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Article: Contracting Beyond Rebates and Discounts by Enid McDonough
Published 07/11/2017

As provider reimbursement systems move toward compensation for success rather than service, some health plans are encouraging manufacturers to take on some of the market risks for new agents in exchange for preferential management.   As pharmaceutical companies seek to develop new and successful market access strategies, they should proactively approach certain types of plans with offers of performance-based contracts.

For decades, manufacturers have negotiated rebates and purchase discounts with payers for preferred tier placement and limited restrictions.  Few agents in a class achieve the optimal positioning manufacturers desire and drug management has been driven by the power of the manufacturer combined with the efficacy of the agent.  Managed Care Organizations have measured their success based on short-term savings without the ability to determine whether there are increased or decreased down stream costs.

The trend toward value-based contracting is emerging as plans reexamine their core value concept across the entire health care system.  Key players in health plans are coming to realize that they do not know whether they get value for their dollars.

“We accept information and review a new agent, put it on formulary, and move on to the next drug.  We never look back to ask, ‘Did we get a reduction in X, a positive Y?’” (James T. Kenney, Jr., Manager, Specialty and Pharmacy Contracts, Harvard Pilgrim Health Care)

Over the next year, more plans nationwide will consider including performance-based contracts as an option when negotiating with manufacturers.  In a survey of payers from a range of plans nationwide, 35% currently negotiate some form of risk sharing contract.  Of the 65% that do not do so, 40% will begin to negotiate these contracts over the next year.

These contracts need not be complicated.  There are several forms of performance-based contracts:

  1. Outcomes-based
    • Rebates are paid based on the actual performance of the drug in real world clinical practice
    • Can include patient compliance (measured by Medication Possession Ratio (MPR) or Proportion of Days Covered (PDC)) as an outcome
  2. Value-based
    • Payment for drugs is based in part on the effectiveness of the product
  3. Performance-based
    • Improved or guaranteed medical outcomes as an off-set to the increased cost/use of pharmaceutical products
  4. Comparative-effectiveness contracts
    • Compare different treatment options (e.g. drug therapy vs. surgery) for a specific medical condition

The critical challenge for these contracts is ensuring that there is a measurable goal and system for tracking.   Tracking is most effective when both medical and pharmacy claims data are available, but simple performance contracts can start with pharmacy claims only, such as contracts that are dependent on patient compliance.   Outcomes can be individual or population based for either chronic or acute conditions.

A manufacturer’s confidence in the value of its product, is a critical driver to proactively seeking a performance-based contract, regardless of the competition.  There need not be a “winner.”   If multiple agents in a class meet performance metrics, they can all gain preferential coverage and the plan will leave the agent selection to the patients and their providers.   Large, multi-agent drug companies will lose any advantage that is not product driven, leaving space for smaller, innovative developers.  Plans will be less resistant to new agents, thereby encouraging innovation.  Lastly, over time, plan formularies may become less restrictive, giving patients greater access at more reasonable prices.

While PBMs (pharmacy benefit managers) without data access and heavily siloed plans will not be receptive to, or able to execute, these contracts, IDNs (integrated delivery networks) and plans that are fully capitated with built in pharmacies and full data access are ideal.   Manufacturers who seek to break the current mold should proactively assess these contracts, develop strategies, and lead the contracting conversation for their agents.

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