The 1, 2, 3’s of VBCs

Value-based contracting is an umbrella term for the many different financial arrangements made more frequently between pharma manufacturers and payers. At a DIA session, Richard Gliklich, MD, CEO of OM1, defined Value as equal to Outcomes divided by Cost, with four major types of outcomes-based contracts. These include payment based on desired outcome, larger rebates in absence of desired outcome, how well a drug performs against competitive drugs, and indication-specific pricing. As to indication-

Lisa Henderson

specification pricing, Gliklich noted that interest in outcomes-based contracting according to therapeutic area is rising, predominantly in hep C, oncology, MS, and rheumatoid arthritis. 

There is a growing number of pharma manufacturers engaging in outcomes or value-based contracts. Examples include: Novartis’ Entresto deal with Aetna, Cigna, and Harvard Pilgrim Health Care (see Pharmaceutical Executive Brands of the Year article); Amgen providing larger rebates for missing cholesterol goals for its high cholesterol drug Repatha with Cigna and Harvard Pilgrim; Actavis’ deal with Health Alliance for its osteoporosis drug Actonel, with a measured outcome of non-spinal fracture with good adherence, and the list continues to grow. 

In late May, Merck and Optum, the health services business of UnitedHealth Group, launched a multi-year collaboration on a shared “Learning Laboratory” to explore these value-based and pay-for-performance models, which they call Outcomes-Based Risk Sharing Agreements (OBRSAs). In this environment, the groups will examine the potential of OBRSAs for broad adoption among health insurance companies, pharmacy benefit managers (PBMs), and pharmaceutical companies. 

According to Robert P. Duffield, II, counsel for Novo Nordisk, while value-based contracts are definitely the right thing for pharmaceutical companies to do, they are unexplored territory, fraught with potential legal risk. Other hurdles include business challenges, data collection and analysis challenges, and difficulty with outcome measurement choices. 

Jim Clement, executive director, cost of care and supply chain strategy for Aetna,  presented the payer side at this same DIA panel titled “Value-Based Conversations with Payers: Issues, Opportunities, and Barriers.” He explained that the current pricing and discount model is broken, but the value-based models will take time because the regulatory and pricing models are not in sync. 

The key for pursuing different paths and contracts is having trust with the manufacturer, he said. There will never be a perfect agreement, and VBCs aren’t the “be all end all,” he noted, but “if there is no trust, they won’t work.” 

Currently, VBC contracts are designed to be valid for one year. Basically, because the drugs and technologies around them evolve so quickly, the risk profiles change-new drugs are introduced, other drugs go onto generics, etc. However, some companies are starting to look into the potential for contracts to extend past the one-year timeframe, building on the trust that Clement noted, allowing for speedier contract stages in a non-perfect world. 

Meanwhile, as pharma and payers discuss sharing risk and outcomes expectations for medications as a financial model, there are questions as to the role of the patient. 

While we know that medications account for only 10% of the overall healthcare spend, we also know that current trends push higher co-pays down to the patient. And in a situation where a patient has to decide between paying for their medication or feeding their family, medication compliance goes to the wayside. And while the cost of a pill would be less costly on the healthcare bill later down the road, compliance itself can be hard to swallow for many. Some market access strategies address this, but they also cloud the waters of value, outcomes, and cost. 

The issue of patient compliance is very difficult. Many examples in healthcare show that “patient engagement” means “make sure you do what I say” with no accounting for an individual patient. At DIA, a common theme was the key to patient engagement is to understand the patients’ needs, maybe around their quality of life or life goals, and then articulate compliance that way. “If you take your medication, you will have more energy and time to spend with your grandchildren,” for example. 

As we step further into the waters of valuebased contracting, lessons learned will need to be shared. Merck’s Learning Laboratory is one step to understand in a safe environment what the stakeholders will need from these new financial models. But the patient, their needs and quality of health and life should also be factored, in a supportive and understanding way. 

Lisa Henderson is Editor-in-Chief of Pharm Exec. She can be reached at lisa.henderson@ubm.com. Follow Lisa on Twitter: @trialsonline