
managing post-acute care and discharge
decisions, they can reduce costs while
maintaining or improving quality.

Erica Breese

Avalere 2017 Outlook Embargoed until Thursday, January 12 at 1 PM ET


Pursuit for Value / Post-Acute Care Optimization

Page 12

Outcomes-Based Contracting Shapes


Drug Purchasing
Innovative contracting, such as outcomes-based contracts,
is becoming more common in the U.S. as manufacturers
and payers respond to the health systems call for costcontainment as well as improved results for patients. Drugs
with a high-cost impact on payers be they specialty drugs
indicated for relatively narrow populations or lower unit cost
drugs used by broad populations can be the focus of
outcomes-based contracts.
Not all products will be good candidates. The size of the patient
population, ability to identify and measure clinical outcomes,
and existing competition and pricing dynamics within the class
may all affect product selection.

The new generation of outcomesbased contracting approaches


relies on novel and differentiated
real-world data and innovative,
scalable platforms.
Manufacturers are using novel and differentiated large-scale,
real-world data sources, which span payer types and allow for
provider-level analytics, to get a leg up and identify populations
and partners where impact is greatest. Most importantly,
innovative platform solutions can reduce the burden of
administering these contracts and expand outcomes data,
leading to more potential payer partnerships around value.

Avalere 2017 Outlook Embargoed until Thursday, January 12 at 1 PM ET


Pursuit for Value / Outcomes-Based Contracting

Page 13

Expert
Perspective

Impact

Q: How are outcomes-based contracts evolving?


A: The second generation of outcomes-based contracts is more focused on compounds
that address a wider population but may have lower per-unit costs. While generally focused
on the treatment of chronic conditions, outcomes-based contracts are increasingly being
viewed more broadly as tools for managing these conditions. In response, manufacturers
have shown increasing interest in bundling services with products in these contracts.
Q: How can technology expand the potential for outcomes-based contracts?
A: IT platforms can overcome traditional challenges around data gaps and outcomes
measurement. They use a range of claims and electronic health record data to more
effectively identify patients, evaluate product performance, and engage members to
improve outcomes.
Q: What has been the biggest obstacle to outcomes-based contracts?
A: The importance of being able to use real-world data in a sophisticated, predictive
manner cannot be underestimated. As just one example, tremendous amounts of data
need to be transferred, scrubbed, and analyzed for ongoing contract implementation
and adjudication. Companies are beginning to emerge with well-developed platforms to
support outcomes-based contracts, as the sophistication of these contracts demands
integrated data systems.

Amidst concerns about drug


prices, outcomes-based contracts
are a market-based solution for
addressing costs and improving
results for patients.

Manufacturers /
Outcomes-based contracts give manufacturers
the opportunity to engage health plans with
a real-world, data-driven approach toward
reimbursement that ties the drug price to product
performance and improved results for patients.
Health Plans /
Health plans report that many outcomes-based
contracts have not yet produced significant
financial savings. Even if the contracts do not
meet their economic goals in a first iteration,
many health plans view them as a bridge
for more constructive engagement with
manufacturers on cost containment, effective
care, and joint accountability for the achievement
of the best possible outcomes for patients.
Providers & Consumers /
Many contracts include additional support for
providers to identify patient populations who will
benefit the most from treatment as well as tools
to help increase compliance and adherence to
treatment plans.

Kathy Hughes

Avalere 2017 Outlook Embargoed until Thursday, January 12 at 1 PM ET


Pursuit for Value / Outcomes-Based Contracting

Page 14

Value Frameworks Must Evolve


to Encourage Adoption
In 2015, a series of new value frameworks were released
publicly by independent entities and provider groups, like the
American Society of Clinical Oncology, National Comprehensive
Cancer Network, and Memorial Sloan Kettering. These
frameworks sought to assess the relative value of products and
services. The framework launched by the Institute for Clinical
and Economic Review (ICER) goes further to recommend
value-based price benchmarks.

Stakeholders Recommend
Refinements to Value Frameworks
Across each of the value frameworks, stakeholders have recommended
improvements that seek to address perceived gaps to the traditional approach.

