Is the American Healthcare System Ready for Psychedelic Therapy?
Fee-for-Service, Value Based Care and Psychedelic Medicine
“Superior doctors prevent disease. Mediocre doctors treat the disease before it is evident. Inferior doctors treat the full-blown disease.”
Greetings and welcome to The Trip Report by Beckley Waves.
First, a bit of housekeeping.
You may have noticed we’ve moved away from the weekly news round-ups from the psychedelic sphere to more thematically driven articles like psychedelics and AI.
The ultimate goal of this project is to support the creation of a vibrant, safe, and accessible psychedelic ecosystem.
At Beckley Waves, as builders and investors ourselves, we have a first-hand account of how the unique features and limitations of this very bizarre field affect scientific, business, and policy progress1.
Much of our work is in pursuit of understanding the unique needs, challenges, and dynamics of a building under these constraints.
So we have a few irons in the fire here at Trip Report Headquarters and planning some new ways to share our learnings and develop a community of practice for our readers.
To begin this initiative, I’ll be publishing a series on broader topics that the psychedelic field would be wise to be tuned into because of how they could impact future access, care models, and costs—and today, we’re starting with a look at current reimbursement models and the emergence of a new one: Value-Based Care (VBC).
This concept has been around since at least the Chinese Han Dynasty (206 BCE–220 CE), as highlighted by the opening quote—but has recently gained traction in the modern American Healthcare system through the Affordable Care Act (aka Obamacare).
But healthcare is messy, and VBC is complex, and I sense it is an important trend for stakeholders to become better acquainted with.
Assuming MAPS’ New Drug Application is accepted and the FDA approves MDMA for the treatment of PTSD, we’re looking at regulated access to MDMA-AT within 18-24 months, and introducing MDMA-AT into current healthcare settings will be like the proverbial square peg, round hole problem—it doesn’t quite fit.
A key reason for this has nothing to do with psychedelics but rather the traditional incentive structure of the modern American Healthcare system, namely a Fee-for-Service model2.
So, let’s see if we can make some sense of this emergent paradigm in the healthcare space and how it may interface with psychedelic therapy upon regulatory approval.
Here’s where we’re heading;
Fee For Service Healthcare and the fall of Pear Therapeutics
Value-Based Care, an emergent reimbursement model
Where do Psychedelics fit in?
As always, if you find this stuff helpful and insightful, or, more importantly, if you find holes in this analysis, please let me know in the comments. And if you are building a company in the care delivery space and want to chat about this or other topics, I’d love to hear from you.
***Special thanks to Nicole Bradberry, as well as the team of David Drapkin, Navdeep Bhasin, and Gurteg Singh from QALY Health, for sharing their time and healthcare expertise. Anything you find helpful from this piece comes from them; anything confusing comes from me.***
The Fee for Service Model & Pear Therapeutics
A few weeks ago, Pear Therapeutics, the pioneering company in the digital health space, filed for bankruptcy.
The company was started in 2013 and created the first FDA-cleared Prescription Digital Therapeutics.
This was a big deal and marked a new era in how technology could be used in healthcare—not as a device, a diagnostic, medical records, or a communication tool but as a therapeutic—software as medicine.
And for a while, it looked like Pear was going to succeed.
After all, they had gained FDA clearance and established partnerships with big pharma companies like Novartis and Sandoz to develop digital apps as a potential companion to their prescription drugs.
However, Pear had trouble getting traction with payors.
According to the former CEO, Cory McCann, in a farewell message on LinkedIn, it was not for want of safety, efficacy, or utilization that Pear went under:
“The Pear team has accomplished a lot together in bringing the first Prescription Digital Therapeutics (PDTs) to market. We’ve shown that clinicians will readily prescribe PDTs. We’ve shown that patients will engage with the products. We’ve shown that our products can improve clinical outcomes. We’ve shown that our products can save payors money. Most importantly, we’ve shown that our products can truly help patients and their clinicians. But that isn’t enough. Payors have the ability to deny payment for therapies that are clinically necessary, effective, and cost-saving.”
Why am I bringing this up in a newsletter about psychedelics?
There is a comparison to be made.
It is very difficult to talk about and accurately conceptualize the ‘psychedelic renaissance,’ and the two most approximate comparables fail to capture the nuance, complexity, and novelty of this field:
The movement to legalize cannabis and
The Drug Development process
There is more ecological variety in the psychedelic space than can be said for the liberalization of laws for cannabis consumption or the expensive, exacting, and methodical
data manipulation3 FDA approval process.
Instead, the clinical psychedelic field has as much—if not more—to learn from the last 10-15 years of the Digital Health field than the movement to legalize cannabis or conventional drug development.
Software-as-Medicine and tech-enabled care delivery represent a new treatment paradigm—especially for chronic conditions—that incumbent systems have been resistant to adopt.
