Insights on Value Based Contracting

value based contracting

We’ve been watching the slow but steady growth of value based contracting (VBCs) for some years now. Conceptually VBCs make a lot of sense. Payors always want discounts but manufacturers are reluctant to offer discounts especially on high-cost, rare therapies where patient counts can be scarcer than hens’ teeth.

So, years after appearing on the healthcare stage VBCs are essentially still as scarce as hens’ teeth. The reason…. they are gosh darn difficult to structure, measure in real time, and establish equitable rules that ultimately determine when a payor gets paid a penalty when the data says a therapy hasn’t performed up to the terms of the ‘warranty’. In other words, manufacturers don’t want wanky data collection to be the reason that they get spanked for non-performance.

The article below offers some insights on the proliferation of VBCs in the marketplace. One author suggests that there are four verities of VBCs (news to me). More noteworthy is the approach taken by MassHealth in which a cross functional team from all key areas of the organization (clinical, admin, finance, IT, etc.) are integral to developing a comprehensive, and enforceable, contract model that meets the organization’s needs along with terms acceptable (palatable?) to the manufacturer. Perhaps most importantly, the model goes further to ensure the contract is rigorously supported and maintained post implementation.

The article suggests when a VBC makes most sense….. “Drugs well suited for VBCs include those that may have been approved based on biomarkers, those with limited real-world evidence and those in which there is a question surrounding safety and efficacy. It allows the manufacturer to stand behind the expected outcomes of a drug.”

In our experience, one thing seems to be overlooked in developing a VBC. Specialty pharmacies are often completely overlooked as key partners in the contract model. SPs are most likely to dispense or distribute the kinds of therapies most likely to be targeted for a VBC. SPs are only one degree of separation from the patient. They also have a long track record of collecting very discreet and highly detailed clinical data…. and reporting that data to manufacturers further adding to their credibility. SPs may want to promote these skills to both payors and manufacturers when VBCs are being negotiated.


4 Value-Based Contracting Strategies

Value-based contracts (VBCs) provide an opportunity for manufacturers to evaluate outcomes not studied in clinical trials, while offering payors attractive pricing.

Speakers at a panel discussion at the AMCP 2022 annual meeting provided insight into these benefits, along with an assessment of the Value Based Contracts (VBC) marketplace and advice on how payors can pursue such contracts.

“I see this as an organized scramble right now,” Paul Jeffrey, PharmD, the principal at Paul Jeffrey Consulting and retired senior director of pharmacy for MassHealth, the Massachusetts Medicaid program, said during the discussion.

VBCs can be traced to the 1930s, with the start of managed payment plans, Dr. Jeffrey noted. At that time, he said, it wasn’t about value as much as a way for people to purchase healthcare.

Over the past 30 years, payors have shifted from paying for service to quality and then to value, he said. The term “value-based care” was introduced in the early part of this century, he said, and has progressed continually with the formation of accountable care organizations. “Value-based contracts” as a term began entering the literature and lexicon starting around 2010.

The number of publicly disclosed VBCs increased from two in 2009 to 19 in 2018, representing eight therapeutic areas, said Mahsa Salsabili, PharmD, PhD, a pharmacoeconomics specialist at University of Massachusetts Chan Medical School, in Shrewsbury. Cardiology and neurology have been the top therapeutic areas covered by VBCs, followed by endocrinology, she said.

Several types of contracts exist today, Dr. Jeffrey said.
There are warranties, in which payors get their money back if a product doesn’t work.
Some contracts allow payors to spread out payments for drugs.
Subscription models allow payors to pay one price to treat as many beneficiaries as needed.
Hybrid models combine elements of these different plans.

“All of these are undergoing evaluation,” Dr. Jeffrey said. “This market is anything but settled.”

4 Negotiating Stages
MassHealth’s team goes through four stages during direct negotiations with manufacturers, said Neha Kashalikar, PharmD, a clinical pharmacist with the Office of Clinical Affairs, the MassHealth clinical decision support unit staffed by UMass Chan Medical School. The multidisciplinary team includes clinical and operational pharmacists who lead negotiations, evaluate offers and implement new contracts. They are backed up by senior leadership, pharmacoeconomics specialists, data analysts, and legal and information technology supports.

Team members meet with manufacturers frequently, often several times a week to discuss pipeline products, or proposed value-based or supplemental rebate agreements.

Once a contracting proposal has been submitted, the team conducts a thorough review, including clinical evaluation of current evidence-based medicine as well as a review of any market trends or pricing, coupled with utilization data. The team then compiles a fiscal analysis to determine savings that may come from the contract. When appropriate, the team consults other stakeholders, such as physicians, to ensure alignment around the proposed contract terms.

Once the team and other stakeholders agree on the proposed contract terms, MassHealth enters into negotiations with the manufacturer to ensure the contract provides the greatest value to the state program.

Then, they work to put the agreement in place. This includes implementing any criteria changes to the MassHealth drug list, communicating to providers about upcoming changes and coordinating with managed care organization plans to ensure alignment in formulary decisions. Most contracts signed by the program are for one year, Dr. Kashalikar said.

MassHealth takes a proactive approach to identifying high-priority drugs for contracting on the basis of how they may provide value to the program, she said. Her team runs a focused report each year to identify drugs that are high cost, that have a high average-per-member per-year cost, that have low rebates and those with increasing utilization among their beneficiaries. Once high-priority drugs are identified, a pharmacoeconomics specialist helps the team further refine its priority based on market landscape, utilization data, international pricing and other characteristics, to determine which drugs may be most successful for negotiation.

It’s important to be wary of scenarios where contract terms may potentially put a plan at odds with best practice, Dr. Kashalikar cautioned.

To date, MassHealth has reached agreements for supplemental rebates with 17 manufacturers for 45 drugs, for a nearly $201 million annual value, Dr. Kashalikar said. The program has eight value-based agreements in place, one for a novel digital therapeutic product, and continues to have ongoing negotiations with manufacturers for many medications.

VBCs vs. Supplemental Rebate Agreements
One of the first questions the team members ask themselves is whether a particular drug is better suited for a VBC or a supplemental rebate agreement, in which a manufacturer may provide an enhanced rebate (on top of the federal rebate) for preferred status for its product compared with clinical competitors, Dr. Kashalikar said. Drugs well suited for VBCs include those that may have been approved based on biomarkers, those with limited real-world evidence and those in which there is a question surrounding safety and efficacy. It allows the manufacturer to stand behind the expected outcomes of a drug.

On the flip side, those more suited to supplemental rebate agreements include drugs with established safety and efficacy data; those with a high monitoring or administration cost; and with patient-reported outcomes. High-cost drugs, pipeline products and those with increasing utilization fall in the middle and could be suitable for either arrangement, she said.

It’s important for payors and manufacturers to work together to identify the best endpoints for value-based contracts. Those end points should be clinically relevant, tracked as part of routine patient care and able to be reported easily by providers or office staff. Contracts must be structured in a manner that is operationalizable with an objective end point that can be tracked either on a prior authorization form or through pharmacy or medical claims data.

Next Steps
Future trends to look for include continued state legislation in this area; publications of evaluations on the utility of value-based agreements; the evolution of a standardized approach to contracts; the solidification of best practices; and the application of VBCs to digital therapeutics, Dr. Jeffrey said.

“I don’t think that value-based contracting is going to go away,” he said. “I think it’s going to continue to escalate and become more prevalent.”

Karen Blum – Specialty Pharmacy Continuum


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