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.

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.

 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.”

 At the same time, Eli Lilly and Company and Anthem have forged a partnership to begin a public dialogue about ways to move toward an “environment conducive to allowing health plans and manufacturers to enter into a variety of value-based contracting arrangements, aligned with the shift toward value-based payment and the goal of promoting access to high-value care.”

Challenges With Structuring and Implementing Value-Based Contracts

There are many difficulties inherent in implementing value-based contracts, particularly those based on particular outcomes or indications of a drug. These fall into 3 main areas: operational, communications and regulatory.

. Significant payer and provider infrastructure is necessary to monitor an outcomes-based agreement. For example, payers may not have the capability to monitor and track pharmaceutical usage and outcomes relevant to the contract due to a lack of a robust information technology, data infrastructure, or staff expertise, among other issues.

Without proper tracking mechanisms in place, it can be difficult to ensure medication adherence. Manufacturers are reluctant to accept financial consequences when they cannot control how a drug is prescribed or used. In addition, agreeing on outcomes that are meaningful and measurable within a reasonable timeframe is challenging.

. Payers may be interested in lowering expenditures for a particular patient population, such as reducing hospital visits and costs. Yet, this type of clinical or economic outcome might not be included on a drug’s label, which must be approved by the FDA.

As a result, payers and manufacturers cannot agree to a contract based on an outcome that is not listed on the drug’s label, even if strong data exists for that outcome, and this limits their ability to effectively share risk. FDA is currently reviewing how it regulates the exchange of information between payers and manufacturers, so this concern could be addressed in the near term.

. Medicaid Best Price was enacted as a way to keep federal spending in check and guarantee that Medicaid is getting the lowest price that the manufacturer can afford to sell it, which is roughly one-fourth of a drug’s average manufacturer price.

Manufacturers are reluctant to develop value-based contracts that might result in an effective greater discount than Medicaid Best Price, because the lower “discount” or price would apply not only to the population in the agreement, but to the entire Medicaid population as well.

Fear of inadvertently running afoul of the federal anti-kickback statute, which prohibits the exchange or offer of anything of value in an effort to reward the referral of business, is another reason some manufacturers and payers shy away from value-based contracting.

Value-added services could include activities such as nurse coaches, case management support or adverse event monitoring, all of which have benefits in the administration of a value-based contract. The federal government would need to provide clarity to address this situation.

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. This expansion could be fueled by: 1) improved data systems, which can help create the mechanisms to monitor patient usage of biopharmaceuticals and their effect on health outcomes, and 2) the changing of incentives within the healthcare system toward value-based orientations.

The increased use of accountable care organizations, for example, may lead to enhanced health system alignment with value-based agreements. Yet for value-based contracts to truly take off, we will need to address some key operational, communications and regulatory barriers sooner, rather than later.

: National Pharmaceutical Council, Washington, DC.

: Mr Leonard is an employee of the National Pharmaceutical Council, an industry-funded health policy research group that is not involved in lobbying or advocacy, and an officer of the Board of National Pharmaceutical Council.

: Concept and design (DL); drafting of the manuscript (DL); critical revision of the manuscript for important intellectual content (DL); and supervision (DL).

: Dan Leonard, MA, President, National Pharmaceutical Council, 1717 Pennsylvania Ave, NW, Washington, DC 20006. E-mail: dleonard@npcnow.org.

1. Garrison LP, Carlson JJ, Bajaj PS, et al. Private sector risk-sharing agreements in the United States: trends, barriers, and prospects. Am J Manag Care. 2015;21(9):632-640.

2. Pay-for-performance deal with Novartis [press release]. Wellesley, MA: Harvard Pilgrim HealthCare; June 27, 2016. 

https://www.harvardpilgrim.org/public/news-detail?nt=HPH_News_C&nid=1471911695877

3. Cigna’s two new value-based contracts with pharma for PCSK9 inhibitor cholesterol drugs tie financial terms to improved customer health [news release]. Bloomfield, CT: Cigna; May 11, 2016. 

https://www.cigna.com/newsroom/news-releases/2016/cignas-two-new-value-based-contracts-with-pharma-for-pcsk9-inhibitor-cholesterol-drugs-tie-financial-terms-to-improved-customer-health

4. Eli Lilly and Company; Anthem. Value-based contracting arrangements. Eli Lilly and Company website. 

https://lillypad.lilly.com/WP/wp-content/uploads/LillyAnthemWP2.pdf

. Published January 29, 2016. Accessed May 4, 2017. 

