Outcomes-Based Contracts Can Shape the Future of Health Care

Over the past decade, much of the health care economy has shifted from rewarding quantity (fee-for-service) to instead rewarding quality (outcome- and value-based payments). And yet, pharmaceutical manufacturers and pharmacy benefits lag in this transition. Drugmakers continue to be compensated based on the volume they sell and not whether their products are making people healthier.

This is unfortunate for 2 reasons: The costs of medications continue to rise fast- er than other health care services, which make the need for greater accountability more important, and the current system protects the interests of pharmaceutical companies, pharmacy benefit managers (PBMs), and some pharmacies, often at the expense of consumers.

Consider that companies in the drug supply chain financially benefit from overprescribing, overutilization, and waste. Moving to an outcomes-based approach to pharmacy could address these and several other challenges in the US health care system.

A New Standard

Unlike traditional drug pricing, outcomes-based contracts hold the manufacturer accountable for its product by linking its revenue to whether or not the medication delivers on its intended outcomes.

Here’s how it works: A PBM negotiates a price and measurable outcomes with the drug manufacturer on behalf of a health plan. If the treatment delivers the intended outcomes, the plan will pay the agreed-upon price. But if a patient does not respond as expected, experiences adverse effects, or is unable to complete a course of treatment requiring a change to a follow-on medication, the drugmaker will issue a rebate for part, or all, of the cost.

If this sounds familiar, it should. This type of money-back guarantee is common throughout the US economy. Extending this guarantee to instances in which the products in question have life-altering implications for the people who use them is long overdue.

The Future of Health Care

Outcomes-based contracts can facilitate a great leap forward in prescription benefits for several reasons, including:

1. The Potential for More Reasonable Pricing

By directing dollars toward the drugs that deliver as promised, outcomes-based contracts have the potential to reshape how medications are used, which makes drug spend more efficient and rational.

2. Broader Formularies

To combat rising drug costs, payers are adopting more restrictive formularies. Prescribers and members often see this as having fewer choices. But outcomes-based agreements could allow drugs to remain on formularies in exchange for outcome guarantees. In some cases, this can also result in increased access and coverage of medications for patients.

3. Increased Information Sharing

Members’ health information may be kept in silos. A PBM, which is responsible for drug benefits, may not have information about a member’s health claims. As a consequence, opportunities to improve care or avoid adverse outcomes can be missed. For example, if a member is receiving medication for a complicated health condition but hasn’t seen a specialist, the PBM does not have enough information to alert the member to make an appointment. Because outcomes-based contracts require greater information sharing to monitor whether a drug is working as planned, these agreements can help promote a more holistic view of member health.

4. Innovation

Analytics and reporting are critical to the success of every outcomes-based contract. However, because many legacy PBM platforms don’t come standard with the necessary tracking capabilities, the industry must create new tools—powered by modern technology—to meet these needs. This call to arms is long overdue and will revolutionize how health care does business.

Although some drug makers, such as Amgen and Biogen, are boldly experimenting with outcomes-based contracts, the majority of pharmaceutical companies have been slow to get on board. However, the future of health care will be shaped by those who are trying new models, standing by their products, and putting their members’ health outcome above all else. We can’t think of a better way than outcomes-based contracting to demonstrate just that.