Healthcare is on the cusp of a seismic shift. Several factors are driving this evolution, including a desire for higher patient engagement, personalized care, better technology, and increased transparency.1 Although this progression takes different shapes across the healthcare industry, one common thread is evident within every level of care—a demand for value.
For example, in April 2019, the Department of Health & Human Services announced the Centers for Medicare & Medicaid Services Primary Cares Initiative.2 This effort introduced a new set of value-based payment models that will cover health outcomes rather than procedures and is aimed at strengthening primary care and delivering better value for patients.2 The initiative was well-received by provider groups and healthcare executives.3
Health plans, lawmakers, and consumers are also calling for greater value in pharmacy benefits.4 In an attempt to lower drug costs and address other challenges, health plans and forward-thinking pharmacy benefit managers (PBMs) are beginning to explore ways to adopt outcomes-based contracts.
The idea behind an outcomes-based agreement is relatively straightforward. A PBM will work on behalf of a health plan to negotiate with a drug manufacturer and set a price and measurable expected outcomes for a given drug. If patients experience adverse symptoms or need to discontinue treatment, the drug manufacturer will issue a rebate for all or part of the pharmaceutical agent’s cost.
Outcomes-Based Agreements: Pros and Cons
In simple terms, outcomes-based agreements work like a money-back guarantee. However, the benefits to all parties involved are even greater.
Outcomes-based contracts allow health plans to reduce the cost associated with prescription drugs that may not improve the health of their members. Drug manufacturers secure a place on a drug formulary from which their drugs may have otherwise been excluded.
For example, in 2016, Novartis announced that it had entered into outcomes-based contracts with multiple health plans, including Cigna and Aetna, for their drug combination of sacubitril plus valsartan (Entresto),5 which is indicated for the treatment of patients with congestive heart failure and has shown to reduce the risk for death and hospitalization in clinical trials.6 Under the terms of these agreements, Novartis would provide additional rebates if an increased level of hospitalizations occurred in patients taking Entresto in exchange for preferred formulary status for the drug.5
In recent years, many health plans have been turning to closed formularies (ie, a formulary that limits which medications it will cover) to navigate the rising drug costs.7 Although this does help to control spending, it can limit the treatment choices for prescribers (and patients) and increase costs for patients. As demonstrated by Novartis, outcomes-based contracts allow drug manufacturers to negotiate space—or preferred standing—for themselves on formularies in return for outcomes guarantees.5 In some cases, these agreements can also result in increased coverage.5
However, skeptics have been quick to point out the shortcomings of these agreements.5 First, outcomes-based contracts rely on pharmacy claims submission data as a determinant of outcomes. Furthermore, this approach often falls short of telling a complete patient story and excludes meaningful clinical and lifestyle considerations that could affect their medication adherence. For example, a patient may stop treatment because of financial reasons, which is not an indication of whether the medication had delivered the desired outcomes.
In addition, many PBMs and health plans do not have adequate analytical capabilities to support the level of reporting that is needed to carry out these agreements.
Some payers have questioned whether outcomes-based agreements can lower drug prices, given that pharmaceutical companies are still dictating those drug prices.5 Pharmaceutical companies have the power to inflate their initial pricing, so that even if they do need to issue a rebate for a drug, they would still recoup the same level of revenue.5 Although these questions are fair, it can be argued that they hold true for any rebate-based agreement. Therefore, given the inherent level of transparency that is required with these types of agreements, drug makers have an even higher incentive to price their drugs fairly.
But perhaps the most widely debated point surrounding outcomes-based contracts is that they do not directly address consumers’ out-of-pocket costs. Because of the way these agreements are structured, payers may not know if they will receive a rebate, or how much it will be, until months or even years after the patient has paid for the prescription. At that point, there is no clear path to sharing the savings with the health plan members.
One Indisputable Benefit
Much is still being uncovered and debated regarding outcomes-based contracting, but it is clear that these agreements hold pharmaceutical companies accountable for the performance of their medications. This kind of thinking is critical to moving the pharmaceutical industry forward.
Many drug manufacturers, however, have been hesitant to enter into outcomes-based contracts, with a few notable exceptions.8 Many factors may play into that decision; for example, some drug manufacturers may worry that this model could be less profitable, influence volumes, or open the door for bad publicity. However, these consequences only come into play if these companies’ drugs are less effective than claimed.
So, are outcomes-based agreements the cure-all for the drug supply chain? Hardly. They are still in the early stages, and many questions remain. But as the rest of the healthcare economy makes the seismic shift from quantity to value, pharmacy benefits require rethinking and should not be overlooked.
Author Disclosure Statement
Dr González is an employee of Abarca Health.
- Heath S. 75% of patients look at price transparency ahead of care access. Patient Engagement HIT. September 17, 2019. https://patientengagementhit.com/news/75-of-patients-look-at-price-transparency-ahead-of-care-access. Accessed September 19, 2019.
- Centers for Medicare & Medicaid Services. HHS to deliver value-based transformation in primary care. April 22, 2019. www.cms.gov/newsroom/press-releases/hhs-news-hhs-deliver-value-based-transformation-primary-care. Accessed July 10, 2019.
- LaPointe J. Providers, execs applaud Medicare’s Primary Cares Initiative. RevCycleIntelligence.com. April 24, 2019. www.revcycleintelligence.com/news/providers-execs-applaud-medicares-primary-cares-initiative. Accessed July 10, 2019.
- Arnold J. Are pharmacy benefit managers the good guys or bad guys of drug pricing? STAT. August 24, 2018. www.statnews.com/2018/08/27/pharmacy-benefit-managers-good-or-bad/. Accessed July 10, 2019.
- Seeley E, Kesselheim AS. Outcomes-based pharmaceutical contracts: an answer to high U.S. drug spending? September 27, 2017. Commonwealth Fund. www.commonwealthfund.org/publications/issue-briefs/2017/sep/outcomes-based-pharmaceutical-contracts-answer-high-us-drug. Accessed July 10, 2019.
- Entresto (sacubitril and valsartan) tablets, for oral use [prescribing information]. East Hanover, NJ: Novartis Pharmaceuticals Corporation; November 2018.
- Edlin M. Closed formularies hold the line on costs. Managed Healthcare Executive. March 12, 2015. www.managedhealthcareexecutive.com/mhe-articles/closed-formularies-hold-line-costs. Accessed September 19, 2019.
- Bryant M. More insurers using outcomes-based deals with drug, device companies. Healthcare Dive. July 13, 2018. www.healthcaredive.com/news/more-insurers-using-outcomes-based-deals-with-drug-device-companies/527686/. Accessed September 19, 2019.