5. Drug and device manufacturer communications with payors, formulary committees, and similar entities—questions and answers; draft guidance for industry and review staff; availability. Federal Register website. 

https://www.federalregister.gov/documents/2017/01/19/2017-01011/drug-and-device-manufacturer-communications-with-payors-formulary-committees-and-similar

. Published January 19, 2017. Accessed May 4, 2017.

6. Sachs R, Bagley N, Lakdawalla D. Value-based pricing for pharmaceuticals in the Trump administration. Health Affairs blog website. 

http://healthaffairs.org/blog/2017/04/27/value-based-pricing-for-pharmaceuticals-in-the-trump-administration/

. Published April 27, 2017. Accessed May 4, 2017.

Articles

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.

Opportunities and Challenges With Value-Based Contracting

By most accounts, healthcare reform will be driving headlines throughout the first half of 2017. Although it is fairly certain that the Affordable Care Act will be repealed, what is less certain is how a final replacement bill might be structured. Many policy makers in Washington have made statements about the need for marketplace competition, a system that is patient-driven with less federal government intervention and a flexible set-up via block grants to states, among other priorities.

Regardless of political party or preferences, healthcare stakeholders first need to work together to develop and implement provisions that achieve the important goals of improving health outcomes, improving the healthcare system, and lowering costs. Over the long run, if our health system ensures that patients have access to the right treatments and services at the right time, then we should realize improved health outcomes and lower costs.

To meet these shared goals, it is critical that we examine several key areas of healthcare, such as ensuring we have the right evidence to make key decisions, fostering the use of high-value care, and developing strong incentives to improve payment and delivery systems. In particular, we should focus on the following 10 areas:

In large part due to technological innovation, we are now starting to see the benefits of a revolution in healthcare data and, with it, the potential to make healthcare payment and delivery even more effective and cost-efficient. Through electronic health records, claims data, and even wearable devices, we are able to gather insightful real-world evidence (RWE) about how healthcare is being delivered, the quality of that care, and how biopharmaceutical treatments are performing in patients in everyday settings. This is even an area in which segments of the biopharmaceutical and insurance sectors have been able to collaborate to conduct real-world studies

 designed to determine how to most effectively and economically treat disease, thereby bringing value to our healthcare system. How payers will utilize this evidence in making coverage decisions is still a work in progress, however, as new methods are being developed

 to ensure the quality of the data, how a research study is conducted, and how the evidence is evaluated.

 RWE is likely to grow in importance thanks to the 21st Century Cures Act, which specifically addresses its application and calls on the FDA to develop a program to consider how this information could be used and evaluated.

Going forward, it is important to have the infrastructure and processes in place to determine whether these and other changes are moving us closer to or further from the Triple Aim. RWE based on comparing patients who experience changes versus previous care and/or comparing them with patients who are not experiencing changes could help provide the evidence needed to inform future innovation.

Additionally, broader access to research-quality data found in taxpayer-funded databases could help researchers tackle a host of healthcare questions that cannot be addressed through other information sources. Although CMS has allowed

 biopharmaceutical companies to access certain federal databases, access to state all-payer claims databases remains limited. Above all, by having ongoing assessments of how patients are experiencing care, we can make adjustments to ensure that positive outcomes remain front and center.

2. Enabling More Open Conversations Between Payers and the Biopharmaceutical Industry

A broad-based reform conversation must cover the need for biopharmaceutical companies and payers to exchange relevant healthcare economic information. Although Section 114 of the Food and Drug Administration Modernization Act of 1997 established a special mechanism for how such information might be shared, research funded by the National Pharmaceutical Council (NPC) found that “the language of Section 114 is sufficiently vague[…] leaving legal, regulatory, health economics, and other teams within drug companies to interpret the statute and gauge the company’s risk tolerance. The seemingly limited use of Section 114 to date may reflect companies’ uncertainty about its scope[…]. In practice, it is hard to know exactly what the law allows given the imprecision of the statute and the lack of guidance about its scope.”

The FDA hosted a hearing on the topic in November 2016 and in January 2017 issued a draft guidance document that could allow for the “off-label” exchange of healthcare information under specific circumstances.

 However, any meaningful information that can make a difference for healthcare decision making should be broadly communicated by all stakeholders.

