Value-Based Contracting in Specialty: Backing Up ROI in Health Care

Specialty Pharmacy TimesJuly/August 2016
Volume 7
Issue 4

Specialty pharmacies need to determine their role with both existing and emerging therapies in the chain of value-based care.


We are seeing record-setting approvals coming out of the FDA, and the most significant of those approvals plays right into the hands of specialty pharmacy. The good news is we have new therapies that will improve the lives of patients, and provide specialty pharmacies with new platforms on which to provide care.

The challenging news is that the double-digit growth in specialty continues to strain health care budgets. Prescription spending comprises approximately $400 billion, and of that spend, specialty products run 25% to 30%, which could reach 40% by the end of this decade.

Some would say that the increased pricing trends for specialty drugs are spinning out of control. Many state Medicaid programs have been unable to absorb the challenges to their budgets for much of these new products, and in particular, have taken big hits for fantastic new products that treat hepatitis C virus (HCV), which can cost more than $100,000 for a course of therapy.

New competitive products are getting approved, more biosimilars are on the horizon, or in the cases of PCSK9 inhibitors and HCV drugs, multiple products are getting approved at nearly the same time, creating price competition. In 2015, two of the largest pharmacy benefit managers in the country, Express Scripts and CVS/Caremark, both took opposite, but exclusive, positions with two competing HCV products.

Once that was done, these precedents subsequently set the stage for the acceleration of enhanced contracting strategies, known as value-based contracting (VBC).

Value-Based Contracting Defined

The standard meaning of “value” is defined as quality divided by cost to express health outcomes achieved by the dollar amount spent. VBC involves reimbursement based on indicators of value, such as patient outcomes, efficiency, and quality. What distinguishes VBC from volume or fee-for-service based contracting is payment for every unit of service provided, which is frequently without terms associated with outcomes, quality, or cost performance.

VBC is not new, as a handful of manufacturers in the UK deployed this strategy with the National Health Service in the form of a larger rebate paid when a product did not change a patient’s blood count as intended. Specialty stakeholders here in the United States can learn from this experience.

VBC Key Elements and Tactics

When entering the complex world of contracting, the products themselves are one factor; however, a menagerie of elements must be the foundation and basis of contracting. Marc O’Connor’s article in this issue speaks to VBC and the role of specialty pharmacy, but also considers the role of care in contracting, which suggests the following elements:

1. Include all of the relevant stakeholders.

I like to call it the 4 Ps (patient, pharmacy, provider and payer). The interrelationship of the 4 Ps must join in a manner that ensures the tactics deployed by each are synergistic. The gaps must be closed in order to realize maximal value. The patient will always come first, but there is often a disconnect with the payer and pharmacy, which too often is the connection or gatekeeper in compliance to payer policies.

The payer is the principal decision maker in the formulation of the contract, but relies on the pharmacy to enforce those policies as a function of their network participation agreement. We have seen the most visible VBC agreements in payer-owned specialty pharmacies where the payer believes they have the greatest level of control. The provider or physician has to do their part in appropriately diagnosing and prescribing the products offered under a VBC agreement. In the case of many of those agreements, they must monitor the patient to provide key metrics that, in a perfect system, can be interfaced with the pharmacy and payer.

Another role for specialty pharmacy, and our most critical one, is managing patient behavior. This includes making sure the patient is educated on how to manage and adhere to their therapy. The product or manufacturer is too often not well positioned, and frequently restricted from coordinating care with patients and providers. The “art” to bringing this all together is closing the gaps, and that is where technology plays such a key role in delivering the best possible patient outcomes.

2. Measures.

Each therapeutic class or disease state presents itself with potential measures, which can be based on multiple factors that include quality, cure, outcomes, adherence, cost, and potentially many more. Often, the measures can be subjective based on how the patient feels. Objective measures are best when designing a VBC initiative.

Specialty pharmacy definitely can be the focal point of data convergence. In the case of specialty products, the specialty pharmacy can effectively interpret and take action in the management of pharmaceutical care from multiple payers. Specialty pharmacies have the pharmacologic expertise to help reduce abandonment and improve adherence.

3. Technology.

Great strides have been made in technology from integrated systems, including electronic medical records, smartphone-driven patient access tools, specialty pharmacy data analysis and reporting. Specialty pharmacy and pharmacy have always led in the area of real-time reporting with an initial focus on reimbursement and payer support.

Those same systems provide patient education, monitoring, and medication management. Coupled with the ability to provide patient monitoring and data analytics that integrate into other provider interfaces with key stakeholders, the future is bright, as those data points have the potential to be imbedded in the VBC plan.

4. Specialty pharmacy beyond dispensing.

I could write more than my allocated space regarding all of the services specialty provides to support the 3 other Ps. In managing VBC agreements, specialty pharmacy is at the core of the activity. Evolving patient care, integrated specialty pharmacy systems, and leveraging of the many assets of specialty pharmacy link it all together.

Pharmacists, nurses, reimbursement specialists, and other experts comprise the heart of the specialty pharmacy team. Together, with the patient and provider, this team assures the best potential patient outcomes with products that are impacted by VBC.


One of the first steps is identifying, by product, which measures can be put in place to assess value. We can start by evaluating a few of those elements, including:

The number of dollars spent on a medication versus other associated health care costs.

Finding specific measures and how those measures can be tracked against key benchmarks. For example, in the PSCK9 class, lowering overall cholesterol levels, which have been found to be a measure in reducing cardiovascular events.

Providing portability in these measures, as patients may go from one plan to another over the course of a patient’s treatment.

Other mortality and morbidity measures.

There are a number of potential tactics depending on the therapeutic class, the intended outcomes, measurable changes in key performance metrics, impact on overall health care costs, and, importantly for specialty pharmacy, improvements in compliance and adherence, to name a few.

If you are a specialty pharmacy, get on board with VBC. Figure out what part you can play with both existing and emerging therapies, and where you fit in the value chain. Manufacturers with products that fit the profile, consider which role an expanded and qualified network of specialty pharmacies can play in your strategy.

Providers have come to realize the benefits of a highly functional specialty pharmacy offering, and when done right, the value. The patients need to understand the shift in the paradigm from dispensing to patient care. As a profession, we’ve worked hard at shifting from a product focus to a patient focus because we need to bring them further along in our journey.

We hope to see you in Washington, DC, at the upcoming National Association of Specialty Pharmacy Annual Meeting. We’ll have a Specialty Pharmacy Times booth, and many of our staff will be in attendance We would love to visit on your view of our publication and how we can make it even better. Managing Editor, Davy James, will also be in attendance looking for your feedback, and potentially, interview you “on camera” so you can see yourself on

Specialty Pharmacy Times

is dedicated to the business and profession of specialty pharmacy. We are the source of the most current and complete information in the space. Our Industry Guide can provide the resources you need at

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About the Author

MR. STEIBER operates a consulting practice and is responsible for commercial operations, trade-supply chain strategy development including 3PL selection, regulatory oversight, and “operationalizing”organizations. Mr. Steiber has served in several senior positions in pharmacy, distribution, and industry over the course of his 40-year career. Mr. Steiber is a licensed pharmacist in Texas, Washington, California, and Pennsylvania. He is affiliated with several professional associations and publications and a frequent speaker on behalf of many professional organizations. Mr. Steiber graduated from Washington State University College of Pharmacy. He has participated in a variety of postgraduate programs in law and business development/marketing at Harvard University and Northwestern University. Mr. Steiber currently resides in Highland Village, Texas.

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