Leslie Lotano-Saba, RPh, MS is a VP in global management consultancy’s Pharmacy Solutions division, and Scott Kornhauser is a Senior Advisor in 

’s healthcare practice. They can be reached respectively at llotano-saba@aarete.com and skornhauser@aarete.com

Leslie Lotano-Saba and Scott Kornhauser

In this first part of a series of a looking at pharma’s growing interest in value-based contracts and the implications for the industry, Leslie Lotano-Saba and Scott Kornhauser provide a general overview of the trends that are moving payers and pharma in this direction.

The specialty pharmaceutical climate is changing

specialty pharmaceuticals now represent 53 percent of total US drug expenditure

. With the FDA accelerated approval pathway tailwinds, this growth trend is projected to continue accordingly. With 50 percent of specialty drugs administered under medical benefit versus pharmacy benefit plans, high-cost orphan and rare disease therapies have largely remained outside the gross-to-net bubble (the money that sits between a manufacturer’s list price for a drug and the net price after rebates and other reductions), which reached 

, according to Drug Channels Institute. This specialty drug bubble exemption is good for pharma—but for payers, employers, and ultimately patients, it’s a growing challenge.

Pharmaceutical manufacturers no longer have FDA approval as their top concern. Pharma’s growing concern is payer coverage and patient access for high-cost specialty drugs.Payers are increasingly resistant to pay for treatment failures with these newer drugs, which have limited proof of effectiveness and come with premium costs of $200,000 to $2 million per treatment. Yet manufacturers struggle to align network performance with contemplated economic incentives. Meanwhile, nearly 30 percent of Americans don't take their prescribed medications because of high drug prices, 

according to the Kaiser Family Foundation

. On average, 9 percent of prescriptions are abandoned by patients—5 percent when prescriptions are free, but 60 percent when they cost more than $500.

The growing interest in pharmaceutical value-based agreements has also not escaped the attention of the Center of Medicare and Medicaid Services (CMS), which has now proposed new rules that will enable pharma to innovate new value-based models without the constraints of Medicaid best price rules that previously suppressed this kind of innovation. As a result, pharma company leaders are pushing their organizations to explore value-based contract and program innovation.

The opportunity: Balancing price, payment, clinical performance, and value

There are currently three pharmaceutical manufacturers that have published innovative product “warranty” programs that guarantee the clinical performance of their oncology products with a money back guarantee. Such warranty program innovations can be implemented without a value-based contract between pharma and payers or other stakeholders. The product warranty is published much like any other consumer product warranty, with clear terms and conditions for valid claims. These early warranty programs may have measures that simply look for discontinuation of therapy within a specified time frame as verified by a physician. Other product warranties can be more complicated, with pharma engaging a stop-loss carrier or even creating a captive insurance entity to underwrite risk and manage potential claims for high-cost therapies that may measure total cost of care and outcomes more comprehensively and thus represent the potential for considerably greater financial risk.

As pharma seeks new ways to guarantee clinical performance for these high-cost therapies while preserving margins, payer (and consumer) pressure is mounting on them to also address alternative payment models. This pressure has already resulted in several examples of alternative payment models, such as a subscription model that charges a population-based subscription fee for unlimited access to a product. Other alternatives might include time/installment payments which could be tied to clinical, financial, and/or process measures. The most interesting model under consideration is the warranty that follows the patient as they change employer and/or insurance coverage. The combined clinical warranty and associated prorated costs would follow the patient accordingly.

Value-based agreements/programs are capturing pharma’s attention as an alternative to traditional volume-based financial incentives, such as rebates and discounts. Recognition of the opportunity to lower cost, improve outcomes, and share risk through pharmaceutical value-based contracts and programs is growing with payers as well, as all parties seek to create mutually beneficial strategies to address the burgeoning specialty drug segment. Pharma, payers, providers, and patients must all benefit under a successful value-based model.

Interoperation for operationalization at scale

There have been numerous challenges throughout the US health system’s volume to value transformation over the past decade, not the least of which has been the trusted, efficient, and accurate measurement of quality and performance. Frequently, stakeholders have set a low bar for value-based contract design to avoid the challenges of data acquisition and computing complexities that would be required. The administration of these agreements has largely been performed as a retrospective analytic and reporting function. As a result, the optimizing of clinical and financial performance has been constrained to the rearview mirror. Most vocal about this critical flaw, providers increasingly express the need for situational awareness as they take on the practice of clinically integrated and coordinated care essential for optimizing value. These same voices, however, also want to keep operational friction to a minimum.

Specific to pharmaceutical value-based contracting, the issue of scalability often comes up as well. Payers and providers have been resource sensitive when contemplating the potential implications of hundreds of small populations using high-cost specialty therapies across potentially hundreds of pharma companies. We often hear a frequent refrain of “will the juice be worth the squeeze?” In our practice, we work with clients to efficiently execute advanced analytics that identify the highest value pharmaceutical value-based targets. This approach enables clients to approach pharma proactively with high value, real world, evidence-based requirements, as opposed to reacting to lower value pharma offerings.

Operational scale, situational awareness, continuous clinical and financial performance improvement, and low friction levels are familiar requirements that have been out of reach for the past decade, but for which an attainable future state is emerging at an accelerated pace. The ability to efficiently design, execute, and operationalize complex pharmaceutical value-based agreements in real time is coming into focus. As interoperability standards, adoption and patient data access legislation accelerate, the opportunity emerges to move from traditional, retrospective value-based contract administration to real time, with continuous clinical and financial outcomes performance improvement as the driving incentive for all stakeholders.

The market is flush with well engineered, purpose-built analytic healthcare platforms that are deployed to analyze aggregated big population data, identify care gaps, and deliver insights for continuous improvement. The move from retrospective to real-time value-based contract administration requires real-time transactional analytic solutions. The adjudication of in-line care quality and performance, versus claims adjudication post care, requires interoperations throughout the patient journey. This “360 journey” or member experience solutions approach to data processing is fundamental to complete the volume to value transformation.

2021 Strategic Roadmap for the Real-Time Health System

 envisioned a proactive, situationally aware, smart, and collaborative healthcare provider enterprise. Today, we can observe the entire healthcare ecosystem making advances toward this vision. Advances in interoperability, including standards adoption and data accessibility legislation, are creating the foundation for long envisioned, real-time interoperations that will enable transformational leaps in quality and efficiency.

It’s imperative for payers, providers, and other entities to improve their overall profitability by leaning on data analytics, and market intelligence. With the design and implementation of innovative solutions, the focus needs to remain on improving quality, costs and revenue, which will require intensive ongoing analysis across various business segments for optimal success and ROI.

Leslie Lotano-Saba, RPh, MS is a VP in global management consultancy’s 

’s Pharmacy Solutions division, and Scott Kornhauser is a Senior Advisor in AArete’s healthcare practice. 

Articles

An actionable perspective on the future of specialty drug value-based contracting