Value-Based Contracting Faces Legal, Operational Barriers

Manufacturers and payers face regulatory and operational barriers for value-based contracts.

With the constant entrance of new stakeholders in the healthcare market, payers have been increasing their requirements for reimbursement, including assurance that a novel drug provides value. In response, some pharmaceutical manufacturers have begun seeking new ways to demonstrate the value of their drugs.

Manufacturers have shown interest in contracts that tie payment for a new drug to the outcomes it delivers, which reduces the risk taken by insurers, according to a report published by PhRMA.

Outcomes-based contracting ties final price to real-world outcomes, while other risk-sharing contracts may be based on other performance metrics. Additionally, some contracts may base reimbursement on indication, which varies the price based on the condition the drug is being used to treat.

While some manufacturers have expressed interest in exploring risk-sharing contracts, only 16 have been announced from 2015 to early 2017 — including contracts from Amgen, Merck, and Novartis — increasing from 7 announced in the late 1990s to 2013, according to the report.

Value-based contracts could result in numerous benefits for both patients and payers.

Patients could have access to less costly and innovative treatments, since these contracts typically result in better formulary position, lower co-payments, and less cost-sharing, according to the study. Currently, a newer drug may be blocked from a payer’s formulary in favor of a more well-established, and likely cheaper, treatment.

The authors said that payers would benefit from a better understanding of the patients they serve, while also working to improve affordability of treatments.

“Such contracts can support better real world understanding of product benefits, supporting more effective use of medicines to improve health outcomes,” the authors wrote.

However, stakeholders have found numerous factors have limited their ability to implement value-based contracts. To determine payers’ and members’ perspectives, PhRMA recently conducted a pair of studies.

The first survey was released last year and examined payers’ positions on the contracts. The researchers found that there were concerns over anti-kickback laws, FDA regulation of manufacturer communications, and government price reporting, PhRMA reported.

In the new survey, PhRMA members indicated similar issues. The authors noted that the top legal barriers were: how the contract would affect price reporting, the federal anti-kickback statue, and concerns about FDA regulations with clinical or economic outcomes claims.

A smaller portion of participants felt that compliance with privacy protection may present a barrier when pursuing these contracts, according to the report.

Additionally, PhRMA members also indicated that operational barriers were present. This hurdle included concerns over an inability to measure outcomes, lack of payer culture of measuring outcomes, lack of payer capability of measuring outcomes, and payer access to medical and pharmacy data, according to the study.

“The survey results show that there are greater barriers associated with contracts tied to measuring a drug’s actual effect in a payer’s patients, when compared with contracts where payment does not vary based on patients’ real world experience,” the authors wrote.

Operational barriers may be reduced or eliminated through improved data collection approaches and implementing better tools for outcomes measurement, while legal and regulatory barriers can only be addressed through government involvement. The latter may provide an additional layer of difficulty.

Each barrier requires manufacturers to take a different approach to ensure that their concerns are avoided. For example, since the anti-kickback statute is broadly written, it may inadvertently prevent innovative programs that will lead to cost savings and beneficial outcomes, not fraud, according to the study.

This would require a change in legislation. PhRMA reports that value-based contracts should not be included under the statute, as the contracts would not result in fraud.

Policy changes and better data standards could lead to a higher uptake of value-based contracting, according to the study.

“The significant increase in outcomes- based and risk-sharing contracts highlighted earlier in this paper reflects commitment of individual biopharmaceutical companies to navigate these challenges,” the authors wrote. “However, it is very possible that the level of risk-sharing is still limited by the barriers identified by survey respondents.”