Creating a More Affordable Healthcare System Through Value-Based Contracting

As the number of high-cost orphan drugs and gene and cell therapies continues to grow, there will be a greater need for alternative payment models to help figure out the best way to pay for these treatments.

As the number of high-cost orphan drugs and gene and cell therapies continues to grow, there will be a greater need for alternative payment models (APMs) to help figure out the best way to pay for these treatments.

During a session at AMCP Nexus 2019, panelists discussed how value-based contracts can affect different stakeholders, the value of these payment models, some challenges to implementing APMs, and some examples of success happening in the market.

There are really 4 stakeholders surrounding the patient, explained Roger Longman, MA, chairman, Real Endpoints. These stakeholders are:

  • Payers, who want to simply pay for what works based on the demonstrated value;
  • Manufacturers, who want to lower the barriers to their drugs and differentiate from competitors through creative contracting;
  • Pharmacy benefit managers, who want to leverage drug data and utilize management adherence programs, but face a conflict with payers in this space; and
  • Providers, who view risk-sharing contracts as both a solution to address rising drug costs and a challenge to the economic benefits they enjoyed under buy-and-bill economics.

Unfortunately, the government had not contemplated alternative contracting arrangements when crafting price reporting regulations, explained Jane Barlow, MD, MPH, MBA, executive vice president and chief clinical officer, Real Endpoints. As a result, things like Medicaid best price doesn’t consider multiple payments over multiple years for a one-time treatment.

There have been some innovations in the area, though. Medicaid plans in Colorado, Massachusetts, Michigan, Oklahoma, and Washington have been able to use state plan amendments that allow for value-based contracting. Now, these states have means to receive additional supplemental rebates tied to their value-based contracting, offering a pathway for others to follow.

“They’re kind of a glimmer of hope, in my mind,” Barlow said. “I figure if Medicaid can figure it out, the rest of us can figure it out as well.”

In addition to regulatory challenges—such as antikickback, antitrust, and privacy laws­—details of value-based contracts can be complicated and data that might be used in clinical trials might not be accessible in the real world. While prescriptions filled is an easy data point to gather, information like outcome of a laboratory test or the functional status of a patient can be harder to get, she explained.

There are 2 comprehensively accessible data points that can be used for these contracts: pharmacy and medical claims.

“The great hope is that electronic medical records will be able to provide more meaningful data,” Barlow said. Fields that are coded will be more useful than open script fields, she noted, but these data are being used by payers tied to a provider organization or health system who can pull that data.

There are concerns, she explained, that manufacturers will start to inflate their prices to get the most money under value-based contracts. She highlighted bluebird bio, which has transparently outlined the benefits of its upcoming treatment for beta thalassemia and how it will arrive at its price tag.

Bluebird bio announced the payment model in January 2019 in the Wall Street Journal and at the J.P. Morgan Healthcare Conference. The company identified the benefits of the treatment: cost offsets, societal value, life extension, and quality of life. Based on these 4 factors, bluebird bio was able to show how high of a price tag it could charge, but it decided to charge based on the value to patients, which was only the life extension and quality of life factors. In addition, the company stated it will spread the payment over 5 years, require payment only if the treatment works, and not increase the price beyond the Consumer Price Index.

When looking at value-based contracts, it is important to know who is getting the benefit, said Bruce Nash, MD, MBA, chief physician executive and senior vice president, Health and Medical Management, Blue Cross Blue Shield of Massachusetts (BCBSMA). And he noted that not all new therapies are going to lower the total medical expense. For instance, Zolgensma is going to save babies’ lives, but those babies will go on to incur medical expenses throughout their lives.

“Nobody would argue that we shouldn’t save babies’ lives,” Nash said. “But from a total perspective, it does add to the financial burden that we have to deal. So, these are challenges—it’s not that there’s anything wrong with it; these are great things that are happening.”

In addition, many of these therapies can bring concomitantly high medical expenses. For instance, with chimeric antigen receptor T-cell therapies, the total cost can rise to about $1 million when considering administration and treating adverse effects, even though the therapies themselves cost between $373,000 and $495,000. This creates a new dynamic, he said, for payers to consider in their relationship with providers.

BCBSMA was one of the first in the country to move to value-based contracts with providers, and a study in New England Journal of Medicine showed that its contract with providers improved quality while lowering cost.1 BCBSMA saw these outcomes because paying providers and health systems in global payments allowed them to do something different. They set up care teams, they had people operating at the top of their license, they helped patients on the phone, and more.

“A whole plethora of things that wouldn’t be financed under a fee-for-service model,” Nash said. “So, these global-based, value-based contracts that we had with large provider systems allowed things to happen differently for higher quality and lower costs.”

As a physician, Nash views this as an exciting time because physicians can now take a chronic disease and not just give patients emotional support, but they can actually alleviate their suffering or extend their lives, which is extraordinary. But he also referenced CMS Administrator Seema Verma who has asked: What good are all these therapies if no one can afford them?

“What we know is that there is a pipeline of these coming down,” Nash said. “So, we’re going to have dozens coming out per year in the upcoming year.” The question then becomes: Are value-based contracts going to create a more affordable healthcare system?


1. Song Z, Ji Y, Safran DG, Chernew ME. Health care spending, utilization, and quality 8 years into global payment. N Engl J Med. 2019;381(3):252-263. doi: 10.1056/NEJMsa1813621.

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