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Opportunities and Challenges With Value-Based Contracting

Given the need to provide patients with access to effective medications, it is likely that we will see more value-based contracts in the future; however, some key operational, communications, and regulatory barriers will need to be addressed first.
Published Online: Jun 22,2017
Dan Leonard, MA
We are in the midst of a massive shift when the government, private sector, and all stakeholders within healthcare are trying to move us from a system based on reimbursing for the volume of services to one that is pinned to the value of those services.

One component of this shift in the pharmaceutical arena is the practice of developing value-based contracts, under which biopharmaceutical manufacturers and payers agree to link coverage and reimbursement levels to a drug’s effectiveness and/or how frequently it is used.

To date, in the United States, value-based contracting activity has been limited; however, the desire to ensure patient access to important treatments is driving interest in agreements among both payers and biopharmaceutical manufacturers, and our changing healthcare environment may generate more activity in this arena in the future. Nevertheless, activity could remain limited unless we address several operational barriers, as well as regulatory and communications concerns.

Compelling Reasons to Engage in Value-Based Contracting
There are convincing arguments for manufacturers and payers to both consider value-based contracts: 1) manufacturers can use value-based agreements to differentiate and demonstrate the effectiveness of their product versus their competitors, which can assist payers in making formulary decisions; 2) payers can use these agreements to gain experience with a product, reducing uncertainty regarding clinical value, performance and financial impact.1

There are a variety of agreements that have been struck between payers and manufacturers. Although most are based on providing discounts to payers if the drug does not meet a particular clinical endpoint, the contract details are all different. In one agreement, for example, Novartis will provide Harvard Pilgrim with a discount if its heart failure drug Entresto does not provide a given level of reduction in hospitalizations for congestive heart failure.2 In another example, Cigna reached independent agreements with Sanofi and Amgen for their PCSK9 inhibitor drugs, but they share the same overall objective.

According to the agreement, “[i]f Cigna’s customers aren’t able to reduce their [low-density lipoprotein cholesterol] LDL-C levels at least as well as what was experienced in clinical trials, the 2 biopharmaceutical companies will further discount the cost of the drugs. If the drugs meet or exceed expected LDL-C reduction, the original negotiated price remains in place.”3