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Prospective Payment Systems: Opportunities and Threats for the Pharmaceutical Industry
Decision Resources, Inc., July 2006, Pages: 23
Cost-containment initiatives in the pharmaceutical market are expanding to include not only the retail sector but also the hospital sector. Until recently, hospitals were generally able to determine their reimbursement policies and decide how best to control their costs, but governments are becoming increasingly concerned about runaway costs and ballooning deficits in hospitals, a problem usually attributed to inefficiency, waste, inequality, and lack of transparency. In an attempt to reduce costs and raise the general standard of secondary care, governments in many countries are moving from cost-based reimbursement for services rendered to prospective payment systems, which pay providers a predetermined amount according to specific definitions. In this report, we discuss the growth of prospective payment systems in the United States, France, Germany, the United Kingdom, and Japan and assess the outlook and implications for the pharmaceutical industry.
Business Implications
The growth of prospective payment systems in the world’s major pharmaceutical markets appears to offer limited new opportunities for manufacturers of branded medicines. Such systems are meant to improve access to high-quality health care and eliminate geographic inequalities in treatment, but they are also clearly intended to reduce costs—potentially including pharmaceutical expenditures.
In Medicare’s outpatient prospective payment system (OPPS), new technologies that cannot be readily accommodated within an existing ambulatory payment classification (APC) group can qualify for reimbursement by one of two methods: inclusion in a new technology APC group or to be granted transitional pass-through payment status. A new technology APC is created only for procedures or services that can neither be included in an existing APC group nor meet the conditions for pass-through drugs. Transitional pass-through payments apply to new drugs, biologics, and medical devices that complement an existing service but are too expensive to be included in existing APC groups. To qualify for this status, a new technology must have been on the market for no more than two to three years and must be more expensive than existing therapies.
Continued expansion of prospective payment systems appears very likely. With the steady growth of consumer-directed health care, U.S. residents are becoming increasingly aware of opportunities to curb health care spending. Commercial health plans may soon decide that the time is right to follow Medicare’s lead in establishing prospective payment systems for hospital treatment. European countries look set to overtake the United States in their implementation of prospective payment. Germany plans to extend this system to office-based specialists, and the United Kingdom has an even more radical ambition—to introduce prospective payment in primary care.
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