Value-based contracts are designed to tie prices to how a drug performs in the “real world,” as opposed to price based on data and evidence collected during the highly controlled clinical trial process. By collaborating with health insurers, providers and pharmacy benefits managers (PBMs), pharmaceutical companies can prove that a drug delivers a desired outcome in a specific patient population.
But value-based contracts can also can reveal when a drug fails to produce an expected clinical or financial outcome, which can trigger a price reduction or refund. Value-based contracts can expand patient access to new therapies, which benefits manufacturers, and limit payers’ financial risk by guaranteeing a clinical or financial result, which benefits insurers.
Data sharing challenges and regulatory barriers remain, but neither are insurmountable.
An essential element of value-based contracts is the ability to capture and analyze a drug’s clinical or economic impact on a patient population. But agreement on a clinical endpoint or financial metric for drug assessment can be challenging.
Challenges include regulatory risks associated with calculations that CMS uses to set prices and pay rebates to government health plans, and making sure not to run afoul of the Office of Inspector General’s anti-kickback statute, surveyed pharmaceutical executives said.
Medicaid’s requirement that manufacturers offer a price equal to the best available commercial discount price also creates a barrier to wider adoption of value-based contracts. And sharing and verifying data between stakeholders can be difficult.
Nearly a third of the pharmaceutical executives surveyed by HRI said that forging an agreement between partners on the metrics used to evaluate drug performance and patient outcomes in value-based contracts is the most significant operational hurdle. Once that agreement is formed, data must be shared between organizations to adjudicate the findings.
Most pharmaceutical executives (71 percent) believe their companies would benefit from data-sharing partnerships with insurers. But insurance executives were less certain about the benefits of data-sharing partnerships with pharmaceutical companies, HRI survey results found.
In July 2017, America’s Health Insurance Plans (AHIP), a national health insurance trade association representing over 180 health plans, asked the FDA to work with CMS to expand outcomes-based payments for drugs in federal health plans such as Medicare.
AHIP asked Congress in June 2017 to address existing regulatory requirements “that may inhibit the development of pay-for-indication and other value-based strategies in public programs.”
In May 2017, Merck and Optum, a division of UnitedHealth Group, announced they were forming a joint “learning laboratory” to explore the potential for value-based contracts between insurers, PBMs and pharmaceutical companies. The multi-year collaboration will use real world data to co-develop and test advanced predictive models and co-design outcomes-based risk sharing agreements to reduce clinical and financial uncertainty over payment for prescription drugs, according to a statement.
But communicating off-label clinical information about a drug is a less flexible process, requiring “substantial context and an evidentiary basis as well as details on any adverse reactions,” said Jeffrey Handwerker, a partner at Arnold & Porter Kaye Scholer who leads the law firm’s government pricing practice and has worked on value-based contracts for biopharmaceutical clients.
It also can be difficult to contract around a clinical outcome if there is no clear biomarker or objective assessment metric to describe a given patient’s health outcome. Measuring a patient’s cholesterol levels, for example, is easier than measuring how much a patient’s pain has been reduced.
A drug’s label or package insert determines which kinds of value-based contracts are the most feasible, Handwerker said. From a regulatory perspective, contracting on an economic outcome may be simpler than contracting on a clinical endpoint, unless that end point is part of the drug label. A contract that aims to show a reduction in hospitalizations within a patient group, for example, may be more difficult to execute than a contract that aims to reduce the cost of hospitalizations in the same population. “The level of substantiation the FDA requires is lower for economic endpoints compared to clinical endpoints,” Handwerker said.