PhRMA Report: Value-Based Contracts Could Reduce Drug Costs

Over the past 2 years, commercially insured patients enrolled in plans that had value-based contracts for certain high-cost drugs had lower copays for their medications than did patients enrolled in plans without such contracts. That finding comes from “Delivering Results for Patients: The Value of Value-Based Contracts,” a report released today by the Pharmaceutical Research and Manufacturers of America (PhRMA).

PhRMA’s report identifies the following types of value-based contracts:

• Outcomes-based contracts, which tie costs or discounts to patient outcomes
• Conditional treatment continuation, which continued coverage of treatment hinges on meeting short-term treatment goals
• Indication-based pricing, in which the net price of a medicine varies by indication
• Regimen-based pricing, in which the net price of a medicine decreases when a patient must take a second medicine to make the treatment regimen more effective
• Expenditure cap, in which the medicine cost per patient may not exceed a negotiated threshold

According to PhRMA, value-based contracting has the potential benefit of allowing for broader access to innovative medicines by reducing the payers’ risk of suboptimal outcomes and encouraging the appropriate use of medicines. These agreements may also help to reduce medicine costs, says PhRMA, if manufacturers pay higher rebates for patients who do not meet their outcome targets. Patients could realize a savings if rebates are passed on to them.

As a result of these potential benefits, many health plans are warming to the idea of value-based arrangements, especially in the form of outcomes-based contracts, according the report. PhRMA says that, according to a 2017 Avalere Health report on payer perspectives on outcomes contracting, approximately 70% of commercial plans have a favorable view of this contract type, approximately 25% have implemented at least 1 such contract, and 30% report that they are negotiating a contract or contracts.

Among plans that have at least 1 outcomes-based contract, 55% report that they have entered into a contract that focuses on endocrine disorders—including diabetes—and another 33% are considering doing so. “If new value-based contracts are able to improve use of medicines for diabetes and reduce the burden of this disease in the United States by as little as [5%], these contracts could save nearly $9 billion annually in direct medical costs by preventing 365,000 emergency department visits, 390,000 hospital outpatient visits and 1.3 million hospital inpatient days,” according to the report.

Patients, too, could see a positive financial impact from such contracts. PhRMA says that it has worked with Avalere Health to analyze formulary coverage for existing outcomes-based contracts, including those for drugs that treat diabetes, high cholesterol, and HIV. Copays for patients enrolled in silver-level exchange plans with outcomes-based contracts were an average of 28% lower for these drugs than they were for patients enrolled in market average silver-level exchange plans.

However, barriers to value-based contracts—including concerns about how such arrangements might affect price reporting, issues with potentially implicating the federal anti-kickback statue, and uncertainty about the FDA’s rules regarding manufacturers’ communications with plans—make it difficult to accurately judge the potential that these contracts could have, says PhRMA.

“Small policy changes to modernize outdated regulations have the potential to lead to tremendous benefits for patients and the health care system,” the report concludes.