Value Based Contracts for Specialty Pharmacy

Why would a health plan pay for something that doesn’t bring any value? Or said another way, why would you pay the same amount of money for a product to treat all your patients when that product is only effective in only a few specific subpopulations?

In our current health care system, this happens frequently when it comes to paying for prescription drugs. But what if health plans could pay for what brings them the most value in terms of bringing the highest quality of care at the lowest net cost? And what if this could be done through collaboration and risk sharing, creating a win-win for everyone. Sounds great, right?

In an era of high-priced drugs, health care stakeholders continue to explore alternative pricing models that focus on the concept of value-based drug purchasing models, also referred to as value-based agreements, in which the price of a medicine is directly linked to the value it provides to patients, payers, and the health care system.

It’s essentially a risk-sharing arrangement between stakeholders. These arrangements are attractive to payers in that they reduce the risk associated with the uncertain performance of new therapies. The manufacturer then goes at risk and provides greater discounts if a drug underperforms.

These arrangements also benefit the manufacturer who receives greater access for having their product preferred, which they may not have otherwise achieved if they were not willing to go at risk for their drug. And from an optics perspective, value-based agreements can offer a stage to show that high-cost drug therapies have a credible value and provide a value proposition in the form of appropriate guarantees.

Aligning a drug’s price to the efficacy and clinical outcomes is not a new concept, but has rapidly evolved in the health care setting and has the potential to create additional value for the overall health care system and transform how medicines are priced and reimbursed in the United States.

In fact, the United States lags in this space, with Italy and other European countries having led the development of these arrangements in the 1990s. US value-based contracts began to increase most markedly only in the past 5 years. Pharmacy benefit managers (PBMs) are collaborating with pharmaceutical companies and exploring new ways they can share risk by ensuring their customers are getting maximal value by linking the cost of the drug to proof that a drug delivers a desired outcome in a specific patient population. Numerous value-based models exist in health care today.

Some of these include the foundation of formulary management and applying indication-based formulary coverage of a product in select classes. Indication-based formulary design allows health plans to adapt formulary coverage of drugs predicated on specific indications.

By negotiating formulary positions based on the specific indications rather than at the level of broad therapeutic categories, greater competition is created that translates to lower drug costs and improved value for health insurers. For example, take the autoimmune category of drugs, which has a robust number of drugs within that therapeutic class.

Many of the drugs in the autoimmune class have been FDA-approved for several different indications; however, the clinical usefulness of a drug may vary by indication. Indication-based formulary has the ability to consider a differentiated rebate structure per drug based on indication or patient diagnosis thereby passing back greater value to the payer.

In another strategy, outcomes-based contracting ties reimbursement of the drug to a set of value-based attributes that can be measured and tracked to evaluate performance of a drug over time, and manufacturers then pay incremental retrospective rebates based on the measurement of clinical outcomes. Imagine if a pharmaceutical company was willing to stand behind the outcomes of their drug and went at risk to stand behind their clinical claims.

For example, consider a diabetes drug that was shown to reduce A1C levels for diabetics and the drug was reimbursed based on lowering that A1C by a certain percentage in line with the evidence used to support FDA approvals. We can measure A1C, so if a diabetic’s A1C was not reduced after a given period of time while the diabetic was on their drug therapy, then the pharmaceutical company would go at risk and provide additional rebates if the clinical outcomes were not met.

This approach is also met with a number of challenges include determining the right outcome to measure and how to measure it. These outcomes can vary by drug and condition as well.

Adherence to drug therapy is also a factor in determining the usefulness of the drug to produce an expected clinical result. If a doctor changes the prescription indicating that the patient couldn’t tolerate the drug due to adverse effects (AEs) or if a patient drops off therapy because they can’t afford their medication that month, then this jeopardizes the adherence to said medication therapy.

A third type of value-based contracting incorporates a cost cap-based approach and is most likely considered with therapy classes associated with novel medications. In this arrangement, the cost of the drug would be capped under certain provisions of the agreement.

You can imagine some of the recent novel and new drug therapies coming to market with annual price tags exceeding three quarters of a million dollars on drug claims for a single patient having insurers worried about how they are going to pay for these therapies. A cost cap arrangement is especially beneficial when a new drug comes to market at a much higher price than other drugs in the class.

PBMs in this scenario are negotiating more favorable prices and rebates associated with formulary placement and a maximum per-member-per-month (PMPM) cost of the drug where the pharmaceutical company may provide additional value if that PMPM cost is exceeded.

This type of approach can also deliver value for therapy classes such as oncology, which drives billions of dollars in prescription spending in the United States, in part, because the class is dominated by high-cost drugs. This type of value-based strategy makes sense when it’s difficult to measure outcomes.