3. Moving From “How Much” to “How Well” We Spend

Recognizing what is a "high-value" treatment or service—in that it is beneficial to patients and offers the best use of our health dollars&mdash;should be a paramount concern in health reform. Even more important, the health benefit should be patient-centered, with reduced or no barriers to high-value care.

One approach toward reducing health costs—currently being tested in the Medicare program, in the Department of Defense, and by some employers&mdash;is value-based insurance design (VBID). VBID shifts the focus from “how much” to “how well” we spend healthcare dollars and is driven by the concept of clinical nuance, which recognizes that medical services differ in the benefit they provide and in the benefit each individual patient experiences from a particular service. By incentivizing consumers to utilize the treatments that are most beneficial to them, this could shift spending to higher-value care.

4. Recognizing Individual Patient Differences via Co-Pays

Another approach related to VBID that also could shift consumers to higher-value care is dynamic cost sharing. For policy makers and healthcare leaders who speak about the need to keep the patient at the center at all times, it is important to keep in mind that a biopharmaceutical listed on the first tier of a formulary may not work well for everyone. The individual who does not respond well to that first biopharmaceutical might need to try 1 or more treatment options until finding one that works best, which might be on a higher, or more expensive, tier of the formulary. Should that person be required to pay more for a medicine—whether it is brand or generic&mdash;simply because his or her biological response is different? The results of  a recent study led by NPC suggest that dynamic cost sharing could be an appropriate approach for patients with the same condition but who are in need of specialized treatments.

As the system increasingly embraces a value-based mindset, we need to creatively design and implement new incentives. One way to do so is through value-based contracting, under which healthcare payers and biopharmaceutical manufacturers agree to link coverage and reimbursement levels to a drug’s effectiveness and/or how frequently it is utilized. According to one study,

 there are benefits to these arrangements. Biopharmaceutical manufacturers can use value-based contracting to differentiate and demonstrate the effectiveness of their product versus that of their competitors, which can assist payers in making formulary decisions. Payers can utilize value-based contracting to gain experience with a product, reducing uncertainty regarding clinical value, performance, and financial impact. Yet, existing barriers, such as the effort and expense involved in patient monitoring, make it difficult to design and implement value-based contracting in the current US healthcare environment.

6. Identifying and Addressing the Gaps in Quality Measurement

Quality measures play a critical role in the implementation of accountable care organizations, as physician payments will be based on how they measure up against quality metrics. It is important to understand how these delivery and payment structures save money, in addition to  whether they result in improved patient health.

A first step is to examine where gaps exist in quality measurements

 for prevalent and costly health conditions and to evaluate whether we are incenting the most appropriate and effective treatments for patients with these illnesses. We need to continue strengthening our understanding of how new payment models may be impacting individual patient care and health outcomes, as well as how biopharmaceuticals fit into these models.

7. Carefully Designing Bundled Payment Programs

CMS is piloting programs to reimburse healthcare providers—generally hospitals and physicians&mdash;with bundled payments as a way to maintain healthcare quality while reducing costs and increasing efficiency. In a bundled payment, healthcare providers are reimbursed based on the expected costs for specific episodes of patient care. Yet, we need to be careful in how we design bundled payments

 so that we can emphasize those positive aspects and minimize the risk of unintended consequences. We do not want to inadvertently create incentives for underutilization of needed, but costly, services, or avoid caring for the sickest patients. Utilizing evidence-based treatment variability when designing bundled payments and holding the care up to quality metrics with adequate financial consequences can help with this balance.

8. Advancing Value Frameworks to Consider the Full “Value” of a Treatment

Despite nearly every constituency in healthcare focusing on the topic, there is no one “value assessment framework” that can accurately determine all aspects of the value of a treatment for all stakeholders. Although existing frameworks have their strengths and limitations, the field of value assessment is still evolving and there is much room for improvement. It will be critical to follow guiding practices,

 such as those outlined by NPC, to make sure that frameworks are effective tools for advancing patient care and achieving better clinical, economic, and humanistic outcomes rather than well-intentioned, but flawed, tools that impede such progress.

Today, we are seeing a shift toward high-deductible health plans, particularly in benefits packages offered by employers. Premiums are generally lower than in traditional plans because enrollees must meet the higher deductibles before traditional medical and pharmacy coverage begins. For consumers who are in a low-income bracket or who have high healthcare needs, however, these types of plans can impose the bigger burden of out-of-pocket costs,

 potentially causing them to reduce their compliance with necessary treatments or avoid care altogether. These types of plans can present a significant barrier to patients who need access to care the most.

