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Value-based Contracting: New, Necessary, but Not Easy

Simi Mathew
MediMedia Managed Markets

With prices hitting new highs, payers are more interested than ever in seeing evidence that the drugs they pay for will perform as well as they did in clinical trials. They’re also looking at outcomes beyond narrow clinical endpoints such as blood pressure and placing emphasis on improvements in quality of life. And, as the ones footing the bill for expensive medications, payers also have a strong interest in keeping costs under control. They’re not alone. High deductible coverage means that an increasing number of Americans also have a direct financial stake in high pharma prices and making sure they get what they’ve paid for: outcomes the drugs are supposed to achieve.

Value-based contracts are one way to deal with these new pressures. Companies such as Amgen and Sanofi/Regeneron have signed value-based contracts with payers in which reimbursement for their PCSK9 inhibitors are proportional to drug performance. Value-based contracts were a major topic of discussion at a meeting earlier this summer on oncology drug pricing and market access hosted by eyepharma, a London-based company that bills itself as a hub for pharmaceutical company executives to exchange ideas.

But many payers are holding back on signing into value-based contracts. Why? Understandable caution about the novelty and myriad  of logistic and regulatory obstacles.

Pharmaceutical companies are also venturing into unfamiliar territory. Manufacturers who are confident in their products should relish the chance to sign a value-based contract. But there’s this: Some payers expect the reduced, value-based contract prices without actually participating in such a contract. A lower price may mean a much narrower margin, or even a loss, for the manufacturer. Value-based contracting also means the added burden satisfying payers with data that document results beyond  the clinical trials. Most drugmakers are aware that value-based contracts will require a partnered initiative with several health care systems,  a complicated endeavor.

Regardless of whether you are on the payer or manufacturing side of the contract, value-based contracting poses some intricate questions. First and foremost, how do you define value? While there are easily measurable endpoints for disease states such as diabetes, it becomes much more complex in areas such as oncology, where patient responses vary and regimens are highly personalized.

Value-based contracting also creates a whole new set of logistical problems. Developing the infrastructure for an auditing method introduces a new upfront cost. To track outcomes, all parties require access to data that are typically siloed in individual health systems. Regulatory pitfalls must be anticipated. Discounts could trigger Medicaid best-price rules, 340B ceiling prices, or anti-kickback laws.

Changes in pharmaceutical contracting have arrived. The shift toward value-based negotiations can’t be dismissed as minor or a passing fancy. Both pharma and payers should see value-based contracting as opening a door of opportunity to produce real-world evidence for new drugs, to embrace innovations in patient care and to improve patient lives without the side effect of “financial toxicity.” At the same time, they shouldn’t underestimate the job ahead, which is going to involve working in new ways with new partners. As many have said, change is hard.

Simi Mathew is a 2017 PharmD student at the Philadelphia College of Pharmacy and was an intern this summer at MediMedia Managed Markets, which owns Managed Care. She currently interns at a community pharmacy and has a strong interest in medical communications.