As healthcare moves to an outcomes-based model, pharmaceutical companies are starting to accept the idea of value-based contracts, which tie reimbursement for individual therapies to patient outcomes. The practice has quietly been in place, in niche areas such as specialty oncology drugs, for as long as managed care has been an industry catch phrase. In 2011, for example, EMD Serono noted the trend for payers to designate “preferred” suppliers based on clinical performance.
Over the last two years, however, the practice has received much more publicity as leading pharmaceutical companies, including Amgen, Gilead, Lilly, Novartis, Regeneron and Sanofi, have entered into formal value-based contracts with insurance companies.
Although widely publicized, such contracts are still the exception rather than the rule, but they will become more common in the future. Dan Mendelson, president of the healthcare IT firm Avalere, has noted that value-based is poised to grow, not just for specialty pharmaceuticals but also for broadly applicable treatments such as the PCSK9 inhibitors used to reduce cholesterol. Such contracts allow payers to control costs, yet provide access to breakthrough therapies, he said.
In a 2015 survey, Avalere found that 63 percent of insurers were very interested in shifting to value-based contracts for hepatitis-C drugs, and 53 percent for oncology drugs. Government payers, notably the Centers for Medicare and Medicaid Services, have expressed an interest in moving to value-based contracts for Medicare Advantage and Part D prescription drug programs.
For pharmaceutical companies, under fire for high drug prices, the contracts provide a way to show the worth of new therapies, and, in some cases, make better connections, earlier in the product life cycle, with core patient groups. As Novartis’ departing CEO Joe Jimenez noted in a November 2016 editorial in Forbes, “We want to be rewarded for the tangible outcomes that our products provide the patient, not for simply selling pills.”
Pharma Still Ambivalent
However, the contracts also pose many questions, and a recent survey of 200 pharma and healthcare executives by Price Waterhouse Cooper (PWC) suggests lingering ambivalence on the part of pharma executives.
Only 25 percent of the respondents said they had participated in a value-based contract. However, among those who had participated, 80 percent said the effort was successful. In addition, 71 percent viewed the idea of these contracts favorably, yet only 38 percent described seeing the rewards as worth the potential risk.
One of the greatest challenges with value-based contracts will be defining value, especially for drugs with complex modes of action, treatments such as gene or cell therapy, and therapeutics designed for small patient population, e.g. rare disease treatments. In such cases, value will have to be defined narrowly within the context of that disease and patient populations, PWC analysts point out.
Then there is the issue of patient noncompliance and its potential impact on patient outcomes and questions of value. What’s the use of a perfectly engineered therapy if a patient doesn’t take the medication as directed or continues to enjoy an unhealthy lifestyle? How can data show that a patient’s rehospitalization is not because of the drug they were prescribed or their physician’s standard of care? (This is becoming an important issue for doctors since the Medicare Access and CHIP Reauthorization Act of 2015 has made outcomes-based payments an issue for physicians as well.)
Need for Regulatory Flexibility
Another problem is data sharing. As PWC’s survey notes, if value-based contracts are going to work, regulators will have to make it easier for companies to use real-world evidence and contract with insurers and health systems based on clinical guidelines or surrogate outcomes that may not be found in the drug package’s insert. The survey found that most value-based contracts are launched while a drug is still in clinical stages or right after its approval. In one success story, a manufacturer used information gleaned during clinical trials to suggest that the drug required lower doses than its main competitor, adjusted pricing accordingly, promoted that fact, and seized market share.
However, many executives may wonder how they can legally share safety and efficacy information with payers before a drug is approved, when FDA regulations prohibit this practice. A position paper from PhRMA highlights these issues.
PWC’s survey also suggests that there may be a trust gap, and communications issues, with government payers. Pharma executives who responded to PWC’s survey described believing that private insurers would be most capable, and federal or state insurers least capable, of making value-based contracts work.
Improving Patient Outcomes Data
The fundamental question is where and when the evidence of improved patient outcomes, upon which value-based contracts depend, will be widely available. Since healthcare providers and hospitals have adopted electronic health record systems, more patient data is being tracked. However, much of the data remains siloed, some of it in clinical databases and the rest in transactional databases. Often, this information cannot be shared with healthcare partners. How soon can connections be made so that this information will become available to all healthcare stakeholders? Will there be enough there to show clear trends? Will population healthcare management (PHM), which experts see as evolving at the forefront of healthcare IT, provide the missing link in clarifying relationships between treatments and outcomes? A 2017 survey by KPMG suggests that PHM programs are gaining increased acceptance among healthcare providers and payers.
Such databases will be crucial to signaling changes in response to specific treatments and medications. Eventually, they are expected to help healthcare providers move from prescriptive to preventive treatments, and to make predictions based on clear patterns and past evidence. This information will be extremely valuable to pharma companies, and medical affairs professionals will be charged with understanding and interpreting it for their employers and payers, and for discussing issues with physicians and other healthcare providers.
Medical Affairs to Play a Crucial Role in Defining Risk and Value
Despite the many questions that remain about value-based pricing, one point is becoming clear: Medical Affairs professionals, and particularly medical science liaisons, will be crucial to getting various stakeholder groups to define and understand basic concepts of value and risk, so that they can work together to optimize decisions on pricing and supply.
These experts will need to be able to explain the fundamental science behind personalized treatments (such as gene therapy) and complex modes of action to distinct groups of healthcare stakeholders, using each group’s own language.
That means being able to easily stay on top of and ahead of the science, so that Medical Affairs professionals are able to communicate as fluently with physicians as they do with payers (both private and government-based). Eventually, Medical Affairs professionals will also need to communicate with patients, who will play a much more important role in setting drug prices in the future. PWC’s survey on value-based pricing found that only 25 percent of respondents now include patients in pricing decisions, but that another 27 percent plan to do so in the near future.
As Medical Affairs professionals become essential collaborators in developing more effective healthcare decisions, they have diverged from their traditional support role to become more strategic. This often requires accessing new sets of knowledge, including a health economics and outcomes research (HEOR), and real world evidence, which will increasingly drive more healthcare decisions.
As McKinsey analysts have noted, this is a time of great change for Medical Affairs professionals. The move to value-based medicine, and value-based pricing for new therapies, calls for greater transparency than was seen in the past. Going forward, Medical Affairs professionals will need a broader range of skills than ever before, including a facility with analytics and the ability to communicate clearly with diverse groups.