Finally, not all care is high-value. We can do a better job identifying and ultimately eliminating "low-value" care,

 which resulted in $765 billion in wasteful spending in 2013 alone. Reducing medical errors, having appropriate pricing information, and recognizing that there can be specific circumstances under which patients might require a low-value service are important ways to lower unnecessary healthcare costs.

Improving our healthcare system will always be a challenging and daunting task. Whether we repeal, replace, or simply reform the Affordable Care Act, the effort will take the support and input of a wide range of stakeholders. Working together and considering some of the opportunities and challenges at hand, we can arrive at a solution that promotes innovation, incentivizes high-value care, and ultimately improves health outcomes. These will be indicators of the extent to which reform efforts achieve their full potential.

 National Pharmaceutical Council, Washington, DC.

Mr Leonard is an employee of the National Pharmaceutical Council, an industry-funded health policy research group that is not involved in lobbying or advocacy.

Concept and design (DL); drafting of the manuscript (DL); critical revision of the manuscript for important intellectual content (DL); administrative, technical, or logistic support (DL); and supervision (DL).

Dan Leonard, MA, President, National Pharmaceutical Council, 1717 Pennsylvania Ave, NW, Washington, DC 20006. E-mail: dleonard@npcnow.org.

Eli Lilly and Company, Anthem, Inc. and HealthCore, Inc. create research collaboration to improve health outcomes. HealthCore website. https://www.healthcore.com/collaborations/. Published June 8, 2014. Accessed January 23, 2017.

Research methodology. PCORI website. http://www.pcori.org/research-results/research-methodology. Published September 21, 2013. Updated April 28, 2014. Accessed January 23, 2017.

Comparative Effectiveness Research Tool. CER Collaborative website. https://www.cercollaborative.org. Accessed January 23, 2017.

CMS allows broader access to taxpayer-funded databases, helping researchers address health care challenges [press release]. Washington, DC: National Pharmaceutical Council; September 10, 2015. http://www.npcnow.org/newsroom/press-releases/cms-allows-broader-access-taxpayer-funded-databases-helping-researchers. Accessed January 23, 2017.

Neumann PJ, Saret, CJ. When does FDAMA section 114 apply? ten case studies. 

. 2015;18(5):682-689. doi: 10.1016/j.jval.2015.02.013.

FDA. Drug and device manufacturer communications with payors, formulary committees, and similar entities-questions and answers; draft guidance for industry and review staff [82 FR 6568]. 

 website. https://www.federalregister.gov/documents/2017/01/19/2017-01011/drug-and-device-manufacturer-communications-with-payors-formulary-committees-and-similar. Published January 19, 2017. Accessed January 23, 2017.

Supporting consumer access to specialty medications through value-based insurance design. National Pharmaceutical Council website. http://www.npcnow.org/vbid14. Published June 9, 2014. Accessed January 23, 2017.

Graff J, Shih C, Barker T, et al. Does a one size fits all cost-sharing approach incentivize appropriate medication use? a roundtable on the fairness and ethics associated with variable cost-sharing. 

Garrison LP Jr, Carlson JJ, Bajaj PS, et al. Private sector risk-sharing agreements in the United States: trends, barriers, and prospects. 

Accountable care measures for high-cost specialty care and innovative treatment. National Pharmaceutical Council website. http://www.npcnow.org/publication/accountable-care-measures-high-cost-specialty-care-and-innovative-treatment. Published October 27, 2014. Accessed January 23, 2017.

Designing successful bundled payment initiatives. National Pharmaceutical Council website. http://www.npcnow.org/publication/designing-successful-bundled-payment-initiatives. Published April 20, 2016. Accessed January 19, 2017.

Guiding practices for patient-centered value assessment. National Pharmaceutical Council website. http://www.npcnow.org/guidingpractices. Accessed January 19, 2017.

Consumer-directed health plans: pharmacy benefits & “better practices”. National Pharmaceutical Council website. http://www.npcnow.org/publication/consumer-directed-health-plans-pharmacy-benefits-better-practices. Published September 30, 2014. Accessed January 19, 2017.

How can administrators and clinicians reduce low-value care? National Pharmaceutical Council website. http://www.npcnow.org/publication/how-can-administrators-and-clinicians-reduce-low-value-care. Published September 20, 2016. Accessed January 19, 2017.

Having the right evidence, using high-value care, and developing strong incentives to improve payment and delivery systems are among the ways we can improve healthcare.