Value frameworks must measure


outcomes that are meaningful to gain
broad acceptance by patients.
Value frameworks have been designed for different purposes.
They could be used to inform decision making by patients
and providers or to assess product coverage by payers, but
have had limited impact on real-world decision making to date.
While CMS has previously suggested that value frameworks
could be used to set reimbursement rates in public programs,
such policies are unlikely to be adopted in the near term.
Nonetheless, concern over drug prices fuels continued
interest in refining tools that can provide an objective
assessment of value.
Stakeholder feedback on many of the frameworks has
highlighted gaps in transparency and the patient perspective.
This is the impetus behind new value framework initiatives,
including the Avalere and FasterCures Patient-Perspective
Value Framework.

Avalere 2017 Outlook Embargoed until Thursday, January 12 at 1 PM ET


Pursuit for Value / Value Frameworks

Page 15

Expert
Perspective
Q: Do you anticipate that winners and losers will emerge among the
multiple value frameworks?
A: Yes, a main determinant of the winners and losers will be the extent to which the
frameworks are adopted by the public sector. While ICER has made inroads here,
provider efforts should not be underestimated. Its a short road to adding a value element
to what they are doing today. I can envision different winners emerging for different
disease categories.
Q: How do you see responses to value frameworks shifting?
A: Anecdotally, payers welcome the movement, but they have yet to embrace any
single value framework and we dont see that changing dramatically. But I do see
manufacturers looking more critically at the data they have and the statements they
make in relation to the value of their products.
Q: How do you expect value frameworks to evolve?
A: There will be greater focus on reducing barriers to patients being able to participate
in these efforts and on integrating patient-desired outcomes. Avaleres collaboration
with FasterCures to develop a Patient-Perspective Value Framework is illustrative of the
evolution toward greater patient involvement in how value is defined. I also think there is
room for better integration into the broader, health-system-wide approach to value.

To meet the needs of the market,


manufacturers need to organize
themselves in a way that allows
them to engage in the value
discussion holistically.

Impact
Manufacturers /
Manufacturers risk having less control over
how the value of their products is defined.
Manufacturers will need to embrace a holistic,
organizational approach to defining and
articulating the value of their products and
developing the supporting data.
Health Plans /
Health plans already have well-established
systems for assessing product value for the
purpose of coverage and contracting decisions.
The frameworks may influence payer coverage
decisions, but they are not likely to replace
existing health plan processes.
Consumers /
Patients have criticized early value frameworks for
excluding patient-generated data and the patient
voice within the assessment process. Those
developing the next generation of frameworks
seek to address this criticism.

Claire Sheahan

Avalere 2017 Outlook Embargoed until Thursday, January 12 at 1 PM ET


Pursuit for Value / Value Frameworks

Page 16

Employer Benefits Are Shifting


Costs to Workers
To meet the needs of individual, cost-conscious consumers in
exchange markets, health plans have designed new products
that achieve lower premiums with higher out-of-pocket costs,
more limited formularies, and narrower provider networks. While
enrollment in the exchange market has remained small, the
impact of these benefit innovations will be more widespread.
As employers also seek to limit premium growth, some may be
increasingly willing to accept these leaner, more cost-efficient
benefits. Surveys of employer health plans from the Kaiser
Family Foundation show that individual deductibles have
increased 63 percent in the past 5 years, compared to only a 19
percent increase in premiums. Within pharmacy benefits, data
also reveal a rapid increase in the use of specialty tiers as well
as utilization management to control access to certain products.

Employer Market Remains Primary


Source of Coverage

Utilization Controls Are Increasing Rapidly in


Employer Coverage /
Utilization Management for Single-Source Drugs in 22 Classes

Once considered the most


generous coverage, employer
benefits are narrowing in response
to cost pressure.
All of these trends place the consumer at the center of the
healthcare purchasing decision. With greater exposure to costs,
employee behavior may shift, including choosing lower-premium
health plans, seeking care from lower-cost providers, or forgoing
services. To inform these decisions, employees will need better
data and technology to be empowered healthcare consumers.

