Friday, July 15, 2022

What Manufacturers Need to Know About Alternative Payment Models

Today’s guest post comes from Carolyn Zele, Senior Manager of Solution Enablement at MMIT.

Carolyn explains the advantages of alternative payment models (APM) for measuring and rewarding value and outcomes in our healthcare system. For more on how APMs measure value, click here to learn about MMIT’s Pulse Analytics Solution.

Read on for Carolyn’s insights.

What Manufacturers Need to Know About Alternative Payment Models
By Carolyn Zele, Senior Manager, Solution Enablement, MMIT

Much has been said about healthcare’s shift from a fee-for-service model to a value-based care (VBC) model—and for good reason. With 50% of clinical interventions resulting in unknown effectiveness, and 20-40% of health expenditure wasted on unproven or unnecessary treatments, VBC models can help reduce costs and inefficiencies for patients, providers and manufacturers.

Yet while many industry stakeholders are quick to support the idea of tying compensation to a model that delivers more value and better outcomes for patients, the conversation stalls when discussing the particulars of reimbursement. After all, how do you measure value?

Enter the alternative payment model (APM), a payment approach that helps define value and gives added incentive payments for providing high-quality and cost-efficient care. While the idea behind these models is the same, there are many types of APMs—each of which gives providers a different kind of financial risk or opportunity based on performance. Plus, they can apply to a specific clinical condition, care episode or population.

One example is the Oncology Care Model (OCM), developed by the Center for Medicare and Medicaid Innovation (CMMI). The OCM is a payment and care delivery model that consists of a two-part payment system: a per-beneficiary payment and a performance-based payment for providers. Another is the Comprehensive Care for Joint Replacement Model, a CMS-developed model that allows providers to share in savings if they keep costs below the target price while maintaining quality standards.

While there are many variations, APMs help healthcare stakeholders (payers, manufacturers and providers) put a measurable framework around the value of care. As a result, they’re likely to hasten the shift toward value-based care—if the metrics are measurable.


APMs hold a lot of promise, but there are many difficulties when it comes to implementation. Let’s go back to the original quandary: How do you measure value? Defining and assessing the value of care likely involves a great deal of data and analysis. However, many organizations struggle with systems integration and use isolated technology platforms across multiple data vendors and providers. Others have yet to be brought up to speed when it comes to things like adopting electronic health records or developing a patient portal. Plus, many payers and practices have limited internal resources (from a people and a technology standpoint) and have difficulties accessing clinical data and sharing it across the organization.

Let’s look at one example of the quality metrics for the OCM. Overall cost savings is one of the OCM’s quality measures. How do you measure savings? What do you compare it to? You may compare total costs over time to see if there’s a per-patient reduction in cost. This might be a simple method, but is it a true measure of value? Should we couple that with a reduction in adverse events, a reduction in ER visits per patient, or a reduction in hospitalizations for related and treated diagnoses? These data are hard to collect since they might be sitting in multiple databases. And not only is it difficult to get, but it’s also difficult to analyze.

These issues are major obstacles to getting stakeholder buy-in. And yet, while the barriers to widespread adoption are many, the use of APMs has increased steadily in the past two years. In 2020, commercial adoption of APMs was 36% and Medicaid adoption was 35%, and nearly 41% of healthcare payments, representing 80% of covered lives, were reimbursed using an APM. Plus, 87% of payers believe that APM adoption will continue to increase.

Clearly, APMs aren’t going away. So what do pharma companies need to know to ensure that they can prove the value of their products?


A value-based approach can expand manufacturers’ opportunities for reimbursement. If pharma organizations can understand APMs, they’ll have insight into how payers are assessing value—and what that means in terms of coverage for their product. Using this information can help pharma companies improve their contracting efforts for better reimbursement and rebating.

More specifically, if a manufacturer knows the details of their target IDN’s APM, they can provide the account team the data that they need to help them measure value (per the APM’s parameters). This creates an opportunity to contract for something other than a traditional rebate. They can even restructure the rebate agreement based on value, perhaps to include covering the cost of their product if the patient doesn’t respond positively to treatment. Returning to the OCM example I mentioned earlier, this alone will reduce the overall costs per patient per the OCM’s quality metric. If the patient does respond positively, no rebate will need to be paid. Everyone walks away having spent less money than they thought.

Also, given the many disparate data sources—from electronic medical records to claims data, specialty pharmacy data and disease registries—pharma companies can show health plans both current and future trends, as well as gaps where patients aren’t receiving quality care. They can also show where new products will increase value and meet the IDN’s quality metrics.

To get the most out of APMs and help facilitate the shift toward value-based care, health plans, providers and manufacturers will need to work together to achieve a model where everyone can benefit, and where each patient can get the best possible outcome. Manufacturers who keep an eye on the future of healthcare—and stay one step ahead—will be well-positioned for future success.

To see how MMIT can help you understand APMs and how they measure value, learn more about our Pulse Analytics solution.

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