Finding #2: Outcomes-based contracting has potential
Regarding specialty pharmacy costs, 41% of respondents said performance-based (outcomes-based) pricing is the most effective strategy to reduce costs, while 22% said more aggressive and expansive utilization is key. Few respondents opted for exclusive specialty pharmacy contracting (15%); increased government regulation (10%); or formulary exclusions (5%).
While outcomes-based pricing is an attractive concept conceptually, there are many operational impediments to it, says Mark Ginestro, who works with life sciences clients as a principal at KPMG, an audit, tax, and advisory firm:
It is difficult to draw a definitive cause-and-effect link in many instances of healthcare where there are many variables and many treatments working in concert.
It requires sharing information and data—which has proven problematic for providers and payers with antiquated systems that often have challenges communicating within their own organizations.
It doesn’t always rein in costs. There have been instances where the value has been clear, but the resulting cost has been too high—so discussions have reverted to price and utilization.
Presently, outcomes-based pricing models are in their infancy and will develop and mature over time. Some models are being tested for specific drugs in which both sides have been willing to take some risk to see if it can work. Ultimately, Ginestro says, “Movement to outcomes-based models will not be a quick fix, but I think everyone involved is hopeful that solutions can be found.”
Regarding utilization management, techniques such as prior authorization, step therapy, and quantity limits have long shown the ability to reduce costs by making sure expensive drugs are used for the right patient at the right time, Rademacher says. Though this approach is not new in the specialty space, especially on the pharmacy benefit side, expanding more aggressive utilization management controls to the medical benefit is still a work in progress among payers, she says.
As far as the best coverage strategy for new, innovative therapeutics and biologics, more than half of respondents, 53%, again opted for value-based contracting or outcomes-based contracting with manufacturers. In addition, 22% said using manufacturer net pricing (wholesale acquisition) is best while 19% thought adjusting the premium costs across the broader pool is the way to go.
Value-based contracting is similar to performance-based contracting in that the financial risk is shared between the payer and the drug manufacturer “As the entire healthcare system moves from volume to value, all stakeholders (i.e., providers, patients, payers, and manufacturers) will need to share in the risk,” Rademacher says. “When all stakeholders have something to gain or lose, the system is more balanced.”
Wilkinson believes value-based contracting is most attractive to payers because it spreads some of the risk of the drug's performance to the manufacturer. “If the outcomes selected for measurement are not achieved by patients taking the drug, the manufacturer provides price concessions to the payer or other healthcare therapies or services to the patient that effectively reduce the drug’s cost,” she says.
Specifically, Ginestro believes value-based contracting might work with certain therapies in which a new product is trying to gain inroads in a crowded drug category. “Pharma companies will want to take a product with a clear clinical benefit and try to use an alternative payment model that ties pricing or rebates to the performance of certain medications,” he says. “The difficulty is related to measuring patient outcomes and drawing the connection between the use of medications, because many patients may have other health factors that complicate matters.”