While there is a great deal of talk regarding value-based contracts in the life sciences industry, there are few successful examples. The difficulties in structuring these contracts begin with identification of outcomes that are directly and primarily related to a specific treatment. In addition, these outcomes need to be readily and easily available to track. All too often there are external influencers impacting outcomes that are outside the effects of the pharmaceutical, such as social determinants of health or health system initiatives.
One of the first pharmaceutical value-based contracts was established by Pfizer with the State of Florida Medicaid program more than 20 years ago. The arrangement promised to reach $33 million in cost reductions over the course of two years in return for inclusion of all of Pfizer products on a new, restrictive formulary in the Sunshine State. The Pfizer arrangement was to use many of the principles of pharmaceutical care, repackaged under the banner of “disease management,” to achieve cost reductions through decreased emergency department visits and hospitalizations, all while keeping beneficiaries healthy with cutting-edge pharmacotherapy. A decade later, Medicare developed a value-based contract with Novartis, which was later cancelled due to concern that the cost would greatly exceed the benefit.
Typically, these value-based pharmaceutical contracts are based on clinical and/or financial outcomes. While these types of contracts are difficult to execute because of confounders and data collections, an easier approach that aligns incentives could be based on treatment adherence. “Adherence contracts” work best for treatments that are perceived to be expensive and require a titration period to deliver improved patient outcomes. In this situation, a rebate can be paid back should a patient not achieve the defined period of adherence. This is an alignment of incentives as the pharmaceutical company focuses on assuring the “right” patients are targeted and supported to complete at least the defined period of adherence.
In addition to adherence-based contracts, there is also the emergence of “supportive contracts.” These contracts are typically used by at-risk providers, such as health systems with accountable care organizations (ACOs) who are not direct payers of the medications but control medication use and are responsible for clinical and financial outcomes. These arrangements are especially beneficial, as the ACO is not at financial risk for Medicare Part D, so increased utilization of these treatments will not adversely affect the organization. Instead, they will benefit from improved clinical outcomes that reduce utilization of services such as emergency department and hospitalizations.
As a result, these arrangements secure preferred formulary access/utilization in exchange for support to achieve improved outcomes that at-risk providers are responsible for. A few examples include treatments for anticoagulation, diabetes, congestive heart failure and other chronic conditions that require appropriate medication management and supportive services to achieve optimum outcomes. The preferred treatments can then provide support to providers and patients to improve outcomes in exchange for preferential coverage status.
Contracting Challenges and Opportunities
|Confounders influence outcomes and difficulties with data collections.||Closely aligns with payer focus.|
|Clinical||Closely aligns with HCP focus.|
|Adherence||Payers need to be convinced that improved adherence is valuable to them; and without this, they will prefer nonadherence.||Easiest to administer and has aligned incentives. The pharmaceutical company can focus on targeting the ‘right’ patient for adherence and better support adherence.|
|Supportive||Health systems that are new to these arrangements may be unfamiliar with how to proceed and execute care with this contract type.||This option is a non-financial concern, as health systems are most often not direct payers for medications but are increasingly responsible for clinical and financial outcomes with an easier ability to enforce use of preferred therapies.|
As clinical and financial outcomes will continue to be the holy grail of contracts success, perhaps adherence and supportive contracts are a much better starting point for all.
Richard has focused his career on improving health outcomes, especially for some of the most vulnerable populations. This has been achieved through several avenues, beginning with his continued active role as a treating internist/geriatrician.…