Louis P. Garrison, Jr, PhD

Risk-sharing agreements (RSAs) between drug manufacturers and payers link coverage and reimbursement to real-world performance or utilization of medical products. These arrangements have garnered considerable attention in recent years. However, greater use outside the United States raises questions as to why their use has been limited in the US private sector, and whether their use might increase in the evolving US healthcare system. 

 To understand current trends, success factors, and challenges in the use of RSAs, we conducted a review of RSAs, interviews, and a survey to understand key stakeholders’ experiences and expectations for RSAs in the US private sector.

Trends in the numbers of RSAs were assessed using a database of RSAs. We also conducted in-depth interviews with stakeholders from pharmaceutical companies, payer organizations, and industry experts in the United States and European Union. In addition, we administered an online survey with a broader audience to identify perceptions of the future of RSAs in the United States. 

Most manufacturers and payers expressed interest in RSAs and see potential value in their use. Due to numerous barriers associated with outcomes-based agreements, stakeholders were more optimistic about financial-based RSAs. In the US private sector, however, there remains considerable interest—improved data systems and shifting incentives (via health reform and accountable care organizations) may generate more action.

 In the US commercial payer markets, there is continued interest among some manufacturers and payers in outcomes-based RSAs. Despite continued discussion and activity, the number of new agreements is still small.

	This research assessed whether risk-sharing agreements between US commercial payers and pharmaceutical companies may become of greater interest with improved data systems and shifting incentives (via health reform and accountable care organizations). Key findings: 

		While such agreements offer numerous advantages to payers, pharmaceutical companies, patients, and society, their growth remains stagnant in the United States, due in large part to the additional effort required to implement and adjudicate risk-sharing agreements as compared to traditional rebates. 

		In the US private sector, however, there remains considerable interest: improved data systems and shifting incentives may generate more action.

Risk-sharing agreements (RSAs) between drug manufacturers and payers—also called performance-based risk-sharing arrangements (PBRSAs), managed entry agreements, patient access schemes, and coverage with evidence development (CED), among other terms&mdash;link coverage and reimbursement levels to real-world performance or utilization of medical products.

 These arrangements have garnered considerable attention in recent years: a recent analysis of the University of Washington Performance-Based Risk-Sharing (PBRS) Database,

 including 148 arrangements over the last 2 decades, concluded that although the overall pace of adoption seems to be slowing, several new countries have begun to implement RSAs.

 In the United States, the largest number of arrangements has been in the Medicare program; the uptake of private sector RSAs seems stagnant despite growing interest in the general principle of “paying for performance.” The aim of this study was to assess the state of and prospects for private sector RSAs in the United States, considering by comparison experiences from other countries, most commonly involving public payers.

RSAs offer a number of potential advantages,

including: 1) reducing the risk to payers of making a suboptimal purchase; 2) providing earlier access to medications for patients; 3) creating international pricing efficiency, especially in a world with external reference pricing and parallel trade; and 4) generating evidence on what works in the real world. These potential advantages, coupled with the higher volume of use outside the United States, raise questions as to why they have seen limited use in the United States,

 as well as what arrangements might gain traction with the new emphasis on accountable care organizations (ACOs), which operate under stronger incentives to manage patient care efficiently.

Previous work in this area has characterized the types of RSAs, trends in their adoption, economic incentives and rationale, and the drivers and barriers for adoption, but has not focused on current thinking in the US private sector. A broad distinction has been made between “outcomes-based” RSAs and “financial-based” RSAs. For the former, the manufacturer provides or agrees to rebates, refunds, or price adjustments if their product fails to meet agreed-upon clinical outcome targets. For the latter, reimbursement is tied to financial measures (eg, total sales) or to utilization. Here, we focus on the US private sector marketplace and particularly on the level of interest in outcomes-based agreements; specifically, we sought to understand the barriers to and drivers of developing private sector RSAs in the United States. We also explored whether the current situation reflects a broader demand by regulators and payers for greater real-world data and comparative evidence.

