Value-based contracts — big talk, big deal, or real deal?

Pharmaceutical companies guaranteeing results and paying for failures?

Payers paying more if a cancer patient has a shorter lifespan on a specific drug?

Pharma guaranteeing the control of cholesterol?

A few years ago, these seemed as unlikely as a biosimilar version of a blockbuster biologic. Now value-based contracting (VBC) seems to be the hottest topic in payer-pharmaceutical company relationships.

Big Talk!

Executives from Lilly to Novo Nordisk to Amgen have said they believe VBC is the next big wave in payer contracting. But is this just big talk or will it result in big deals for payers and employers? What is VBC anyway?

VBC is still new enough that no single, widely agreed-to definition exists. Generally, VBC involves connecting predicted outcomes (usually efficacy) for a drug to the net cost of the drug. Better outcomes means higher cost to the payer AND more drug failures mean lower cost to the payer. This would be a significant shift from the current contracting approach of higher rebates for higher volume of use.

This shift is being driven by many issues, including the following:

Many stakeholders are talking about VBC as a way to address the costs of drugs that stakeholders on both sides of the issue, and both sides of the aisle, can get behind. This is why so many pharma execs are talking!

Big Deal?

Some pharma companies are putting their money where their mouth is — or should I say a deal where their big talk is.

According to a survey conducted by Avalere, 25% of health plans have at least one VBC with pharma in place and another 30% are currently negotiating VBCs.

Here are some notable examples:

Real Deal?

So that’s why pharma execs are talking big. VBC may be more than just the latest big topic for investor-day presentations. In fact, due to the secrecy of contracting and the resulting delay in information being made public, the big deal may already be a real deal — already in place!

What happens next depends on whether payer-pharma partnerships can find agreeable common ground for these new contracts. Most people think VBCs are here to stay. As payers further develop data capabilities and pharma companies conduct more outcomes studies on new drugs, VBCs are likely to continue to grow in number.

At Cyan Health we continue to keep an eye on this interesting market shift.

Author: Rick Kelly