A Novel Approach to Applying Value-Based Contracting to Specialty Pharmacy


Outcomes-based contracting may soon play a role in the service level agreements between a specialty pharmacy provider and a manufacturer.

Performance-based contracting or outcomes-based contracting are no longer novel concepts in health care. However, while they are not new concepts in the practice and management of specialty pharmacy, they are fresh from the perspective of how these concepts are currently deployed in the current provider landscape. As is the concept of which metrics are aggregated and utilized for the basis of defining the resultant financial transactions.

Performance-based or outcomes-based contracting is the method by which health plans, providers, and manufacturers 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.

Traditionally, performance-based contracting has been employed in a number of scenarios that include direct and indirect remuneration fee management in some Medicare Part D provider agreements, some commercial and managed Medicaid core pharmacy provider agreements, between payers and manufacturers in high-cost treatment plans, and, in fewer instances, within accountable care organization environments.

Where we have yet to see performance-based contracting or outcomes-based contracting take root is in the service level agreements between a specialty pharmacy provider (SPP) and a sponsoring manufacturer of a molecule subject to a limited distribution network. This seems to be the next logical place for these value-based contracting arrangements to appear.

Identifying endpoints that measure the anticipated outcomes of a patient experience is critical to the success of this concept. SPPs cannot be held accountable for many of the variables associated with ultimate treatment outcomes, but they can be assessed on the impact their patient care system design has on treatment efforts throughout the journey.

While current pharmacy quality alliance derived performance measures might not apply to the narrow populations managed with a limited distribution network, unique markers must be located and specifically spelled out to build the value purchasing parameters. Persistence, adherence, and satisfaction immediately play important roles; however, highly specific measures indicative of success should also be explored and employed.

A sample performance-based contract or outcomes-based contract could contain measurement points as general as PDC (proportion of days covered) for a measure of adherence or as specific as whether the patient reported a positive objective achievement (ie weight gain in a treatment intended to produce incremental body mass changes).

By building a formula to assess and incorporate the goals important to treatment as indicated by the manufacturing partner, this strategy could define how effective an SPP partner in a limited distribution network was performing. This displayed aggregate performance in such a sample could then be used to determine variable reimbursement levels for services or stratified cost of goods and terms for inventory purchases.

Essentially, if an SPP performs highly in producing a high quality patient experience with definitively positive outcomes, then the SPP would financially reap the benefits of its investments and efforts. In turn, the manufacturer would have been successful in supporting a product to the best of its market ability by embracing the highest performing clinical partners and driving positive outcomes for payers and patients.

Clearly, such a performance-based or outcomes-based contract would have to be expressly reviewed by counsel to ensure that regulatory guidelines are not breached on a state or federal level. There are dangers in that an improperly drafted agreement could subvert laws surrounding incentives and manipulation of treatment intent.

Another consideration is the effect on fair market value (FMV) surrounding the pricing of services and data management. Maintaining performance-focused reimbursement banding within FMV range remains an important responsibility during design.

Not respecting the ceiling of FMV could lead to regulatory inspection of agreements while extending the basement of payment below FMV bracketed ranges could skew FMV itself. In an environment that is mimicking the trends seen in retail pharmacy for greater than 3 decades, the forces of spiraling reimbursement and increasing volume requirements conspire against the efforts of SPPs to drive high-quality, high-value services and maintain profitability.

Identification of the impact of these efforts, both financially and clinically, can be translated into revenue streams that support value-based contracting and assist in obtaining the goal of promoting access to high-quality care. This identification and the resultant enhanced revenue streams could be promoted through such contracting methods.

Certainly, not all limited distribution network arrangements lend themselves to performance-based or outcomes-based contracting out of the gates. The first experiences will set the pace for adoption as the concept evolves.

There will be a continuum of adoption dependent on the appetite of participants, the adequacy of associated technology, and the success of previous contracts. Unfortunately, most, if not all, of these service level agreements are not openly shared outside of immediate trade partners in limited distribution networks.

Many times the service level agreements even within a single limited distribution network may differ significantly from one SPP to the next SPP so the successes will be vocalized within a very defined community at first. However, as knowledge of the success or failure travels, the remaining points of interest will play the largest factors in embracing such contracting to stabilize inventory acquisition points and drive revenue streams into service-focused scenarios.

Value-based contracting, whether performance- or outcomes-based, has proven that it holds a position of growth in many facets of our health care system today, but the feasibility and potential of adoption into service level contracts within a limited distribution network between a specialty pharmacy provider and a manufacturer has yet to be revealed. While there are vast benefits to embracing these contract designs, there are also important considerations that must be fully explored.

The strategy could range from simple and broad to highly defined and surgical. In an environment hungry for ways to differentiate and prove value, one rife with the desire to prove quality health care spend, performance-based or outcomes-based contracting may be the next paradigm to further define the scope and range of an SPP’s capabilities, while driving financial spend into the most effective sites of care.

About the Author

Heather Brand earned her BA in Chemistry and PharmD from the University at Buffalo, SUNY. She worked for an oncology based pharmacy for 6 years prior to transitioning to a consultant role for a benefits management firm. She is currently employed by Onco360 pharmacy as a Clinical Oncology Pharmacist and has just completed her Masters of Science in Pharmacy Business Administration (MSPBA), a 12-month, executive-style graduate education program designed for working professionals striving to be tomorrow’s leaders in the business of medicines at the University of Pittsburgh.

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