To assess the validity of the general perception of the lack of uptake of RSAs in the United States, we conducted a review of the University of Washington’s PBRS Database to assess the number of US agreements and trends in the number of agreements over time. For comparison, we also examined the number of agreements for the rest of the world. At the time of the study, the database included information on RSAs initiated from January 1993 to December 2013, with information on the parties participating in the arrangement, the type of arrangement, and details of the arrangement and/or outcomes, as available.

To understand current trends, success factors, and challenges in the use of RSAs, we conducted key informant interviews and an online survey to understand key stakeholders’ experiences with RSAs both inside and outside the United States as well as lessons for the US private sector situation. We used purposive sampling to identify 16 key stakeholders from pharmaceutical companies, payer organizations, and industry experts in the United States and European Union. We developed the interview guide and survey based on previous work in the area

 and through iterative review and revision by a group of content experts. The key informant interviews consisted of in-depth, 1-hour telephone interviews conducted between October 2013 and May 2014. Interview topics included: experience with RSAs, motivating factors, administrative considerations, effectiveness of agreements, and potential for use in the future (

). To identify themes from the interviews, we assessed the number of interviewees who stated or generally agreed with key statements across all interviews.

The survey was administered via the Web in May 2014, and consisted of 8 questions that asked respondents about their expectations for the future of RSAs in the United States and to identify and rank key barriers to their use (

). We identified themes by assessing the number of respondents who provided similar answers to the surveys. We invited a convenience sample of 37 individuals to complete the survey. Given the small sample size, we summarized responses using descriptive statistics.

Our review of the PBRS Database identified 148 RSAs worldwide from the late 1990s and 2013. Only 18 of the 148 total arrangements in the University of Washington Database, or 12.2%, represent US RSAs: 11 of these were public sector coverage with evidence development schemes, while only 7 were private sector RSAs. A review of the number of agreements annually suggests a little growth in the number of agreements in the United States. To date, RSAs have been more frequently employed in single-payer systems across Europe, Canada, and Australia.

Of the 16 individuals targeted for our key stakeholder interviews, we were able to schedule and conduct interviews with 14 (87.5%). The 14 in-depth interviews included 9 interviews with US stakeholders and 5 interviews with EU stakeholders. Of these, 7 were from pharmaceutical companies, 5 were currently or previously employed by payer/government organizations, and 2 were subject matter experts. We received 15 responses to our survey (response rate of 40.5%), including 10 responses from individuals from pharmaceutical companies, 3 from payers/pharmacy benefit managers, and 2 from other nonprofits and consultancies. The majority of respondents (93.3%) were from the United States.

In general, our interviews suggest that while there is interest in RSAs, there has been limited use in the United States due to difficulties in implementing and carrying out such agreements. The majority of interviewees (12 of 14) were cautiously to mildly optimistic about the future potential for outcomes-based RSAs to be adopted in the United States. To illustrate the basis of this position, selected comments and quotations from interviews are shown in 

, and are organized to represent comments ranging from more optimistic, to cautious, to more pessimistic. Roughly half of manufacturers and payers expressed interest in outcomes-based RSAs and see value in their use; almost all were optimistic about the use of financial-based RSAs. In general, due to the difficulty in implementing and executing outcomes-based RSAs, interviewees indicated an interest in more financial-based RSAs (eg, utilization or financial capitation) but less interest in clinical and health outcomes-based RSAs.

Outcomes-based agreements, while attractive to some, were perceived by interviewees to be difficult to execute and as having high transaction costs. Interview respondents were skeptical about being able to use outcomes-based RSAs, citing challenges in implementing and executing outcomes-based RSAs that would mitigate their potential in the United States, particularly given the fragmented payer system with patient movement across plans, as well as the current lack of data infrastructure that limits feasibility and, to some extent, interest in measuring long-term outcomes. Interview respondents indicated that simpler, financial-based agreements, on the other hand, have had demonstrated success. The survey responses corroborated the general support for financial-based RSAs seen in the interviews: 80% of respondents stated that the use of financial-based RSAs in the United States would grow.

