Dean Erhardt, President and CEO, D2 Consulting 09.25.19
As policymakers and payers continue to make the shift from fee-for-service toward value-based approaches, it’s clear that hold-outs against this trend will have the most to lose in terms of missed opportunity.
Value-based purchasing encourages providers to participate in risk-bearing arrangements and implement programs that base Medicare reimbursement on patient clinical outcomes measures, such as hospital readmission rates. Similarly, private payers have implemented performance-based incentive programs and risk-sharing arrangements for hospitals and physicians.
Adopting value-based strategies requires adaptability, knowledge of strategies and, in most cases, guidance when it comes to for successful negotiations that respond to changes resulting from regulatory and market pressures. The overall goal is to reduce cost without compromising safety and quality.
Achieving a Successful Transition
The key to success lies in optimizing a strategy to show the value of a product to each health plan/payer in a way that sidesteps risk and drives optimal reimbursement. Therefore, it’s important to understand the impact of bundled payments, accountable care, comparative effectiveness research (CER), evidence-based medicine (EBM) and payments linked to performance. Complex regulatory issues must also be addressed in order to successfully negotiate value-based payment models.
Stakeholders should seek a commercial services partner with expertise in the legal and business details surrounding commercial or government arrangements for payers. The right partners can also guide manufacturers on how to demonstrate flexibility and communicate their understanding and appreciation of stakeholder expectations.
Value-based contracting represents an opportunity but stakeholders must first seek the knowledge, expertise and experience they need to achieve measurable results.
The Benefits ofOutcomes-Based Contracts
High drug prices have sparked increased interest in outcomes-based contracts, which tie rebates and discounts for expensive pharmaceutical products to the outcomes observed in the patients and make it possible for insurers and health care systems to improve value. Under these contracts, purchasers pay more for a drug when it effectively leads to improved outcomes and less when it falls short of expectations.
Under an outcomes-based contract between a pharmaceutical manufacturer and a payer, reimbursement for a drug is based in part on outcomes of the drug’s use in a patient population. Instead of the payer covering all prescriptions at a single price, the initial price remains if a specified percentage of patients achieves the determined outcome. Conversely, if the outcome goal is not met, the manufacturer refunds some of the original price to the payer.
Payers are able to prevent wasted resources on expensive drugs that fail to translate in the real world.
Pharmaceutical manufacturers and purchasers have an opportunityto provide an alternative option to closed formularies, in which drugs can remain on the formularies in exchange for outcomes guarantees. In such cases, manufacturers retain sales volume and purchasers share the risk of low-value spending with manufacturers. This can lead to increased coverage of medicines for patients.
Potential Downside
Keep in mind thatoutcomes-based contracts don’t apply to most drugs in the near term because of outcomes measurement limitations, and electronic health records and lab values that remain difficult to access for analysis.
Some payersstate they have negotiated meaningful rebate differences in outcomes-based contracts—creating the potential for real savings. On the other hand, some payers state that the rebates they would receive for unmet outcomes would fail to offset the increase in costs associated with collecting and analyzing the data. Because brand-name pharmaceutical manufacturers set the price of their drugs under market conditions, they can raise a drug’s initial price to account for the possibility of an outcomes-based rebate.
Despite rebate levels, contracts would not affect patient out-of-pocket costs. Patient costs occur at the point of sale, while the contracts provide retrospective rebates from manufacturers to the payers that might be calculated months after the prescription is filled. As outcomes-based contracts build momentum, it will be important to consider potential ways to allow patients to share in the savings.
Outcomes-based pharmaceutical contracts could potentially move spending toward more effective treatments, but they are not likely to lower spending on a broad scale, given the limits on their applicability and meaningful metrics. The contracts apply only to a limited subset of drugs and are mostly linked to measures that do not directly reflect patient health outcomes.
Looking Forward
It’s possible that Medicare or Medicaid would consider outcomes-based pharmaceutical contracts, especially if tested in arrangements through the Center for Medicare and Medicaid Innovation. For now, political backlash against outcomes-based contracts remains staunch. Going forward, possible outcomes-based contracts tested under Medicare Part D should be independent of other potential changes in pharmaceutical reimbursement, such as direct pricing reform.
In the case of contracts between manufacturers and health plans that include private plans administering Medicaid and Medicare, price and health outcomes data would need to be kept confidential but rigorously and independently analyzed. Also, an outcomes-based contracting pilot would have to be voluntary until more public information on its implications becomes available.
Inevitably, as interest in value or outcomes-based pharmaceutical contracts grows, questions will revolve around their ability to effectively improve quality or generate true savings. Testing outcomes-based contracts in Medicare and Medicaid populations could serve as the first significant step toward determining whether the contracts can create real improvements in the value of pharmaceutical care.