Avalere 2017 Outlook Embargoed until Thursday, January 12 at 1 PM ET


Access to Care / Commercial Benefit Design

Page 17

Expert
Perspective
Q: How do employee needs change in response to evolving benefits?
A: As consumers are increasingly responsible for picking health plans that best meet
their needs, they will demand better shopping tools that enable them to estimate their
out-of-pocket costs under various coverage options. They also need data on provider
costs and quality to guide where they seek care as well as clinical support tools that
can inform decisions about appropriate use of healthcare services.
Q: How are drug benefits changing specifically?
A: Like other payers, in response to specialty drug costs, employers have become
more aggressive in managing pharmacy benefits, including creating specialty tiers,
increasing the use of coinsurance and drug deductibles, and adding prior authorization
requirements.
Q: How do policy changes impact the generosity of employer benefits?
A: The Cadillac tax would have imposed penalties on very generous plans, resulting in
a reduction of benefits. While the Cadillac tax may be repealed along with other parts
of the ACA, proposals to modify the tax exemption for employer benefits would have a
similar impact on generosity of coverage. Regardless of policy changes, employers will
continue to evolve benefits in response to cost pressure.

Consumers need easy-to-use


tools powered by reliable data to
guide their healthcare purchasing
decisions.

Impact
Consumers /
Changes in employer benefits will impact most
consumers, since employers are the primary
source of coverage in the U.S. Employees
should expect to pay for a growing portion of
their healthcare out of pocket and may want to
be more active in choosing when and where
to seek care.
Health Plans /
Health plans will begin to use the narrower
networks and formularies they developed for the
exchanges. Employers will expect health plans
to demonstrate how cost savings and quality
improvement can be achieved under these more
efficient products.
Manufacturers /
Drug benefits are rapidly narrowing in employer
health plans, which may limit patient access and
reduce medication adherence. Manufacturers
will need to consider a range of strategies
to position for success, including innovative
contracting approaches and potentially increased
patient assistance.

Kelly Brantley

Avalere 2017 Outlook Embargoed until Thursday, January 12 at 1 PM ET


Access to Care / Commercial Benefit Design

Page 18

Payers Respond to Biosimilar


Market Competition
By the end of 2016, FDA had approved four biosimilars, though
only two (Zarxio and Inflectra) are commercially available.
None has been approved by FDA as an interchangeable
biologic, which would allow it to be substituted for the
reference product by a pharmacist (subject to state law).
We know of eight other biosimilar applications currently
at FDA. Biosimilars introduce new competition into the growing
specialty market, though their impact on prices and access
remains uncertain.

First-Launched Biosimilar Zarxio Is Gaining


Access in Commercial Coverage
Tier Placement for Colony-Stimulating Factors in
Employer Health Plans, 2016

Payers will need to determine how they will cover biosimilars


relative to innovator biologics. Zarxio has rapidly gained
coverage in the commercial market, but does not seem to
have replaced other therapeutic alternatives at this time. An
open question is whether payers will substitute biosimilars for
innovator products or simply use this competition to drive price
discounts across all products.

FDA approval is only the first


step; market share is the crucial
achievement for sustainability
of the biosimilar market.
As biosimilars are still new in the U.S., it also remains to be
seen how prescribers and patients will respond to biosimilar
availability. While the regulatory standard requires biosimilars
to have no clinically meaningful difference from the originator,
the perception among providers about patient response and
tolerance is less clear. At a minimum, these products will
provide therapeutic alternatives for some patients, particularly
those who are newly starting treatment.
Avalere 2017 Outlook Embargoed until Thursday, January 12 at 1 PM ET

Access to Care / Biosimilar Competition

Page 19

Expert
Perspective
Q: What changes are needed to expand biosimilar access for patients?
A: For products to achieve market share, payers must respond to the launch of biosimilars
with coverage decisions and formulary placement that promote access to these products
and align financial incentives for use with providers and patients. Physicians need broad
education about the regulatory and scientific basis for biosimilar approval to make them
comfortable with prescribing biosimilars. FDA also plays a role in reviewing applications in
a timely manner and processing the approval backlog for biosimilar candidates, especially
those with action dates that are a year past due. Lastly, ongoing patent litigation threatens
to delay several product launches indefinitely.
Q: Will biosimilars actually reduce healthcare costs?
A: With only one entrant established in the marketplace, the current savings will be
modest. Greater potential for savings will exist when multiple biosimilars for the same
product or class begin competing with one another. Innovator products may also
reduce prices in response to biosimilar launches. Over time, payers may become more
aggressive in preferring some biosimilars over innovator products. Meanwhile, growing
real-world experience with biosimilars from Europe may further assure patients and
providers about the safety and efficacy of biosimilars.

