Will Personalized Medicine Survive Alternative Payment Models?

22 June 2015 Personalized Medicine Bulletin Blog

There is no doubt that health care costs in the United States are rising. According to a recent study published by the U.S. Department of Health and Human Services, personal health care expenditures in the United States totaled $2.5 trillion, a 3.8% increase from 2012. The per capita personal health care expenditure for the total U.S. population was $7,826 in 2013, up from $7,597 in 2012 and expenditures for hospital care accounted for 38.0% of all personal health care expenditures in 2013. National Center for Health Statistics. Health, United States, 2014: With Special Feature on Adults Aged 55–64. Hyattsville, MD. 2015.

Several alternative payment models (APMs) to the traditional fee-for-service (FFS) paradigm have been proposed to control rising health care costs. The Personalized Medicine Coalition commissioned a study to determine if the benefits of personalized medicine diagnostics and therapies are supported by the current proposed APM models. Paying for Personalized Medicine: How Alternative Payment Models Could Help of Hinder the Field (Study, attached here). The Study finds that several factors may limit access to the benefits of personalized medicine should the proposed APMs become the payment standard for health care in the United States, namely: the lack of a clear benchmarks to assess quality of care; a focus on cost-containment in the short term; and the failure to account for ongoing innovation in the delivery of health care.

Alternative Payment Models

The Study explains that until recently, most strategies to contain health care costs focused on replacing or adding incentives on top of the FFS system, even though the misaligned incentives of FFS (that reward volume over value) are considered to be the root cause of the problem. Study at page 4.

The Study evaluates in detail three current APMs: Accountable Care Organizations (ACOs), that utilize shared savings incentives for an attributed population); Episode-Based Payments, also known as “bundled payments,” that pay for a set of services for a specific condition or procedure; and Medical Homes, that focus on care coordination, usually through a primary care practice). The Study notes that each APM does not account for how personalized medicine can transform the delivery of health care, although for each APM, to differing degrees.

The Study notes that APMs attempt to realign incentives with the dual goals of reducing costs and maintaining or improving value. Study at page 8. The “value” of the therapy or intervention can be determined by an assessment of the improvement in a patient’s quality of life and/or functional status and taking into consideration the cost of the treatment. This assessment, however, may be determined using historical costs and best practices that may fail to adequately account for new therapies that may treat an unmet need. The Report cites as an example the situation where “a particular drug therapy many not yet be widely available when a bundled payment amount and quality measures are established. Further, for personalized medicines in particular, the effect on health care outcomes for specific subpopulations may not yet be fully understood during the historical benchmarking time period.” Study at page 21.

Payor Concerns

The Report concludes by noting that the proliferation of personalized medicines can be problematic for provider-led APMs, like ACOs, especially when new therapies are introduced and become available. Because cost-containment is a primary concern, many ACOs may avoid these therapies because of their higher cost. Report on page 24. Thus, it is possible that life-saving personalized medicine therapies would not be available to patients and threfore, their ultimate value would remain unrealized.

The Report also considers the cost of developing personalized medicine therapies and payers’ commitment to those therapies. The cost to develop targeted, personalized medicine drugs is nearly equivalent to traditional therapies, even though the target population for the therapy may be smaller. As a consequence, the costs of these drugs are likely to be higher than medicines that are marketed to a larger patient population. Thus, developers for personalized medicine therapies are likely to consider how payers will treat these therapies, that is – will they pay for these therapies when they reach the market? Report at page 24. This again may limit the information and data available to APMs to evaluate “value.”


The Report concludes by noted that as APMs continue to develop and these, and other alternate models are proposed, it will be important to consider what effect changing incentives and payment systems will have on the decision by interested stakeholders to invest in personalized medicine. The Report concludes that “if new incentives begin to hamper access to personalized medicines in a meaningful way, the ability to invest in research and development of highly personalized therapies and diagnostics will likely shift to align with the inflexible payment systems.” Report at page 25.

Understanding the dynamics and challenges facing the industry as payors move toward APMs is the first step to ensuring that these therapies can continue to be developed and made available to patients. This Report is an important first step to raising the awareness of these issues as payment models continue to evolve.

This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status.

Related Services