The interviews suggest that the perceived value of an RSA versus a traditional discount mechanism depends on the product, disease area, and availability of the necessary data infrastructure. The manufacturers we interviewed stated that they would use RSAs as a way to differentiate and demonstrate the effectiveness of their product versus competitors. RSAs are typically not used in a US setting when a product is first to market or the market leader, but are more attractive to manufacturers when there is competition. The manufacturer seeks to secure beneficial formulary placement or gain market share. They can also be a mechanism to increase patient compliance.

Based on our interviews, US payers leverage—or would like to leverage&mdash;RSAs as a way to reduce uncertainty about a product’s clinical value, performance, or budget impact, as they allow payers and patients to gain experience with the medication. As payers and regulators are often interested in different types of data, at the time of launch, a product’s impact on costs and comparative effectiveness is often not well understood. Ultimately, payers expressed interest in RSAs as they allow payers to ensure that the price of a drug is more closely aligned to its value. During our interviews, payers indicated interest in RSAs for products that are more costly (eg, specialty drugs, biologics, combination products) and for disease areas for which cost consequences are substantial. Payers are not interested in engaging in RSAs for undifferentiated products where there is no real or perceived advantage.

 lists potential barriers to implementing RSAs that were identified during the interviews. The implementation and execution of RSAs is perceived to present a significant administrative burden that requires a substantial time investment. Further, outcomes-based agreements require significant payer and provider infrastructure: if payers lack the databases required to track individual patients, outcomes-based RSAs are difficult. Additional challenges that were mentioned include a) the need for adequately trained staff, b) the risk to pharmaceutical companies associated with being responsible for outcomes when they cannot control the way a drug is prescribed or used, c) the management of consequences in terms of changing preferred drugs and denying coverage for drugs, and d) the identification of outcomes that are meaningful but measurable within a reasonable time frame.

We tested the barriers identified during the interviews with a broader audience in the survey by asking respondents to rate and rank from the list of barriers provided in Figure 4 and any additional barriers not listed. The interview themes were consistent with the top barriers identified in the survey (

). The significant additional effort associated with RSAs was selected as the number 1 barrier to the use of RSAs in the United States by 33% of respondents and as the number 2 barrier by 27% of respondents. Inadequate data infrastructure was cited as the number 1 barrier by 27% of respondents and as the number 2 barrier by 33% of respondents. Other barriers that were selected as one of the top 3 hindrances to conducting RSAs in the United States included: federal (Medicaid) best price (40% ranked this as one of the top 3 barriers), significant resources/costs of adjudication (40%), challenges in measuring relevant outcomes (27%), and difficulty in reaching contractual agreement (27%).

While not necessarily barriers, there were several logistical challenges highlighted during our interviews that may be a consideration for both payers and pharmaceutical companies when evaluating opportunities for RSAs. The number of agreements in place with a given payer or for a given class of drugs is a key consideration. While payers expressed interest in having multiple agreements for competing products, pharmaceutical manufacturers indicated this becomes a complex arrangement that they are reluctant to enter. Further, only large payers are likely to have the capability for multiple, simultaneous agreements, given the burden of negotiation, data collection, monitoring, and adjudication of RSAs. Another key consideration is duration, as payers and manufacturers agree that short-term deals are not desirable given the considerable investment in evidence development. On the other hand, they state that long-term deals are also not desirable given the costs and risks involved. Both parties acknowledge that medium-term deals (18-36 months) are the right balance trading off the sizable up-front investment and a preference to execute agreements reasonably fast.

Access to clinical data was stated as a key barrier to the use of RSAs; scenarios where clinical data are more readily available make RSAs more feasible. For instance, interviewees indicated it may be easier to measure health outcomes for drugs that are administered in settings where there are more immediate clinical data available (eg, the hospital setting), where drugs are administered in person, or when data are already being collected as part of ongoing processes (eg, performance measurement via the Healthcare Effectiveness Data and Information Set). Complex outcomes might be more easily measured where there is an active provider (eg, patient-centered medical homes). Similarly, interviewees stated outcomes-based RSAs can be most successful where the infrastructure is robust to collect such data, such as in single payer or closed settings including integrated delivery networks. Drug cost as a share of total episode cost can also be a factor.

