Value-based Contracting—What do Payers Need to Know?(Part 1 of 2)
With growing number of high-cost drug therapies coming to market, payers, pharmaceutical companies, and other stakeholders in the drug supply chain continue to explore different reimbursement models to deliver quality and uninterrupted care to members.
Although not a new concept, value-based contracting continue to gain broader interest from plan sponsors as more sponsors search for ways to transition away from “pay for service” model to “pay for performance” model.
Value-based contracting is a contract that identifies a set of agreed-upon values (outcomes) tied to individual patients from the drug manufacturers and the payers. This contract reflects the clinical and economic benefits provided by a specific therapy targeted for a certain population. (1)
There are multiple approaches to value-based contracts. One of the most common types of value-based contract is performance-based contracting. This includes outcomes-based contracts as seen in Figure 1. (2) This type of contract specifies measurements of patient outcomes and the thresholds of them being “good” or “bad”. A net price is defined, along with different reimbursement schemes from the manufacturers if the therapy is not as efficacious as expected.
Generally, there are 2 types of contracting schemes: “pay-for-failure” where manufacturers offer rebates or discounts due to failure in treatment, and “pay-for-success” where manufacturers offer reimbursements due to success in treatment.(3)
For example, a few health plans have entered a value-based contract with Novartis on the drug Zolsgenma which is indicated for a rare disease spinal muscular atrophy and priced over $2 million for a one-time treatment. The value-based contract allows health plans to spread the large payment over 5 years and requires Novartis to offer partial rebates if the drug does not provide expected clinical benefits.(4)
Value-based contracting has shown to be an effective tool in alternative reimbursement models for several new drugs such as the diabetes drug Januvia between a large-scale payer (Aetna) and Merck or Enbrel, an anti-inflammatory drug from Amgen that has contracts with the payers Medicare Australia, Ontario Ministry of Health and Long-Term Care, and Harvard Pilgrim. (5)
In Part 2 we will discuss the following questions regarding value-based contracting:
For what drugs has it been effective? What is the measure of effectiveness?
What are some factors that would deter a plan sponsor from entering a value-based contract?
Is it really the future of reimbursement models?
(to be continued)