The way drugs and medical devices secure insurance coverage comes down to a series of negotiations. Suppliers of a product or a service typically try to set the highest possible price. Insurers try to knock those prices down, or they elect to cover a competing product instead. A new variable is entering the discussion: value-based agreements. These contracts tie the cost of a drug or device to how well a patient responds to treatment.
Using Informed Awareness to Transform Care Coordination and Improve the Clinical and Patient Experience
This eBook, in collaboration with Care Logistics, details how hospitals and health systems can facilitate more effective decision-making by operationalizing elevated awareness.
While linking the cost of care to patient outcomes seems simple in principle, it’s more complicated in practice. One reason that these contracts have been slow to gain widespread adoption is that the parties to the agreement are reluctant to let go of the old ways of striking these deals, said Francois de Brantes, senior vice president of Signify Health.
“Moving away from that isn’t simply a question of getting to value, but it’s fundamentally recognizing that you can no longer be the fundamental price setter that you are today and that you’re going to have to enter into a real negotiation about price,” he said. “And the price has to be commensurate to the value that you’re delivering.”
De Brantes spoke as a participant on an April 22 panel discussion on value-based contracting held during MedCity News’s INVEST conference. He was joined by Javier Gonzalez, chief growth officer of Abarca Health, and Jorge Galva, executive director of the Puerto Rico Health Insurance Administration.
Value-based agreements are structured very differently from the fee-for-service contracts that the industry has used. A value-based pact needs to define the outcomes that establish value, and that value must be sufficient to make the deal worthwhile to the parties involved, Gonzalez said. But these contracts can also yield additional benefit to the companies that are selling drugs and devices. A value-based agreement may be a differentiator that separates a company from competitors, or it may lead to faster adoption of new technologies, he added.
When Investment Rhymes with Canada
Canada has a proud history of achievement in the areas of science and technology, and the field of biomanufacturing and life sciences is no exception.
One place where value-based agreements are gaining traction in the pharmaceutical industry is the pricing of expensive new therapies for rare diseases. As an example, Gonzalez pointed to Zolgensma, a Novartis gene therapy for the rare disorder spinal muscular atrophy. The therapy won FDA approval in 2019. Though the price of the one-time treatment tops $2 million, Novartis can spread that cost over five years and it offers partial rebates if patients don’t meet clinical goals.
Making a value-based agreement work is an ongoing effort, according to Galva. The status of patients must be tracked over time, and these contracts require a great deal of information sharing. Signatories to such contracts must first define what will be measured and what the desired outcomes are. Without that clarity, it will be difficult to assess how successful a treatment is for a patient and whether a company has lived up to the contract’s terms.
“We hear about so many products that come out, both drugs and devices, that are supposed to be the greatest and best, and when we try them on people, the actual effect of the drug is only incrementally, marginally better than existing drugs or existing devices,” he said. “So we’re paying a whole boatload of money for this newfangled drug or device and we could have actually gone with the old one, which was much cheaper and tried, and the clinical results would have been more or less the same.”
Aligning incentives is something that has been challenging in putting together these contracts, Galva said. But he can point to some successes, such as a hepatitis C initiative in Puerto Rico. His agency, which runs the territory’s Medicaid program, assumed all of the risk of the hepatitis C medication’s cost. But the pharmaceutical company that markets the drug also provided Puerto Rico support with nurses, data collection, and screening of patients before and after treatment. Galva said that this support was important in achieving the desired patient outcome of a clinical cure.
Complexity is one of the reasons industry adoption of these contracts has been slow, according to Gonzalez. Getting to value-based agreements requires transparency in how prices are calculated, he explained. But right now, there isn’t sufficient transparency, so drug companies and payers aren’t finding common ground. Absent that, payers are inclined to forego value-based contracts altogether, he said. For value-based agreements to gain more acceptance, all parties must become more comfortable with risk—and that risk is shared. That’s hard for payers, who use actuarial science to form the predictive models that set premiums.
“Value-based arrangements right now are unpredictable,” Gonzalez said. “So you can see why maybe there’s a slowness to get there, because value-based agreements aren’t giving these health payers the predictability they need for their model.”
Success for any value-based contract depends on competition, de Brantes said. There is no reason for any entity—a drug or device maker, an insurer, a health system—to worry about value-based contracts if it has a monopoly.
Value-based payments and contracting should be a mechanism that accelerates market competition and drives toward better clinical outcomes at a reasonable price, he said.
Looming large over this evolving pricing environment is regulation. De Brantes noted that in some cases, these contracts are stymied by laws intended to prohibit the exchange of anything of value. What’s exchanged in these deals is information, but some statutes aren’t clear enough to take value-based contracts into account.
While the lack of clarity in some laws is a sticking point for forming value-based contracts, new regulations could be coming, and they might not be to the healthcare industry’s liking. De Brantes said that health industry incumbents have benefited from the status quo, but they must now show willingness to change how they do business or Congress will make those decisions for them. He pointed to policy proposals that politicians are debating about the cost of care.
“We’re leaning closer and closer to much more formal regulation of the industry,” de Brantes said. “And so I would say to all of the incumbents, like it or not, you have two choices: You either embrace the value-based payments and the value-based contracting world or you will face severe regulation.”
Public domain photo by Flickr user Government of Alberta