A key success factor is the need for manufacturers to understand the amount of risk they are undertaking when entering into an RSA. Manufacturers feel they should be able to reasonably predict plausible outcomes of the agreement and assess the level of risk; for example, what level of compliance is required and to what extent the clinical trial population differs from the real-world population.

There are a few scenarios that are considered prohibitive to successful RSAs. Both parties indicated that trust is a critical component of agreements between pharmaceutical companies and payers. It is imperative that both parties trust the data: clear agreements on data validation and analysis are important to create trust in the data.

Certain types of agreements can also be problematic. For instance, manufacturers expressed that population-based agreements are perceived to be risky because there are many unknowns around compliance, prescribing, and so forth. Manufacturers are reluctant to take on risk when they cannot predict how their product will be used in the population. Agreements that involve the manufacturer paying for nonpharmaceutical costs are difficult to execute, as payers do not generally have the systems or data to support such agreements. Both parties shy away from agreements in disease areas where there are many different treatment paradigms or the relevant outcome is an intermediary outcome, because it can be challenging to attribute the outcome to the product in question.

Future Prospects: Barriers, Health Reforms, and Policy

This study confirms that very few private sector RSAs have been implemented in the United States; while payers and pharmaceutical companies remain interested in these types of agreements, various challenges restrict the types of situations in which they can be feasibly employed. Also, because of the effort required, payer and pharmaceutical respondents are less enthusiastic about outcomes-based agreements and more optimistic about simpler, financial-based agreements.

Although the global growth in RSAs seems to have slowed, several countries maintain robust programs, particularly Italy and Sweden, and interest is growing in Latin America and Asia. There has also been a broad shift to financial-based agreements for several reasons. Our research suggests that public payers, especially outside the United States, are attracted to making arrangements with manufacturers, first and foremost, to obtain an effectively lower price in a world where reference pricing and the prospect of parallel trade make differential (or tiered) pricing difficult. And, of course, this can benefit patients by providing earlier and broader market access. Second, few countries have an adequate data infrastructure to operate outcomes-based schemes efficiently.

The history of RSAs in the United States is dominated by the Medicare experience with CED. Although the interest remains, it seems to have waned. The growth in visible private RSAs in the United States seems to have stalled, but our interviews suggest growing interest and some new activity. There are multiple barriers in the United States—most prominently, the additional effort needed to negotiate and maintain these agreements relative to traditional rebates. The challenge of measuring individual-level outcomes in a claims-oriented data infrastructure makes operationalizing RSAs difficult because of the lack of relevant clinical outcomes contained in these data. Medicaid best price (and the similar 340B Drug Pricing Program) provisions, which link mandated discounts for public sector programs to private sector prices, are considered complications, but would seem to be manageable in a well-designed contract; notwithstanding, several interviewees regarded this as a major barrier.

If a medicine covered by an RSA does not perform as anticipated by the manufacturer and a price discount ensues, the reduced prices could be perceived as a new best price and made available to all Medicaid purchasers. In the case of Medicare, we were told that provisions around the Medicare 5-star rating program, which ties payment to achievement of certain quality metrics in health plans, have made adherence programs—a kind of outcomes-based program&mdash;attractive to payers. The preference for a short-term horizon of 18 months to 3 years being the most practicable arrangement in the US private health system, because it reduces long-term liability for manufacturers and payers, and limits the feasibility of RSAs in some disease areas.

Our interviewees were generally pessimistic as to whether the growth of ACOs would have any positive impact in the near term, since many ACOs are in the initial development and market experimentation phase

; however, they may well bring a new orientation to risk-sharing that will support the future development of pharmaceutical RSAs.

The ISPOR PBRSA Task Force emphasized that better information about what works in medicine is a global public good,

 but it still appears that the RSAs being developed in the United States will be confidential ones, with the knowledge gained only shared inadvertently or sporadically, rather than by design. Both payers and manufacturers have competitors, and they have some incentive to be “free riders” rather than developing innovative pricing schemes that yield knowledge on best medical practice. One of our payer interviewees—a national medical director for a major US payer&mdash;made this revealing and somewhat encouraging comment:

“If we learn something about a pharmaceutical by looking at our own data and we decide that we are going to use that information to make coverage determinations, it is our policy that we make that public (publish in a peer-reviewed journal). If the coverage decision is based on an economic analysis, that may be kept private; however, if the decision is based on something clinical, it has to be available for physicians and patients to evaluate.”

