Trust Is the Key Ingredient in Medicaid Value-Based Contracts, Manufacturers and Payers Agree

In a session at the Academy of Managed Care Pharmacy Annual Meeting held March 25-28 in San Diego, California, speakers discussed the value-based contract process in Medicaid from both the manufacturer and the payer perspectives.

In a session at the Academy of Managed Care Pharmacy Annual Meeting held March 25-28 in San Diego, California, speakers discussed the value-based contract (VBC) process in Medicaid from both the manufacturer and the payer perspectives.

Representing the payer was Terry Cothran, DPh, director of Pharmacy Management Consultants (PMC), which is a branch of the Oklahoma University College of Pharmacy that supports the Oklahoma Healthcare Authority in managing pharmacy benefits. Cothran explained that the state Medicaid program is an ideal ground for testing new ideas like VBCs because in its 100% fee-for-service environment, it is simpler to negotiate between payers and drug manufacturers without involving managed care organizations; additionally, the state agency is open to innovation.

However, working in the Medicaid sphere does present some particular challenges, Cothran explained. Despite ever-increasing drug spending, in particular for specialty medications, the payer must work within a finite budget set by legislature to provide care for vulnerable populations.

With these restrictions in mind, Oklahoma set out to negotiate mutually beneficial VBCs with drug manufacturers. “We really wanted to get an outcome that both feel comfortable with,” Cothran explained, referring to both the payer and the manufacturer; to do so, his team resolved to listen to ideas from the manufacturer and not rule out any types of agreements, drug products, or disease states.

While most interactions with manufacturers were nonconfrontational and both parties were receptive, these good intentions did not always result in finalized agreements. Of the conversations PMC initiated with 29 drug makers, only 4 have so far yielded executed agreements; most commonly, manufacturers would opt out of participation or just not respond to inquiries.

Cothran discussed how the successful contracts vary in their products and outcomes of interest; for example, a contract with Janssen for its long-acting injectable antipsychotic focused on population adherence in its phase 1 and will look at clinical outcomes in an upcoming phase 2, whereas an agreement with Eisai around its antiepileptic drug is focused on reducing hospitalizations.

Through their efforts to build these contracts, Cothran and his team have learned some factors that may foretell trouble. For instance, contracts with larger drug companies may take longer to implement just because of the logistical efforts of getting each stakeholder to attend a meeting. Some manufacturers request the payer to share large amounts of data, which the payer may be reluctant to do if it exposes sensitive information on other drug products.

The real-world setting of these contracts also presents complications: Agreements cannot include off-label or beyond-label prescribing, and excluding too many patients (for instance, those with enrollment gaps) may leave too small a sample to study.

“We need to look at the whole population and not a perfect population,” Cothran said. “We know it works for a perfect population—that’s how it got approved­—but we need to look at the real world.”

He concluded that VBCs present intriguing opportunities for cost savings and improved outcomes, but diligent work is required, and stakeholders must set aside time for conversations to build trust and learn one another’s comfort levels. He also advised starting with smaller, simpler agreements that can be built upon.

Trust and cooperation must include patience, Cothran added, as outcomes don’t happen overnight, but they will be shared as soon as they are available.

These points were reiterated from a different perspective by Russell L. Knoth, PhD, director of health economics & outcomes research at Eisai, which has a contract with the Oklahoma Medicaid agency around its antiepileptic drug. In his presentation, he discussed the factors that can make agreements happen versus those that can lead to failures, and which characteristics of companies make it possible for deals to occur.

Discussing the history of VBCs, Knoth cited a 2009 study by Carlson et al concluding that there were just “4 performance-based schemes between payers and manufacturers in the United States of which we are aware.”1

However, Knoth said, that awareness may have been hindered, both in those early days and still today, by the existence of undisclosed agreements. He cited an article published in the February 2019 issue of The American Journal of Managed Care® in which Mahendraratnam et al unearthed much greater numbers of agreements through confidential surveys with payers and manufacturers, who reported implementing more than 200 such VBCs since 2014, but more than 70% of these were not publicly disclosed.2

Besides shedding greater light on the prevalence of VBCs, the study provided a useful framework for understanding where in the process negotiations break down and the differing qualities that make these agreements attractive to payers and manufacturers, Knoth explained. In his view, the contracting phase of early dialogues and negotiations is most commonly where things tend to fall apart, but the implementation phase can also present difficulties in assessing outcomes and tying them to the effects of the drugs.

Some of the predictors of success identified in the study were supported by Knoth’s own observations: Manufacturers commonly said that it was important for their payer partner to have a robust infrastructure for collecting and analyzing data, and one of the factors that drew Eisai to Oklahoma was the state’s “beautiful” data collection system for its Medicaid system, Knoth said.

It’s easy for stakeholders to agree that they want to enter into such an arrangement, but it’s much harder to go “from concept to contract,” he explained. Many conversations fail when the time comes to draw up contracting language because of the level of exactness that is needed in defining everything from the intervention population to the assessment period to the outcomes of interest.

However, Knoth said, success is possible when manufacturers appreciate the perspective of the payer and there is ample trust between the 2 parties. The data collected must be able to actually demonstrate benefit to the payer, patient, and manufacturer.

“Trust is the most important currency to get an agreement in place,” Knoth said, along with the ability to access and process data. If parties can avoid the common pitfalls in negotiation, which is “the likeliest place for good intentions to fail,” VBCs can present a win-win situation for all involved.


1. Carlson JJ, Garrison LP Jr, Sullivan SD. Paying for outcomes: innovative coverage and reimbursement schemes for pharmaceuticals. J Manag Care Pharm. 2009;15(8):683-687. doi: 10.18553/jmcp.2009.15.8.683.

2. Mahendraratnam N, Sorenson C, Richardson E, et al. Value-based arrangements may be more prevalent than assumed. Am J Manag Care. 2019;25(2):70-76.

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