not innovative and fail to reduce provider costs should decrease significantly

Not innovative and fail to reduce provider costs

This preview shows page 48 - 49 out of 104 pages.

not innovative and fail to reduce provider costs should decrease significantly under a bundled payment system, as providers (e.g., hospitals deciding what scanners to buy) face strong financial incentives not to buy and use them. This should result in lower prices, in comparison to an environment characterized by per-unit payment. In the latter case, new products may be awarded a premium, presumed to be better than existing therapeutic alternatives by virtue of their novelty, irrespective of whether improved effectiveness can be demonstrated.65Impact on pricing for less innovative products.In the case of products that offer no or only minimal additional effectiveness over their marketplace competitors (i.e., non-innovations and incremental innovations that payers or prescribers view as largely the same as existing products), bundled payments are likely to pose downward pressure on average prices paid in the market. Buyers in these cases are likely to consider a range of products as suitable for use, and be in a relatively strong negotiating position. This expectation, however, has not been established empirically, and much depends on the extent to which buyers are incentivized to obtain the best possible value for money. For such (incrementally innovative) products, per-unit payment is less likely to exert comparable pressure. The provider or prescriber of the drug or device does not, under this method of payment, share a stake in the payer’s incentive to seek value, although this could be mitigated in cases where a payer utilizes a system of reference pricing to define a maximum reimbursement amount.66Impact on pricing for more innovative products.In the case of products that offer more-than-incremental improvement in effectiveness over existing comparators (i.e., substantial or radical innovations), per-unit payments may be more likely to pose indirect pricing pressure by opening the door to negotiations with sellers, which may influence institutional purchasing and formulary management tools. However, the impact on prices is dependent on the degree of leverage that the payer brings to the negotiations. Furthermore, neither bundled payments nor per-unit payments can be seen to have an edge in putting price pressure on sellers of products that represent true “breakthroughs”or radical innovations, as buyers will have limited leverage unless empowered to reject or narrowly constrain coverage on affordability grounds. (This practice is not common in the United States). Per-unit payments may offer more scope to obtain price discounts, to the extent that payers are able to use the “threat” of more (or less) restrictive utilization management as leverage in negotiations with manufacturers or other suppliers.
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