This suggests an important dichotomy between clinical and economic evidence, though they clearly become related when combined in a cost-effectiveness ratio or other assessment of value. It is not clear if this distinction is sustainable given that the recent joint American Heart Association and American College of Cardiology Task Force on Value and Cost called for consideration of cost-effectiveness in establishing clinical treatment guidelines in cardiology.

The growing emphasis on comparative effectiveness research in the United States, including the establishment of the Patient-Centered Outcomes Research Institute,

 are testimony to the fact that the country is investing more in generating real-world evidence on clinical outcomes and their related economic implications. In principle, RSAs will generate some of this information, but if the results remain confidential, the new knowledge will, at best, slowly diffuse through a healthcare system that aspires to become a “learning healthcare system.” This raises the question of the need for greater public policy intervention. The following question was not part of our remit in this study, but we should be asking: Are there other policy tools or incentives that could be used to encourage and leverage US private sector RSAs to reveal their lessons for the greater good of the system and all patients?

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Assessment of current trends, success factors, and challenges in the use of risk-sharing agreements in the US private sector.

Private Sector Risk-Sharing Agreements in the United States: Trends, Barriers, and Prospects

Despite the pervasiveness of laboratory tests and their importance to medicine, evidence for their appropriate use often is very limited. In this article, we argue for a fundamental restructuring of the process by which laboratory tests are evaluated and reimbursed. We present an approach that would promote more evidence-based appraisals for laboratory tests. In addition, we urge that coverage and reimbursement for laboratory tests move toward an evidence- and value-based approach, using the tools that largely have been adopted for pharmaceuticals by many US healthcare payers. To address this information gap for laboratory tests, we note several potential strategies to encourage manufacturers, laboratory service providers, and payers to collect outcome and cost data that will better support effective use of new laboratory tests. Integral to increasing appropriate use and reimbursement will be the development of a common language and format for dialogueâ€”facilitating the development, review, and delivery of evidence-based tests by manufacturers, clinical laboratories, and healthcare payers. 

Laboratory tests are an important yet often underappreciated component of healthcare and the health economy.

It is estimated that as much as $56 billion will have been spent on laboratory diagnostic services in 2005.

More important, laboratory tests by their very nature are designed to initiate a cascade of decisions regarding further testing, prevention, or treatment–decisions that ultimately determine the course of illness and cost of healthcare for patients who receive them. A recent report estimated that although diagnostics account for 1.6% of the Medicare total costs, they influence 60% to 70% of downstream treatment decisions.

Despite their pervasiveness and importance to medicine, the evidence for the application and utility of laboratory tests often is limited.

Tests being brought to market do not require the same data as therapeutics do, and technology assessments of laboratory tests have not undergone the revolutionary changes in evidence review that have occurred for drugs.

Instead, payment for tests is linked to an antiquated coding system.

 Finally, innovative insurance coverage and payment policies that are common for drugs are rare for laboratory tests.

In this article, we argue for a fundamental restructuring of the way laboratory tests are evaluated and reimbursed. We propose that coverage and reimbursement for laboratory tests should move toward an evidence- and value-based approach, using some of the tools that have been adopted for pharmaceutical assessment by many US healthcare payers. Furthermore, reevaluating the methods used to assess and pay for tests is a timely endeavor, as diagnostic tests are on the forefront of the trend toward personalized medicine.

Public and private health insurers pay for tests performed in laboratories that meet standards certified under the Clinical Laboratory Improvement Amendments (CLIA) of 1988, according to 

code does not exist, health insurers sometimes reimburse the new test by using a 

code for an existing test, a process known as "mapping."

code is established, test payments are established by "cross-walking" or "gap-filling." In cross-walking, a new test is determined to be similar to an existing test, multiple existing test codes, or a portion of an existing test code. Payment is set at an "appropriate" percentage of the payment for the existing test.

