Value-Based Pharmaceutical Contracts: The Tool Few Payers Are Using — Why?
Posted on May 31, 2023
Value-based care and contracting is receiving substantial attention across the health care landscape as a tool for improving patient care and managing costs, and pharmaceuticals are no exception. Interest in value-based pharmaceutical contracts (VBPCs) — performance-based reimbursement agreements between healthcare payers and pharmaceutical manufacturers in which the price, quantity, or nature of reimbursement is tied to value-based outcomes — has ebbed and flowed over time. However, as new specialty drugs, including multi-million-dollar gene therapies, are flooding the market, VBPCs are receiving a new wave of attention. But are payers really using them, and if not, what stands in their way?
Pharmaceutical Strategies Group’s (PSG’s) recent 2023 Trends in Specialty Drug Benefits report shows that just 5% of employers and 26% of health plans are using VBPCs. An additional 7% of employers and 18% of health plans are in the negotiation stages for VPBCs. This means that overall, less than one fifth of employers and less than half of health plans are using or in the process of negotiating a VBPC. Potential benefits of VPBCs include reduced risk and uncertainty around the performance and financial impact of a product for payers, opportunity for product differentiation for manufacturers, and improved access to new medications for patients.[1]
With all these potential benefits, why aren’t more payers working on VBPCs? Respondents’ answers to a follow-up question asking what was missing that would help their organization start engaging in VBPCs revealed several themes:
- Need for Education and Data/Evidence
- Issues with Agreeing on and Tracking Outcomes
- Lack of Interest/Buy-In
- Lack of Resources
- Low Volume/Small Size
- Reliance on External Sources of Guidance (who aren’t talking about VBPCs)
Let’s explore some of these themes and how they align with other literature on VBPCs.
Education and Data/Evidence
Many survey respondents indicated that their primary barrier to using VBPCs was a lack of full understanding of how these contracts work and a need for data or other evidence that VBPCs provide benefits as intended. VBPCs can come in many forms and are notoriously complex (sometimes taking years to negotiate[2]), so it’s unsurprising that respondents would have concerns about their level of understanding. Additionally, although VBPCs have potential to provide benefits, it’s not a given that they will. As outlined in a commentary piece in the journal Value in Health, VBPCs can positively impact costs, clinical outcomes, and access but only in certain conditions and with very specific designs.[3] Additionally, few results of VBPCs have been publicly shared, spurring calls for pilot projects to aid in learning and evidence generation.[4]
Issues with Agreeing on and Tracking Outcomes
One of the biggest challenges in the creation of a VBPC is reaching an agreement between the pharmaceutical manufacturer and the payer regarding appropriate outcomes on which performance will be measured. Outcomes can be short-term or long-term and can focus on different forms of real-world evidence, from healthcare costs for the patient to clinical outcomes to the patient’s quality of life — some of which are hard to quantify in a standardized way. And even if agreement can be reached, tracking the agreed upon outcomes can be exceedingly difficult, which has led to suggestions of universal datasets or data exchanges4 and the use of natural language processing of electronic health record data[5] as possible tools to address these difficulties.
Lack of Resources, Low Volume of Patients, and Reliance on External Sources of Guidance
Payers are a diverse group. While health plans and large employers may have substantial expertise and time dedicated to the pharmacy benefit, smaller employers often have one person managing a wide range of employee benefits and other HR functions. Even in cases where a payer has relevant expertise, staff may be stretched thin. Unsurprisingly, lack of resources to negotiate and carry out VBPCs was another key theme in respondents’ answers. And in a classic “is the juice worth the squeeze” scenario, respondents also questioned whether there would be enough patients to whom the VBPC would apply for it to be worthwhile to put in the great effort needed to negotiate such a contract. Finally, some respondents rely heavily on external sources of guidance — most often their PBM or consultant — to advise them on strategies to pursue for the pharmacy benefit and expressed that VBPCs aren’t on their radar because these sources have not recommended them. PBMs are a key stakeholder in the context of VBPCs, as they often create some insulation between payers and pharmaceutical manufacturers and may be best positioned to contract and administer these types of arrangements due to the complexity and scale involved.
In addition to the themes found in our respondents’ answers, other commentary on VBPCs has called out concerns such as regulatory barriers and how to track and reimburse appropriately if the patient changes employers before all outcomes have been determined. The barriers are many, but VBPCs do have potential to provide benefit in certain circumstances and with careful attention to the design and implementation of the arrangement. As the specialty drug landscape rapidly evolves, VBPCs are a tool payers should consider for their toolbox, with guidance from those with expertise in this area. For insights on additional strategies and best practices in the specialty drug benefit, download PSG’s 2023 Trends in Specialty Drug Benefits report by filling out the form below.
References
[1] National Pharmaceutical Council. Value-Based Contracts. https://www.npcnow.org/topics/alternative-payment-models/value-based-contracts
[2] Bahls C. (2021). Value Risk and Reward: Taking Stock of Value-Based Contracts in Pharma. Pharmaceutical Executive. https://www.pharmexec.com/view/value-risk-and-reward-taking-stock-of-value-based-contracts-in-pharma
[3] Kannarkat JT, Good CB, and Parekh N. Value-Based Pharmaceutical Contracts: Value for Whom? Value in Health. 2020;23(2):154-156.
[4] Deloitte. (2019). Value-Based Contracts: Forging the Way to Impact Patient Outcomes. https://www2.deloitte.com/content/dam/Deloitte/us/Documents/life-sciences-health-care/us-value-based-contracts-in-health-care.pdf
[5] Poveda JL et al. How Can Artificial Intelligence Optimize Value-Based Contracting? Journal of Pharmaceutical Policy and Practice. 2022;15(85).