Dean Erhardt offers over 20 years of strategic marketing and management experience across both the consumer product and pharmaceutical arenas. His areas of expertise include analysis and development of pharmaceutical support programs, pharmaceutical and consumer product distribution, and specialty pharmaceutical product management. Mr. Erhardt’s experience has spanned several Fortune 500 organizations including Express Scripts, Cardinal Health and U.S. Healthcare. Currently, Mr. Erhardt supports companies in the launching and reimbursement of pharmaceutical, biotech and device products across the Specialty Pharmacy, Specialty Distribution, Retail, Long-Term Care, and Hospital Markets including limited and exclusive distribution models requiring REMS. Additionally, Dean leads the D2 efforts in working with companies addressing Managed Care and Government payer market access issues.
Value-based purchasing encourages providers to participate in risk-bearing arrangements and implement programs that base Medicare reimbursement on patient clinical outcomes measures, such as hospital readmission rates. Similarly, private payers have implemented performance-based incentive programs and risk-sharing arrangements for hospitals and physicians.
Adopting value-based strategies requires adaptability, knowledge of strategies and, in most cases, guidance when it comes to for successful negotiations that respond to changes resulting from regulatory and market pressures. The overall goal is to reduce cost without compromising safety and quality.
Achieving a Successful Transition
The key to success lies in optimizing a strategy to show the value of a product to each health plan/payer in a way that sidesteps risk and drives optimal reimbursement. Therefore, it’s important to understand the impact of bundled payments, accountable care, comparative effectiveness research (CER), evidence-based medicine (EBM) and payments linked to performance. Complex regulatory issues must also be addressed in order to successfully negotiate value-based payment models.
Stakeholders should seek a commercial services partner with expertise in the legal and business details surrounding commercial or government arrangements for payers. The right partners can also guide manufacturers on how to demonstrate flexibility and communicate their understanding and appreciation of stakeholder expectations.
Value-based contracting represents an opportunity but stakeholders must first seek the knowledge, expertise and experience they need to achieve measurable results.
The Benefits ofOutcomes-Based Contracts
High drug prices have sparked increased interest in outcomes-based contracts, which tie rebates and discounts for expensive pharmaceutical products to the outcomes observed in the patients and make it possible for insurers and health care systems to improve value. Under these contracts, purchasers pay more for a drug when it effectively leads to improved outcomes and less when it falls short of expectations.
Under an outcomes-based contract between a pharmaceutical manufacturer and a payer, reimbursement for a drug is based in part on outcomes of the drug’s use in a patient population. Instead of the payer covering all prescriptions at a single price, the initial price remains if a specified percentage of patients achieves the determined outcome. Conversely, if the outcome goal is not met, the manufacturer refunds some of the original price to the payer.
Payers are able to prevent wasted resources on expensive drugs that fail to translate in the real world.
Pharmaceutical manufacturers and purchasers have an opportunityto provide an alternative option to closed formularies, in which drugs can remain on the formularies in exchange for outcomes guarantees. In such cases, manufacturers retain sales volume and purchasers share the risk of low-value spending with manufacturers. This can lead to increased coverage of medicines for patients.
Potential Downside
Keep in mind thatoutcomes-based contracts don’t apply to most drugs in the near term because of outcomes measurement limitations, and electronic health records and lab values that remain difficult to access for analysis.
Some payersstate they have negotiated meaningful rebate differences in outcomes-based contracts—creating the potential for real savings. On the other hand, some payers state that the rebates they would receive for unmet outcomes would fail to offset the increase in costs associated with collecting and analyzing the data. Because brand-name pharmaceutical manufacturers set the price of their drugs under market conditions, they can raise a drug’s initial price to account for the possibility of an outcomes-based rebate.
Despite rebate levels, contracts would not affect patient out-of-pocket costs. Patient costs occur at the point of sale, while the contracts provide retrospective rebates from manufacturers to the payers that might be calculated months after the prescription is filled. As outcomes-based contracts build momentum, it will be important to consider potential ways to allow patients to share in the savings.
Outcomes-based pharmaceutical contracts could potentially move spending toward more effective treatments, but they are not likely to lower spending on a broad scale, given the limits on their applicability and meaningful metrics. The contracts apply only to a limited subset of drugs and are mostly linked to measures that do not directly reflect patient health outcomes.
Looking Forward
It’s possible that Medicare or Medicaid would consider outcomes-based pharmaceutical contracts, especially if tested in arrangements through the Center for Medicare and Medicaid Innovation. For now, political backlash against outcomes-based contracts remains staunch. Going forward, possible outcomes-based contracts tested under Medicare Part D should be independent of other potential changes in pharmaceutical reimbursement, such as direct pricing reform.
In the case of contracts between manufacturers and health plans that include private plans administering Medicaid and Medicare, price and health outcomes data would need to be kept confidential but rigorously and independently analyzed. Also, an outcomes-based contracting pilot would have to be voluntary until more public information on its implications becomes available.
Inevitably, as interest in value or outcomes-based pharmaceutical contracts grows, questions will revolve around their ability to effectively improve quality or generate true savings. Testing outcomes-based contracts in Medicare and Medicaid populations could serve as the first significant step toward determining whether the contracts can create real improvements in the value of pharmaceutical care.
