6 considerations for value-based contracting for medications

In the U.S., proposed legislation aims to enable a shift from volume- to value-based pricing for prescription medications, which may initiate new forms of collaboration among healthcare payers, healthcare providers and life science companies.

By , Linda Elbers PharmD, and Katherine Haverty, Pharmacology | 3 minute read | November 6, 2020

Payments for medications have traditionally been based on volume. As healthcare increasingly shifts towards value-based payment arrangements, it should come as no surprise that there is a proposed overhaul of how healthcare pays for prescription medications. 1

For those of us who are pharmacists, we largely embrace these efforts with the intended goal to do what is best for the patient. On its face, this legislation proposes to reward life sciences companies that sell medications that work well for patients. Healthcare payers could potentially use value-based contracting as a mechanism to hold life science companies accountable for the outcomes of these therapies.

While the intention and theory behind the legislation are admirable, some questions remain about how these requirements would be implemented, including:

1) How life sciences companies and payers will set the correct unit of value. Establishing the appropriate value metrics and subsequent value-based purchasing or reimbursement agreements will be critical – and could be challenging – to establish based upon the point of view. Life sciences companies may be more focused on improvement relative to other therapies, while payers may be more focused on overall quality and cost of care. It’s also important to recognize that there will be a wide range of reactions and considerations depending on the type of therapy – for example between lifesaving or disease-modifying drugs versus those areas where conditions are currently well served by available therapies.

2) Clarity about who will bear the administrative burden of documenting patient outcomes. Value-based -purchasing agreements will require extensive analytics and monitoring over time to document patient outcomes as a result of drug therapies. These outcome-based studies require information that is often not available to payers through standard healthcare claims data, therefore it may require significant investment to improve transparency. It remains to be seen if the value outweighs the investment.

3) Outcomes might unintentionally drive price increases When we think about pricing for value, over time, there will likely be studies that show certain drugs are working and reducing other medical costs, such as emergency visits. It’s possible that these findings could result in price increases for these medications, or other unintended consequences in the healthcare schema.

4) Value-based contracts could impact off-label utilization. It’s unclear how this proposed legislation will affect the prescriber at the point of care. But one consideration is how the cost or the utilization of a pharmaceutical is counted under off-label use. The answer to that may affect how clinicians can prescribe for off-label indications. Given the current FDA restrictions on off-labeled utilization will a Life Sciences company only be restricted to offering value-based contracts on FDA labeled indications.

5) How this information could affect quality indicators in the future. Potentially, payers could hold healthcare providers to prescribing certain drugs at higher rates. Healthcare payers and provider networks could use prescription rates of the most valuable drugs as a measure of provider performance, which has the potential to impact prescriber decision making.

6) Addressing other regulatory issues, such as Medicaid’s “best price” policy. Put simply, this policy requires life sciences companies to provide Medicaid with the best price for medications. But if a medication doesn’t meet a target outcome under the new proposed rule and initiates a rebate under a value-based contract, will there be an exemption for the best price policy, or does that become the best price for the Medicaid program? Which also impacts payers and health plans once this information comes to light. This scenario should be addressed.

Data, analytics and advanced technology have the potential to support outcomes-based payments for prescription medications. Organizations may be in various stages of establishing their data strategy and analytics roadmap and of course the supporting technology. Organizations that clearly define their data strategy and intended outcomes will likely have greater success in adopting value-based payment agreements.

Healthcare technology is rapidly evolving, but some technologies won’t be a reality until further in the future. Potential use cases in the industry could include adoption of blockchain for streamlining data collection and verification across the various healthcare players, to seamlessly combing data feeds from payers and providers to aggregate and simplify utilization and outcomes tracking.