Oncology medications can demonstrate vastly different outcomes and have other significant challenges, including AEs, adverse interactions, and variations in tolerance. Prescribing patterns and preferences among oncology specialists can vary greatly.

With opportunities existing in many of the chronic and rare disease drug therapies, it is likely there will be more value-based contracting activity in the future. There has been much discussion between health plans and drug-makers over the adoption of value-based contracting in the United States and some studies suggest that the majority of value-based payment arrangements are not publicly disclosed. Therefore, the number of value-based contracts in existence may be vastly underestimated. A recent review of publicly disclosed arrangements has provided insight into some of these arrangements.

Just this year, a Pittsburgh, Pennsylvania-based health plan announced a value-based contract for an oral type 2 diabetes medicine also indicated to reduce the risk of cardiovascular death in adults with type 2 diabetes and established cardiovascular disease. In this contract, reimbursement for the medication will be linked to total costs of care for all people with diabetes treated.

They also mentioned a value-based contract for a naltrexone extended-release injectable suspension, which is a non-addictive, once-monthly treatment proven to reduce the risk of relapse in opioid-dependent patients when used with counseling following detoxification. The goal will be to work to improve adherence and support members who are trying to avoid dependence on opioids, as well as remove barriers to access, with the goal of better health.

Another innovator in this space is a New England-based health services company that has worked with a drug-maker of an injectable osteoporosis therapy. This value-based contract will measure patients’ adherence to the drug and will address the challenge of ensuring that patients keep taking the medication as prescribed by their physician.

The contract rewards improvement in persistence in medication use compared with the baseline level of adherence seen in the health plan’s population. If meaningful improvements to the drug’s persistence are realized the drug-maker will reduce the cost of the drug for the heath plan. In a collaborative effort, the health plan will work with its pharmacy network and the drug-maker to drive improvements in patient persistency.

Similarly, pharmaceutical companies need to differentiate their offerings against significant in-class competition, such as the PCSK9 inhibitors that treat high cholesterol and hepatitis C virus (HCV) therapies. To help manage the rapid increase in HCV treatment costs, several health services companies have signed value-based contracts for the newer oral HCV therapies, which are very costly with list prices often exceeding $100,000 for a course of therapy.

Along those lines, health services companies have also endeavored value-based agreements for te PCSK9 inhibitors, which have indications to treat a broad number of high cholesterol patients with therapies that are far more expensive than traditional small molecule, generic statin medications.

The list of these arrangements goes on and on, from autoimmune drugs treating rheumatoid arthritis and psoriasis to diabetes drugs. Value-based models continue to grow and potentially offer ways to create value for both payers and the pharmaceutical companies by establishing a drug price relative to its value.

Although concerns have been raised by the frameworks surrounding value-based contracts, stakeholders continue to pursue these arrangements as they increasingly grow in complexity, especially with the introduction of curative specialized treatments, such as gene therapies. With the onset of innovative curative medicines, several value assessment frameworks have been discussed in determining how much the health care system should be willing to pay.

The Institute for Clinical and Economic Review (ICER) is an independent and non-partisan research organization skilled in the development of comparative effectiveness analyses. ICER’s purpose is to objectively evaluate the clinical and economic value of prescription drugs, medical tests, and other health care and health care delivery innovations. These value assessment frameworks will play a more pivotal role in decisions that affect future patient choice and access.

It is evident that measuring value in health care is far from simple. However, being proactive to identify these opportunities and ensuring the process is collaborative can help path the way to new innovative contracting strategies.

These contracts need to consider scaling efficiencies, care coordination, and access, as well as expanded services and patient support to ensure the patient is able to receive safe, appropriate, and effective care at a reasonable cost. The shift from volume to value represents a paradigm shift in the structure of the US health care market and demands innovative approaches to commercialization and pricing.

Furthermore, the alignment of incentives between payers and pharmaceutical companies has the ability to create tremendous value in the health care system and that is important to all stakeholders in the future.

About the Author

Brandeis Seymore earned her Bachelor of Science Pharmacy degree from the Duquesne University School of Pharmacy and is currently enrolled in the Master of Pharmacy Business Administration (MPBA) program at the University of Pittsburgh, a 12-month, executive-style graduate education program designed for working professionals striving to be tomorrow’s leaders in the business of medicines. She has spent the past several years working as a senior clinical manager assisting employers with their pharmacy benefit management strategy. Prior to these experiences, she has held roles of increasing responsibility, most recently as a Strategic Account Executive to support client’s marketplace needs and demands.