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Identifying Best Practices for Successful Value-Based Contracting


Value-based contracts are growing as drugs get more expensive and effective, but it’s still an emerging area with a lot of unknown and uncertainty.

Value-based contracts (VBCs) are evolving process and more therapeutic areas are being covered by them. A panel of experts reviewed the growth of VBCs and provided a framework for VBCs as drugs get more expensive and more effective.

The goal of VBCs is to improve quality of care, manage utilization, and reduce costs through an agreement between a manufacturer and a payer. In 2009, there were 2 VBCs in 2 therapeutic areas: endocrinology and musculoskeletal, explained Mahsa Salsabili, PharmD, PhD, pharmacoeconomics specialist, Clinical Pharmacy Services, Commonwealth Medicine, University of Massachusetts Chan Medical School.

By 2018 there were 19 VBCs in 8 therapeutic areas, although this dipped slightly to 12 VBCs in 2019.

According to the data available, Harvard Pilgrim Health Care leads the pack with the most VBCs, followed by Prime Therapeutics, Cigna, Express Scripts, and UPMC Health Plan.

However, a lot of data is likely underreported, said Paul Jeffrey, PharmD, principal, Jeffrey Consulting; retired, senior director of pharmacy, MassHealth; retired, associate professor, Family Medicine & Community Health, University of Massachusetts Chan Medical School.

“A lot of these contracts, of course, are confidential,” he said. “And there’s no central collection place, currently, for this information.”

He called the VBC space an “organized scramble” with a lot of people and institutions trying mold a value-based framework. There are many types of agreements in the space and specific ones for one-time curative therapies, such as warranties, pay-over-time model, subscription model, and a hybrid model that has a subscription component and a value-based kicker.

“So, I think that all of these are going to go into evaluation; this market is anything but settled,” Jeffrey said.

At MassHealth the direct negotiations process for VBCs follows 4 primary stages, explained Neha Kashalikar, PharmD, clinical consultant pharmacist, MassHealth Office of Clinical Affairs, Commonwealth Medicine, University of Massachusetts Chan Medical School.

  • Manufacturer meetings, which happen frequently to discuss clinical presentations or proposed value-based or supplemental rebate agreements.
  • Value review, which takes places once a contracting proposal has been submitted. The MassHealth team conducts a review that includes a clinical evaluation of the current evidence-based medicine for the therapeutic landscape, as well as a review of market trends and pricing updates.
  • Negotiations are entered to ensure the contract provides the greatest value
  • Operationalizing, in which criteria changes are implemented and there is communication with providers and coordination with managed care organizations

Kashalikar explained that MassHealth proactively identifies high-priority products for VBCs. These products are those that are high-spend medications, those with a high average per member per year cost and low rebates, and medications with increasing utilization.

All formulary decisions for MassHealth are based on evidence-based medicine and all contracts have to align with best practices in consensus guidelines and clinical literature, she said.

“However, it’s important to be wary of contract terms that make tension [and] put you at odds with best practice,” Kashalikar said. Similarly, she recommended being cautious of contracts that track end points that are not supported in the literature.

After identifying a high-impact drug, the MassHealth team has to decide if a supplemental rebate agreement (SRA) or a VBC is the right way to go:

  • An SRA is better suited for drugs with established efficacy and safety data, high monitoring or administration costs, and conditions with patient-reported or subjective outcomes.
  • A VBC is better suited for drugs with approval based on biomarkers where they may be questions about the drug in practice, limited real-world evidence, and concerns about safety or efficacy.
  • The overlap areas where either may be suitable are high-cost drugs, pipeline products, and drugs with increasing utilization. “In those scenarios, we contract both for supplemental rebate and value-based contracts on parallel paths,” Kashalikar said.

The VBCs that MassHealth has fall primarily into 2 buckets: clinical constructs and claims-based constructs. Clinical constructs are better suited for drugs that have an unanswered clinical question, while claims-based constructs are better suited for drugs with established outcomes and greater utilization, she explained.

Compared with a SRA, VBCs may have delayed rebate collection, Kashalikar noted, and VBCs “may not be associated with the greatest cost savings initially.”

In addition, it may take some time to know if the VBC is working. For instance, Jeffrey noted that MassHealth has a contract for onasemnogene abeparvovec (Zolgensma), the one-time therapy for spinal muscular atrophy with a $2.1 million price tag. It has a 5-year agreement and “we won't really know how well that worked until the sixth year.”

Clinical constructs include a clinical outcome studied in confirmatory trials, such as a change in hospitalization; safety parameters, such as adverse reactions seen in confirmatory trials; adherence, which may be appropriate for a novel dosage form intended to improve patient compliance; and discontinuation for products with questionable tolerance that include a rebate if the patient has to discontinue the product.

Claims-based constructs include stop-gap contracts for a drug with a treatment duration that is expected to be fixed; subscription model for curative therapies and a large patient population; volume-based tiered rebates for drugs with growing utilization; and portfolio agreements where a supplemental rebate is available for multiple drugs across therapeutic classes, which is good for manufacturers with a large and diverse portfolio.

Utilizing tools and data is important once these contracts have been implemented. Salsabili highlighted 2 types of data: the data warehouse, which has structured data only and is unsuitable for real-time data, and the data lake, which includes both structured and unstructured data and allows for real-time insight with dashboards. The data lake may include claims data, published research, patient-reported data, and data from the electronic health record.

Coordination to track outcomes and the operational infrastructure needed to gather data are 2 of the challenges for VBCs that Kashalikar highlighted.

Currently in the field, there is a lot of experimentation with VBCs, and Jeffrey believes the future is bright for VBCs.

“I don’t think value-based contracting is going to go away,” he said. “I think it’s going to escalate and become more prevalent.”

He also expects more state legislation. In 2021 there were 111 bills in 42 states to take action and lower pharmaceutical costs. In addition, 22 states enacted drug pricing laws between 2006 and 2021.

As more VBCs are implemented and mature, best practices will start to emerge for others to follow, and Jeffrey also expects to see VBCs applied to other therapies. For instance, MassHealth recently adopted a digital therapeutic into the formulary with a hybrid contract with an outcomes-based agreement.

“The idea of outcomes-based agreements in digital therapeutics are likely to be probably more prevalent and common than they are with pharmaceutical products,” Jeffrey said. Because they are so brand new, “digital therapeutics really has to overcome the barriers to entry.”

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