by Jen Jenkins

For years, the government and private insurers have been attempting to make an important change in the reimbursement model under which doctors and hospitals operate. The fee-for-service system that is currently in place pays doctors and hospitals based on the sheer volume of tests that they perform and treatments that they ultimately prescribe.

It is quite baffling that a system like this was ever put into place because it by no means incorporates any incentive for ensuring the quality of patient treatment or overall outcomes. In fact, this system has led to a disconcerting trend of unnecessary testing and expendable costs. A change in the current model would mean rewards based on quality and better outcomes, not volume.

A similar shift in the reimbursement model may soon be evident in the drug and device manufacturing industry. Currently, the price of a drug or medical device is unrelated to its actual performance or quality of outcome for a particular patient. This has long been an unraveling problem (similar to that of doctor performance standards) wherein expensive drugs are not performing in the real world nearly as well as expected.

This issue also includes medical devices not working as anticipated; for example, a cardiac device that requires surgery to insert. Today you pay the price no matter what, but imagine being refunded completely if a drug or device did not work as your doctor promised. It’s slightly unfathomable based on the model we currently adhere to, but highly probable for the future of drug and medical device manufacturers.

In theory, this novel change sounds not only appealing but necessary. In reality, however, it becomes a bit complicated. What metric should be selected to measure performance and how will that metric be universally agreed upon? This is a question posed by a senior adviser from Analysis Group, a company that does consulting work for drug and device makers. Like with many other innovative implementations and changes in today’s society, new technology may need to play a role in this shift. However, drug companies want to be sure that patients are taking medications correctly and consistently while also adhering to other factors, such as specific diet or lifestyle changes, that are put into place by doctors. These components all play a role in the effectiveness of a drug. In response to this problem, technology company Qualcomm Life is currently working on a combination of software and sensors to monitor patients, a necessary part of making this change possible.

All obstacles currently in the way of making these changes a reality are seemingly practical ones and thus solvable. It is very likely that sooner than later we will see an inevitable change in which drug and device makers are sharing the risk where the outcome of the patient’s health is concerned.

Some examples of discussions and possible reasons for following the new model are highlighted in this Bloomberg Businessweek article.