In gap-filling, insurers are left to determine an appropriate payment amount for the new code. The Centers for Medicare & Medicaid Services uses local carrier decisions as a basis for the next year's clinical laboratory fee schedule.

A recent report by the Institute of Medicine suggested that the process of establishing reimbursement levels for novel laboratory tests is out-of-date and not equipped to handle emerging diagnostic and genomic tests: 

[Medicare] payments for some individual tests likely do not reflect the cost of providing services, and anticipated advances in laboratory technology will exacerbate the flaws in the current system. Problems with the outdated payment system could threaten beneficiary access to care and the use of enhanced testing methodologies in the future.

More broadly, some argue that reimbursement must more accurately reflect clinical and economic value.

Public and private payers have not developed uniform methods for requesting information from laboratory test service providers about novel tests. There are several likely reasons. The first reason is historical: most health plans do not have standing test evaluation groups similar to pharmacy and therapeutics (P&T) committees, possibly because laboratory tests have not been viewed as clinically or economically significant enough to justify the expense associated with these groups. Second, in contrast to pharmaceutical manufacturers, neither test manufacturers nor laboratory service providers generally have large, sophisticated marketing teams targeting physicians, health plans, and patients. (A relevant exception may be the marketing of the ThinPrep test.

) Third, as noted above, federal regulatory requirements do not compel manufacturers or distributors to provide the type of evidence (eg, randomized clinical trials) that lends itself to systematic review.

Finally, the way laboratory tests are used in practice makes it difficult to apply the pharmaceutical evaluation model. Unlike most pharmaceuticals, laboratory tests are used in a wide range of clinical settings. For example, a complete blood count is used in hundreds of clinical situations, while antihypertensive drugs are used in a limited number of conditions. 

In lieu of an evidence-driven, value-based approach, the process of adopting new laboratory tests is essentially what economists call an "administering pricing" system. Pricing is set through a negotiation process that may be based on historical comparators in the case of cross-walking or perceived levels of analytic complexity in the case of gap-filling. As a result, there is little reward for creating additional value (either in a clinical or an economic sense) and hence little incentive to create the evidence to support value creation (L. P. Garrison, PhD, and M. J. F. Austin, PhD. The economics of personalized medicine: a model of incentives for value creation and capture. Unpublished observations, January 2006). We describe a process that is designed (1) to improve the quality of the evidence that is available when an insurance coverage decision is being made and (2) to increase the transparency and uniformity of the process by which payers request information from test manufacturers or laboratory service providers. 

Developing a Language for Describing Benefit

Test manufacturers, laboratory service providers, and health insurance plans will benefit from standardizing the way evidence supporting new laboratory tests is presented. Methodological standards for the evaluation of diagnostic tests have been published.

In addition, several domains relevant to health insurers, clinicians, and patients are considered in a published framework to evaluate diagnostic technologies (

Although many agree about the value of using these domains to evaluate tests, there is less agreement on how much evidence is necessary for an insurance coverage decision. 

In addition to considering the relevant domains from the Table, it is important to evaluate the incremental impact of a test; that is, the improvement that the new test provides over current diagnostic strategies (L. P. Garrison, PhD, and M. J. F. Austin, PhD. The economics of personalized medicine: a model of incentives for value creation and capture. Unpublished observations, January 2006). Because prospective trials directly comparing new laboratory tests with established diagnostic strategies are uncommon (particularly those evaluating the impact of the tests on patient outcomes), decision-analytic modeling techniques often are necessary to conduct quantitative evaluations.

Modeling is an underappreciated approach to evaluating new tests. Models help frame questions, provide transparent mechanisms for stating hypotheses about cause and effect, highlight deficiencies in clinical data, and force decision makers to make explicit judgments about values for data that are used to inform the model. Although some clinicians and health insurance plan executives remain skeptical of decision models, quality standards for models have been published and are readily accessible to decision makers who wish to assess their quality.

