Trend’s Expansion Creates New Opportunities, Hurdles for Industry

Tying effectiveness in treatment to reimbursement for services is not a new concept for the managed care industry, but as the debate over affordable care rages, the push for value-based care and outcomes-based contracting is showing increased urgency. Adding to that urgency is the heightened focus on rising drug prices and the part they play in the overall cost-effectiveness of managed care in the United States. The interest in value over volume has intensified as many expensive speciality drugs in the market are mounting pressure on insurers’ pharmacy budgets.


In recent years, several private payers have inked several outcomes-based contracts with drug manufacturers. Large national insurers such as Aetna, Cigna, and UnitedHealth Group have ventured into value-based contracts with pharma and regional players are following suit. Harvard Pilgrim, for example, is moving aggressively toward complex value-based contracts centered on real-world performance with its recent deal with AstraZeneca for acute coronary disease drug Brilinta and Type 2 diabetes therapy Bydureon. Harvard Pilgrim has seven such value-based, or outcomes-based contracts in place. According to a 2016 Access & Reimbursement report based on a survey of health plan pharmacy and medical directors, Decision Resources Group found that more than one-third of respondents indicated they were involved in outcomes-based contracting.


The trend is taking on new momentum thanks to help in Washington, D.C. This summer, a bipartisan group of senators asked the Government Accountability Office to study the structure of value based contracts, how plans measure outcomes, and how such agreements could reduce costs for consumers and plans relative to Medicare, accountable care organizations, and pay-for-performance programs. In some respects, this is nothing new for Medicare, which has been moving toward value-based care for years through accountable care models. What is noteworthy is the apparent interest Congress is taking in such arrangements and how that may play out as the ACA is repealed, replaced, or reshaped.


For pharma, while VBC and risk-sharing arrangements are not an entirely new concept, but they’re not broadly implemented and in some respects, the industry is just getting its wheels off the ground. Among pharma companies who have been most active: Novartis, Amgen, AstraZeneca, Merck and Eli Lilly have entered value-based contracts with payers. Merck and UnitedHealth have announced a multi-year collaboration on a shared “learning laboratory,” which will explore value-based contracting and pay-for-performance models. Novartis has value-based contracts with Cigna and Aetna for its heart failure drug Entresto. Amgen has VBCs in place for Enbrel and Repatha with Cigna, Harvard Pilgrim, and pharmacy benefit managers CVS/Caremark and Prime Therapeutics.


That the industry is moving this direction isn’t in question. The question is when and where and how to implement these contracts, and what type of drugs are the best fit. As highlighted in DRG’s A&R report, the operational challenges can be huge: data collection and maintaining the integrity of that data, as well as the capability to monitor performance. Regulatory barriers such as anti-kickback statutes which prohibits the exchange or offer of anything of value to reward the referral of business, is another reason some manufacturers and payers may shy away from value-based contracting.


The VBCs that are in place are mainly in therapy areas such as endocrine, infectious disease, cardiovascular, and respiratory conditions, however payers and pharma want to expand these into more complex indications such as oncology, immunology or inflammatory diseases. The selection of appropriate clinical endpoints is vital to the success of a VBC program and it could be difficult depending on the therapy patients are receiving. In a few cases, clinical endpoints in a drug’s pivotal trial to prove efficacy should be the best choice, however accessing trial endpoints during patient therapy may not be practical. Outcomes that are lifestyle dependent and involve some sort of care team may have their own unique demands. Pharma companies can start by ascertaining the competitive landscape for the therapy early on, and by modeling the outcomes that can be tested in real-world patient scenarios to determine how the product will stand up to the severities of a risk-based contract.


Given the level of accountability, measured outcomes, and familiarity with risk-sharing, providers and payers involved in accountable care organizations or integrated delivery networks may be the optimal environment for value-based contracts. Such an existing framework, a shared goal of delivering value-based care, and infrastructure should increase the likelihood of success. But here’s the catch: there are distinct regional variation when it comes to accountable care and a national VBC arrangement with a payer could be expected to produce variable results.


Based on Decision Resource Group analysis of state markets through its Formulary Insights report series, certain regions of the United States appear to have the right mix of innovation and payer/provider participation and concentration of ACOs or similar care delivery models. The Northeast tends to be the most favorable environment for prescription drug reimbursement. The region has a higher percentage of commercially enrolled members, lower uninsured rates and higher employment rate compared to the national average which favors the prescription sales.  Northeastern states such as Massachusetts, Pennsylvania, and New York generally have taken a more innovative approach to coordinated care and the regulatory environment favors pharma and is more restrictive for payers, which may give payers less latitude to enforce formulary decisions. Such a climate could incentivize payers to use incentive-based programs and contracting to influence prescribing patterns.


The Midwest region also compares favorably to the nation when it comes to enrollment population mix and its effect on general prescription drug reimbursement. Markets such as Minnesota, Ohio, Illinois, Wisconsin, and Michigan have also taken innovative approach to care coordination and may be more receptive to value based contracting. Many markets are dominated by regional payers or provider-led health and such plans give an added advantage to providers to fully control benefit plan design which could help delivering more coordinated and quality care.


Based on the Formulary Insights Opportunity Index (which quantifies market potential based on enrollment and likely reimbursement), the West and Southeast regions are moderately progressive markets where such contracting can be explored. However, the Southwest may be more challenging as states in this region have a higher uninsured rate, and a relative scarcity of providers. Furthermore, care coordination and effective network management can be more difficult in rural states and VBCs could face operational barriers.


More now than ever, the paradigm is shifting away from traditional fee-based systems of reimbursement toward value-based care and those models often work best within integrated systems – or within systems that show a higher degree of coordination between payers, providers, and pharma. Simply put, individual segments of the health care industry are unable to operate in a vacuum. Regardless of the outcome of the debate surrounding the ACA, the market will continue to demand more cost-effective management of care and value-based arrangements for drugs will be part of that trend. The winners will be the payers and pharma companies who get into the market first and build the networks necessary to make such programs work.


About Formulary Insights

The Formulary Insights report series provides analysis of the trends and market dynamics affecting formulary decisions and product opportunity in each U.S. state, Washington, D.C., and Puerto Rico. Each report includes our proprietary Opportunity Index, analysis of Value-Based and Innovative Contracting, and regulatory and policy matters. Formulary Insights are an enhancement of DRG’s Health Plan Analysis portfolio.


About Access & Reimbursement

DRG’s Access & Reimbursement module helps you understand the access and reimburse­ment environment so you are better equipped to develop strategies that help you over­come potential barriers to access and help your brands thrive. With DRG’s Access & Reim­bursement module, you can stay up to date on restriction policies: gauge payer and prescriber attitudes toward specific therapies; identify opportunities where brands can capture patient share through market access; and maximize opportunities for emerging therapies by learning how predecessor brands gained favorable reimbursement—or why they stumbled. Find out more: Access & Reimbursement

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