As a gatekeeper, FDA will face


pressure to process approvals
and take actions that can facilitate
greater patient access.
Brenda Huneycutt

Avalere 2017 Outlook Embargoed until Thursday, January 12 at 1 PM ET


Impact
Manufacturers /
Manufacturers should prepare for more
challenging negotiations as competition
increases and health plans look for deeper price
concessions in exchange for coverage in classes
with biosimilar competition. Some health plans
are likely to broaden access by covering all
products, while others may be more apt to prefer
a subset of products.
Health Plans /
Biosimilars give health plans negotiating leverage
with manufacturers of innovator products and
could offer a way to moderate drug spending
while increasing access.
Providers & Consumers /
Providers should monitor coverage changes
for biologics and biosimilars. Providers may be
more likely to start new patients on a biosimilar
rather than switching patients who are already
using the innovator product. Consumers may
not experience any reduction in costs from
biosimilars, depending on their benefits, and
some Medicare beneficiaries stand to pay more.

Access to Care / Biosimilar Competition

Page 20

Digital Health Is Transforming


Patient Engagement
Healthcare stakeholders are shifting from testing to scaling of
digital health approaches that rely on information technology
to prevent and manage chronic conditions and care transitions.
Payers and self-insured employers are moving beyond
traditional wellness offerings toward more cutting-edge
programs to keep their members healthy. Providers, too, are
using digital technologies to better serve their patients, who are
seeking more meaningful ways to participate in their treatment.

Digital Health Establishes Virtual Communication


Between the Patient and Provider Supported by Data

Innovations like web-based coaching, cloud-based selfmanagement programs, real-time monitoring, and online urgent
care clinics are transforming how care is delivered and how
patients engage with the healthcare system. In a period of
continued cost and reimbursement pressures, organizations that
effectively incorporate digital health into their approach to care
will be able to drive margin expansion and improve patient care.

New technologies and tools


enable patients to connect with
their providers in more convenient
and cost-effective ways.
Tools that not only enhance patients experience but also
give patients the ability to be more involved in the collection
and maintenance of their own personal health information are
growing. The increased digitization of patient information will
feed the aggregation of data that can support shared healthcare
decision making.

Avalere 2017 Outlook Embargoed until Thursday, January 12 at 1 PM ET


Access to Care / Digital Health

Page 21

Expert
Perspective
Q: How is digital health changing how healthcare organizations operate?
A: Digital health is disrupting traditional business models. Companies are implementing
broad organizational changes that embrace innovation with solutions that begin outside
the traditional healthcare environment.
Q: In which areas do you see innovation focusing in the future?
A: Healthcare organizations need patients to view them as trusted partners. They must
be responsive to patients desires to have more control over their own care and in a
way that is convenient for them. Technological innovations will also focus on supporting
team-based care, expanding traditional definitions of a care team, and advancing
cross-organizational learning and coordination at the provider level.
Q: What are some of the barriers to the adoption of digital health tools?
A: Digital health tools must be built based on a strong understanding of the end
users needs; otherwise, they will not be successful. To date, lack of financial
incentives for providers to use digital health tools has been an obstacle to more
widespread adoption. As we align the consumer need with payers and providers,
engagement will continue to rise.

Efforts to improve care are no


longer bound by the four walls
of a hospital or doctors office.
High-tech, high-touch solutions
are growing as a way to improve
care while lowering costs.

Impact
Consumers /
Digital health tools put patients in the drivers
seat. Innovators in digital health will look to
patients to gain a stronger understanding of their
needs and pain points to develop solutions that
are engaging and sustainable.
Providers /
Health systems must define themselves beyond
the clinical services provided; they must take on
a new view of services and products that engage
patients early and maintain that connection
following a more traditional visit or hospital stay.
Health Plans & Manufacturers /
Digital health offers mechanisms to activate
individuals apart from their clinical events and
engage patients in new environments. This
creates opportunities to improve care via better
medication adherence and ongoing health
management in a lower-cost, more efficient
mode of delivery.

Katherine Steinberg

Avalere 2017 Outlook Embargoed until Thursday, January 12 at 1 PM ET


Access to Care / Digital Health

Page 22

About Us
Avalere is a vibrant community of innovative thinkers dedicated to solving the
challenges of the healthcare system. We deliver a comprehensive perspective,
compelling substance, and creative solutions to help you make better business
decisions. As an Inovalon company, we prize insights and strategies driven
by robust data to achieve meaningful results. For more information, please
contact info@avalere.com.

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An Inovalon Company
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