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(originally published by Booz & Company)


Global Lessons for Controlling Healthcare Costs

This trend is not restricted to developing nations. Payors and pharma companies in the U.S. are showing significant interest in designing comparative effectiveness into the clinical trials for new therapies. Comparative effectiveness research, which is commonly used in the European Union and is growing in use in the U.S., seeks to determine how a given therapy ranks against alternative therapies and, thus, determine whether it represents a true improvement in cost-effective care. Comparative effectiveness is one key criterion to determine drug reimbursement prices under the most recent German healthcare reform, AMNOG. In the past, the German system allowed “free pricing” (although in truth many measures to contain drug costs and prices had been used before). Today, however, the principle of value-based pricing is the key paradigm. The new approach takes into account the medical outcome of the drug’s studies, the time of the drug’s introduction (assuming comparable efficacy of the followers, only the first drug in its class that makes it to market will get the full price for innovation), and comparative costs (costs compared with existing standard therapy costs per day per patient).

Government agencies from widely diverse health systems are increasingly looking across national borders for lessons on improving the access/care/cost equation, whether in the form of government actions or enhanced private-system approaches intended to supplement the public model.

2. Direct reference. Direct reference is an economical means of improving care and reducing costs by adopting proven medical standards and/or pricing models developed in other healthcare systems or by international organizations. As a result, the adopting payors can avoid the infrastructure and cost associated with establishing standards.

A good of example of direct reference can be found in Europe, where Germany and the United Kingdom use value-based approaches to setting pharmaceutical prices. In turn, a number of other European nations simply adopt those pricing structures based on a price basket that references the drug reimbursement prices in Germany, the U.K., or both. Turkey uses a reference pricing system, in which a basket of the drug’s pricing in France, Spain, Italy, Portugal, and Greece, as well as the country of production and country of export, are considered in setting price ceilings and floors.

This trend has significant implications for pharma companies. For example, as certain countries encounter serious economic stress, some are taking less nuanced approaches to across-the-board price cuts, which could be emulated more broadly: In December 2010, Greek hospitals began issuing non-interest-bearing bonds for payment to suppliers; additionally, Greece has both issued stiff mandatory reimbursement price cuts in 2010 and put growth limits on drug prices by cutting by 2.5 percent the prices for new drugs whose sales grew by more than 5 percent in one year.

The widespread adoption of ICD-10 codes by countries is another example of direct reference. ICD-10 (the 10th revision of the International Statistical Classification of Diseases and Related Health Problems) was developed under the auspices of the World Health Organization. It is a standardized system of codes for diseases and other health problems. These codes facilitate the statistical analysis of illness, which enables payors to better control costs and improve care. They also enable faster, more accurate provider reimbursement. ICD-10 is used in more than 100 countries in the reporting of health statistics; it is used by payors in at least 25 countries to determine resource allocation and reimbursement.

3. Direct investment. The third common form of global outreach is direct investment by private insurers. Insurers are seeking not only to leverage their existing capabilities and capture new revenue streams, but also to gain access to the practices and knowledge in these markets.

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