Psychedelics-as-Medicine is perhaps an even more significant challenge.
Fee For Service
Fee For Service (FFS) is not some esoteric payment structure. It is just what it sounds like.
Customers pay service providers for the services they provide.
This is how plumbers, restaurants, barbers, and airlines work.
In most situations, it works pretty well. This is because service providers compete with other service providers, and this market dynamic incentivizes companies to provide quality service at reasonable prices.
If you’re unhappy with your meal, you won’t return to that restaurant. If the plumber provides an excellent service, you are inclined to tell your friends.
However, things get pretty weird with FFS in healthcare, and it doesn’t take a genius to see how this incentive structure contributes to the situation depicted in the graph below:
The US spends a lot more than other developed countries for far worse outcomes.
The FFS model is the dominant payment structure in the American healthcare system. And by services, we mean basically anything and everything healthcare providers can do—tests, procedures, consultations, hospital stays, prescriptions, etc.
The payment for these services is typically made by insurance companies and government programs (like Medicare or Medicaid), but increasingly more and more of the responsibility falls to patients themselves—many of whom have “excellent” insurance plans.
There are at least a few reasons for this.
First, despite the moral and ethical compass of even the most dedicated providers, the FFS model incentives health systems to perform more tests, procedures, and treatments, regardless of their necessity, as they are financially rewarded for each additional service. This can result in overdiagnosis, overtreatment, and unnecessary medical expenses.
Second, when providers and systems are rewarded for the number of services they can bill for, it becomes the North Star rather than what’s best for the patient.
Third, the FFS model favors reactive care rather than preventative. Once a person becomes sick, there are more things to do. More tests, more visits, more prescriptions, more procedures. Not a whole of services to bill for when people are healthy.
Finally, the FFS model creates a dynamic in which providers are incentivized to bill for as many services as possible and for insurance companies to deny as many claims as possible.
This last dynamic has at least two effects; it burdens patients to pay for services their insurance won’t cover and impedes the adoption of innovative treatment approaches.
Remember, failure to procure reimbursement was the nail in Pear Therapeutics’s coffin, and the CEO of one of Pear’s closest competitors, Dynamicare Health, agrees:
“Corey McCann, former CEO of Pear, squarely placed the blame for Pear's demise on payers (health plans) for refusing to cover Pear's products. He's not wrong. Payers have been woefully slow in adopting innovations like digital therapeutics that fall outside of the typical provider/drug/med. device reimbursement models.”
Something’s got to give.
Around the same time Pear Therapeutics started in 2013, another paradigm was also emerging through the recently passed Affordable Care Act—Value-Based Care (VBC).
As we just noted, the dominant payment model in the American Healthcare System is a fee-for-service system, and VBC is nearly the complete opposite.
Value-based contracts are agreements between payors (such as insurance companies or government entities) and healthcare providers (such as hospitals or physician groups) that link payment to the quality of care provided and patient outcomes rather than the volume of services.
These contracts aim to incentivize healthcare providers to deliver high-quality, cost-effective care that leads to better patient outcomes.
One entity operating in a VBC structure is called an Accountable Care Organization (ACO).
An ACO is a group of healthcare providers, including doctors, hospitals, and other healthcare professionals, collaborating to provide coordinated, high-quality patient care.
ACOs were introduced as part of the Affordable Care Act in 2010, specifically through the Medicare Shared Savings Program (MSSP).
Rather than bill Medicare for each service provided, ACOs establish predefined metrics for patient satisfaction, quality of care, and patient outcome. Medicare pays them based on achieving these metrics.
This framework is moving beyond Medicare as other entities begin engaging with private payors to establish VBC contracts.
Here’s a hypothetical about how an ACO would approach a payor to create a Valuce-based contract:
“Hey, you're spending $100 million on patient population “X.”
Most of that money is because they are not getting qulaity care in the early stages of disease and so they end up in the hospital.
We think we can provide better care through our collaborative care model.
Our docotrs will manage their medication, our health coaches will follow up with them to make sure they’re taking their medications, managing their weight and getting enough exercise and our team of psychologists will help them manage stress and other psychological factors.
This approach will keep them out of the hospital and if we are right it should only cost $60 million to treat this patient population.
So, how about you (payor) give us half that money up front and if we succeed, you pay us the rest and we’ll split the $40 million our program saved you.
And if we don’t bring costs down, we'll pay for it. This will save you at least $20 million.”
I made these numbers up, but you can see what happens here.
Payors don’t like spending their money on your healthcare (even though their money comes from monthly premiums you and I pay), so when someone comes along and says, “Hey! We’ll save you money and take on the risk if we’re wrong,” it’s a pretty sweet deal for insurance companies that are always looking for new ways to not pay for stuff.