We define value for laboratory tests as it is defined for other health technologies: The intervention provides an overall benefit to the patient at an acceptable cost (ie, it is cost-effective). Petitti notes that there are 4 well-recognized criteria for identifying an intervention as cost-effective

More effective and more costly, with the added benefit worth the added cost. 

Cost saving with an outcome equal to or better than that of the alternative. 

Assessing value for tests can be difficult because tests are intermediate steps in the treatment pathway. The advantage of Petitti's framework

is that it allows flexibility, because value for tests can be defined narrowly (eg, the least expensive way to make a diagnosis) or broadly (improvement in survival at an acceptable added cost). 

Format for Dialogue Among Test Manufacturers,

Manufacturers and laboratory service providers cannot expect, and payers cannot promise, coverage of and appropriate reimbursement for every new test that comes to market. Similarly, payers cannot expect, and manufacturers and their delivery partners cannot promise, the same level of evidence for all tests. Nevertheless, the process should be transparent, and adopting a standard format would help clarify expectations and improve the decision-making process. We propose a process for information content and interaction that is intentionally similar to the format developed by the Academy of Managed Care Pharmacy (AMCP) for the evidence-based evaluation of drugs. More than 50 public and private health insurers covering more than 100 million lives have adopted the AMCP format.

 provides a template for manufacturers' reporting of clinical and economic information regarding laboratory tests. This template takes into account differences in evidence that are typically available for new laboratory tests compared with new pharmaceuticals. 

Some health plans might have a designated organizational unit that evaluates laboratory tests, providing a structure for soliciting and reviewing manufacturers' products. In the case of pharmaceutical products, that unit is the P&T committee. Health plan staff working with P&T committees usually are receptive to receiving information from manufacturers or service laboratories about new products. Indeed, the "unsolicited request" process pioneered by AMCP was designed to create a structure for dialogue between manufacturers and payers. A similar scheme would improve transparency and the flow of information for new laboratory tests. 

P&T committee members often are not health plan employees. Having such a quasi-independent group evaluate novel laboratory tests may improve the credibility of the decision process in the eyes of manufacturers, clinical laboratories, physicians, and patients. Still, maintaining committees is costly, and such maintenance may not be justified given the relatively low volume of tests that are introduced annually. One option is to fold the test evaluation process into the existing P&T structure. Alternatively, payers could hire consultants to evaluate select novel tests and make recommendations regarding coverage and reimbursement. 

Payers should be timely both in coverage decisions and in setting reimbursement levels, and when decisions are made, they should be supported with a rationale. In cases where requests for coverage are denied, such information allows manufacturers to design studies or collect other data that address concerns regarding the quality or content of the information supporting the product. 

To address known methodological weaknesses in studies evaluating diagnostic tests,

we describe in this section options for improving the quality of information. Some focus on market incentives; others are more regulatory in nature. At this early stage, we do not advocate one approach over another. Rather, we hope to foster a dialogue among stakeholders. 

Testing services in the United States are regulated by both federal and state laws and agencies, and are further reviewed by accrediting professional entities. All laboratory tests that meet the legal definition of in vitro diagnostic devices (IVDs; generally, diagnostic assays made for distribution outside a single provider laboratory) are evaluated by the US Food and Drug Administration's (FDA's) Center for Devices and Radiological Health. However, most tests offered by laboratory service providers are not IVDs; the manufacture of analytes or other components of such tests (called analyte-specific reagents) may need to meet FDA specifications for legal distribution. IVD approval, which typically is based on analytical performance, does not require other types of evidence that the FDA often mandates for devices that carry significant risk (eg, prospective controlled trials for implantable defibrillators). Although laboratory tests usually pose little direct risk of injury or death, they often lead to a cascade of clinical decisions, sometimes involving procedures that do carry significant risk for patients. For example, a positive prostate-specific antigen test often leads to prostate biopsy, which carries risk of bleeding and infection. As an extreme example, women whose genetic tests show BRCA mutations often choose to have prophylactic mastectomies and oophorectomies.

Genomic tests that are used to guide therapy choices also could represent a class of laboratory assays that pose unique patient risks. 

