Not today! Q&A on ‘Value-based Contracts’ in the U.S.A.


I recently took issue with a well written, but incomplete article called Value-based Contracting: New, Necessary, but Not Easy from Simi Mathew in the online version of Managed Care Magazine.

Please stop and think of these questions, every time you see one of these articles – as the authors often don’t have the inside view from a pharma company or major payer.

  • Are the contracts tied, precisely and exactly, to the clinical trials that were performed by the manufacturer?
  • If they aren’t straight out of the label, do they rely on FDAMA 114 data including HEOR Studies?
  • Do they include, or must they include to make the financials make sense, product for zero dollars or a nominal value?
  • Would the payer be better off if the contract included another product that’s co-administered with the product in question, but manufactured by another company?

In they article Ms. (in fairness soon-to-be Dr.) Mathew correctly states:

Value-based contracting also creates a whole new set of logistical problems. Developing the infrastructure for an auditing method introduces a new upfront cost. To track outcomes, all parties require access to data that are typically siloed in individual health systems. Regulatory pitfalls must be anticipated. Discounts could trigger Medicaid best-price rules, 340B ceiling prices, or anti-kickback laws.

But merely pointing out that something doesn’t or can’t work isn’t enough. I’ll address the points one-by-one, and demonstrate how non-trivial these problems are.

  1. Developing infrastructure

What this point says is, ‘we’ve now entered into potentially adversarial relationships between payers and pharma, we need systems to handle this’. Some might argue that Pharma/Payer contracts have ALWAYS agreements between frenemies. ‘Value-based’ contracts take the adversarial relationship to a new level. The payers have all the data – and like any pharmacoeconomic study, success or failure will boil down to how small or large one defines the population – so it’s in their best interest to ONLY provide the data that tells the best story for them. And contracting in advance to get exactly the data you’ll need at the end of a multi-year study isn’t easy.

  1. Tracking outcomes

Here’s one that I don’t think anyone has thought of properly, outside the rooms where these deals are being discussed – and to give credit to folks I’ve seen on the Pharma side in Managed Markets teams.

Let’s contrast clinical trials with the real world. In clinical trials patients meet with their doctors, often weekly, and have HUGE incentives to stay on therapy. In the real world…unfortunately this isn’t the case. Here’s the problem, manufacturers are being held to task for something that’s the Doctor’s, Patient’s, and Plans’ responsibility, namely keeping the patient on therapy. Medical Possession ratio is a nice metric, but what if the medication doesn’t work because it’s sitting in a bottle on the medicine cabinet? Why should Pharma discount the drug there?

  1. Discounts and Federal Programs

No ‘money back guarantee’ under the current system, especially not for drugs with any Medicaid business. Simply put, until these programs are excluded from best price calculations pharma pricers will not have enough flexibility to make them meaningful. Not to mention the concomitant use of drugs from multiple manufacturers, often in high dollar therapies like oncology, make the most attractive discount scheme (discounting somebody else’s medication and not yours) the most attractive. Who’s going to do that to enable a competitor’s profits?

I’m not a regulatory or compliance expert so I’m not going to address the nightmare that is arguing that you’re not ‘promoting’ the use of these products through these contracts…I’ll leave that for others to outline.

So what can we do about it?

  1. Let’s stop pretending that Value-Based contracts are the future
  2. …Until we see meaningful regulatory changes at the FEDERAL level it will be difficult for payers and manufacturers to craft these agreements in ways that will enable their broad acceptance
    1. Change best price to exclude these kinds of contracts
    2. Loosen promotional activities directly related to FDAMA 114 and provide clear direction that HEOR teams can and should sit, not with medical but with Managed Care (silo them if that makes sense)
    3. Provide mechanisms for various companies to come together to provide appropriate discounts on bundles of products including MULTIPLE manufactures (weighted average value approach)
  3. Assume that highly publicized ‘Value-based’ contracts look and feel a lot like every day managed care contracts (because you don’t and can’t know what they say unless they’re made public)
  4. Invest in a trusted, objective third party systems to collect ALL the data and publicly report the results (I support a For Profit technology-based approach)

Until we see ALL these points addressed we won’t see the dawn of the age of the Value-Based contract. Another time I’ll write about how such adoption might continue to DRIVE UP the WAC prices for products in the United States…