A VBS arrangement shifts the emphasis to prevention and primary care and away from expensive and intensive treatment efforts after the disease has wreaked havoc for years or decades.
Of course this incentive alignment makes sense in a healthcare system context because what you really care about is the quality of care and the outcomes, not necessarily that a service was performed—but you may already see how difficult and more complex—such arrangements might be compared to the FFS model.
Given this complexity and the difficulty of measuring patient satisfaction, quality of care, and patient outcomes—this sounds like an absolute nightmare to implement, especially in the Medicare system, where it was first piloted—which may be why it has taken the better part of 10 years for VBC to start to gain traction among private payors and tech-enabled care delivery solutions.
But this shift seems to be happening.
Oshi and Specialized VBC
Just a few weeks ago, the Gastro-Intestinal focused virtual care platform, Oshi, announced its first VBC contract with Aetna.
Notably, Oshi provides many services that historically are not covered through traditional FFS reimbursement models, like “Gut-direct Cognitive Behavioral Therapy,” nutritional therapy, and health coaching.
From MedCity News:
“Founded in 2019, Oshi built a virtual-first care platform designed to help patients achieve lasting control over chronic digestive conditions. The company hires gastroenterologists, nurse practitioners, dieticians and GI-specialized behavioral healthcare providers to quickly reach a diagnosis and guide individualized treatment. Patients are also assigned a care coordinator, who can help them find in-network providers if they need services like a colonoscopy or endoscopy.”
This model doesn’t work in an FFS system because the whole is greater than the sum of the parts, and payors are incentivized to deny claims for aspects of this treatment approach deemed ancillary.
But under a VBC model where providers are incentivized to optimize for quality care and patient outcomes, all of a sudden, these “ancillary” services like care coordination and psychotherapy are crucial to clinical and financial success.
So, what does this all have to do with psychedelics?
Psychedelics in a Value-Based Care Framework?
In a medical context, the hope is that psychedelic-assisted therapy offers a profound improvement—in both treatment outcomes and Cost Effectiveness—to current treatment options for specific patient populations.
However, the delicacy and duration of the psychedelic experience, the need for a specially trained care team (prescribers, therapists, facilitators, etc.), and the pre and post-trip support demand a more collaborative and expensive treatment than the standard of care.
Luckily, we have Elliot Marseille’s work on the Cost Effectiveness of MDMA-AT based on the MAPS Phase III data, which supports the notion that MDMA-AT is not only an effective treatment but a cost-effective treatment as well.
In an interview with Psychedelic Alpa, Marseille put it this way:
“For a hypothetical cohort of 1,000 patients, compared to standard of care for 1,000 patients, MDMA-AT generates discounted net health care savings of $132.9 million over 30 years, accrues 4,856 quality-adjusted life-years (QALYs), and averts 61.4 premature deaths. It is thus not merely cost-effective but cost saving to the health care payer. …Another important finding of our study is that the third active MDMA session of the phase 3 trial yielded both additional savings and additional benefits compared with the two-active session regimen of the Phase 2 trials.”
The model of psychedelic-assisted therapy is better suited for a collaborative care model, like Oshi—that combines physician oversight (diagnosis and treatment determination), the skill set of the therapist (to provide psychotherapy), and care coordinator and/or health coaches that support patients with sleep, nutrition, health-related activity (i.e., exercise, diet, stress management, etc.)—and a collaborative care model only makes sense if payors are incentivized to pay for all of these services and not skimp on the wrap-around services.
As we’ve learned from the case of Pear Therapeutics, payors are slow to adopt innovative treatments, but as we see from Oshi, payors may also be willing to support innovative and collaborative care models within value-based care frameworks.
So all told, we have these emergent paradigms that seem to go hand-in-hand but will not be easy or straightforward to implement.
MDMA-AT for PTSD seems to offer not only an innovative, effective treatment but that may be cost-effective. At the same time, Value-Based Care is emerging from Medicare and making inroads with private payors and innovative care delivery platforms.
Creating care models that maximize the benefit of this novel treatment that can leverage promising cost-effectiveness will be essential if MDMA-AT and future substances are to have wide-reaching coverage.
If you are working at the intersection of psychedelic therapy and care delivery, we’d love to hear from you, please reach out.
Federally illicit status of substances, gaping hole of Federal research funding, exponential growth in public awareness and flocking to underground/international access points, challenges to both medical and non-medical implementation frameworks, etc., etc.
To be sure, the list of features that warrant concern and revision in modern healthcare systems is too numerous to count and indeed expand beyond the boundaries of what is normally considered the remit of healthcare—after all, any analysis of disease trends implicates the socio-economic environment as the primary determinant of the state of the general health of any population—but aligning incentives within the healthcare system is a good place to start.
let’s agree to call a spade a spade