To address potential downstream indirect risk, the FDA could require test manufacturers or service providers distributing IVDs to submit clinical algorithms with recommended follow-up plans based on test results. In cases where the downstream consequences are significant, the FDA could require specific post-marketing studies. Another area of concern is laboratory-developed or "home brew" tests–those that are supplied by a single laboratory or laboratory company and therefore are not subject to federal regulatory review beyond CLIA. Many tests, including genetic assays, are brought to market as home brew tests.

 Strengthening regulatory requirements for some of these tests might enhance the ability of payers and clinicians to gauge their value. With a goal of more uniform quality standards for testing, federal, state, and professional oversight measures should be considered in toto. 

To increase funding of high-quality clinical studies focused on patient outcomes,

some advocate levies on medical services to fund prospective and retrospective clinical and economic studies for new and existing technologies.

Such research could be directed through existing agencies within the National Institutes of Health, the Agency for Healthcare Research and Quality, or freestanding private clinical research facilities. Such a system would be expensive and difficult to administer and manage only for laboratory tests, however, given the inconsistencies in reimbursement for tests across the settings where they are ordered. Levies also may create a significant disincentive for test development. In this context, levies could not be directed solely at laboratory testing; rather, they should include all reimbursable health services. 

-based reimbursement, if novel tests are not promptly and specifically assigned codes, reimbursement and hence use are hindered. And because 

codes are updated only annually, opportunities for gathering clinical information are lost. To avoid these problems, novel tests could be assigned unique temporary 

codes that would allow billing and tracking of the test's use in delivery systems, and its effect on clinical decision making and patient outcomes. 

These unique codes would allow manufacturers or service laboratories to obtain reimbursement for novel tests, but such a strategy would shift a large part of the cost of test development and evaluation to payers. To address this problem, a risk-sharing approach could be implemented: payers could agree to preliminarily cover new tests on the contingency that manufacturers and service laboratory providers have a certain amount of time to establish clinical utility and value. Although these types of agreements are just beginning to be used for pharmaceuticals, they may offer promise for laboratory tests, given the fact that the evidence available at the time of market launch is different from the evidence that will be available after clinical use.

Finally, and perhaps most important, consideration should be given to rewarding innovative and novel tests with greater reimbursement based on an explicit measure of the additional value they create. Health economists have developed techniques for measuring the incremental value of new technologies in terms of cost savings, morbidity reduction, and life extension, and for integrating these impacts into models that provide a measure of overall incremental value. Furthermore, higher expected levels of reimbursement can be used to justify greater investments in measuring and demonstrating ultimate clinical utility and economic value. 

Laboratory tests are developed under a different regulatory structure than pharmaceuticals and have a unique and complex function in medical care. Novel tests may come to market with little information supporting their role in clinical decision making or evidence regarding their impact on patient outcomes. To address these issues and to improve patient care and outcomes, we have outlined a structure and process for information sharing among laboratory test manufacturers, clinical laboratories that provide tests, and payers that make coverage and reimbursement decisions about these tests. Although it is unlikely and perhaps unnecessary that the evaluation process for laboratory tests will equal that required for drugs, we can move much further toward a system that supports better gathering and sharing of high-quality evidence. Test manufacturers, clinical laboratories, payers, and clinicians all must play a role in this process. 

From the Fred Hutchinson Cancer Research Center, Seattle, Wash (SDR); the Department of Medicine (SDR), the Department of Pharmacy (DLV, LPG, SDS), and the School of Public Health (RC, JC), University of Washington, Seattle; and the Laboratory Corporation of America, Research Triangle Park, NC (PB). 

This research was supported by an unrestricted grant to the University of Washington from Laboratory Corporation of America. 

Address correspondence to: Scott D. Ramsey, MD, PhD, Fred Hutchinson Cancer Research Center, 1100 Fairview Ave N, M2-B230, PO Box 19024, Seattle, WA 98109. E-mail: sramsey@fhcrc.org. 

Louis P. Garrison, Jr, PhD

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Private Sector Risk-Sharing Agreements in the United States: Trends, Barriers, and Prospects

Toward Evidence-based Assessment for Coverage and Reimbursement of Laboratory-based Diagnostic and Genetic Tests