With major reforms of U.S. health policy likely in the coming years, the future of the health care system is uncertain. It is highly likely, however, that the increasing focus on a value-based, rather than volume-based, system will continue. Given major public concern about the costs of pharmaceuticals, there is a particular need to tie reimbursement to value in the drug space. Stakeholders frequently discuss outcomes-based pricing agreements (OBAs) as a promising alternative to traditional drug pricing strategies. These arrangements are a type of performance-based risk-sharing, in which prospective clinical outcomes data are used to link a drug’s price to its real-world efficacy.
Outcomes-based pricing arrangements can be structured in various ways. For example, a pharmaceutical company and an insurer may enter into an arrangement in which the drug maker provides a drug to the insurer’s patients at a substantially discounted baseline price. The insurer and the pharmaceutical company then agree on one or more specific, outcomes-based performance targets that, if achieved, would trigger an additional pre-set payment from the insurer to the drug maker. This drug pricing framework, which is comparable to “pay-for-performance” incentive systems used by insurers and health systems, relies on prospectively-gathered clinical data to adjudicate outcomes that trigger performance-based payments. Such payments could be triggered by achievement of an outcome by an individual patient or by a certain proportion of patients using the drug (e.g., a “population level” outcome). In theory, OBAs may both improve access to potentially life-saving treatments for patients who derive the greatest benefits from them and further strengthen pharmaceutical companies’, clinicians’, and insurers’ interest in discouraging the use of ineffective therapies.
OBAs are not a new idea, but uptake has been slow: since 1993, health care payers and drug manufacturers have established less than one OBA per year. Not all drugs are good candidates for an OBA. Payers and manufacturers must carefully consider the existing evidence of efficacy, effectiveness, and expected demand for the drug before investing in such an arrangement. The concern, however, is that, even for drugs that are good candidates, stakeholders are missing opportunities for OBAs that might benefit everyone—patients, payers, and pharmaceutical firms—because of addressable obstacles.
Key Challenges In Establishing Outcomes-Based Pricing Agreements
Once stakeholders identify a drug as a candidate for an OBA, there are three key challenges to successful implementation: navigating legal and regulatory issues; measuring and recording outcomes; and building trust between stakeholders.
Legal And Regulatory Challenges
Clarity around legal and regulatory concerns will be critical to increasing uptake of OBAs. A recent Health Affairs Blog post reported on interviews with stakeholders that have developed OBAs. Interviewees identified three laws and regulations that have been especially problematic: the anti-kickback statute, Food and Drug Administration (FDA) regulations, and relevant government price reporting regulations. The interviews revealed that lack of clear guidance about the application of these regulations to OBAs increases the challenges around their development.
Outcomes Measurement And Data Collection
Uncertainty about how to define, measure, and adjudicate clinical outcomes and how to collect, store, and analyze outcomes data has also contributed to the slow uptake of OBAs. Before implementing an OBA, an insurer and a pharmaceutical company must agree on several issues related to outcomes measurement and data analysis, including: which outcomes will be tracked, and for how long; definitions of treatment success; the magnitude of performance-based payments; who will collect and analyze outcomes data; where these data will be stored; analytical methods, such as adjustment for confounders and relevant covariates; and, apportionment of the costs of data collection and analysis. In addition, high rates of insurance turnover among privately-insured Americans—an estimated 20 percent or more of whom change plans each year—create an additional source of risk for pharmaceutical firms: censoring of treated patients who change insurers before specified OBA outcomes have been adjudicated.
These contracting issues, and many others, impact financial performance under the OBA and how the covered treatment is viewed by clinicians and the public. As a result, contract negotiations can be lengthy and costly.
Building Trust Between Insurers And Drug Makers
Perhaps most importantly, the success of OBAs depends on the ability of pharmaceutical companies and insurers to build strong working partnerships anchored in mutual trust. To achieve this trust, these firms must be willing to work together to address universal concerns about privacy and disclosure of confidential information and agree on processes for addressing disputes. Furthermore, they will need to see themselves as equal partners in these arrangements. As such, these firms may occasionally need to take steps that are consistent with their long-term interests, but may not benefit them in the short term. For example, they must be mutually committed to transparent outcomes assessment and sharing of outcomes data, even if these data negatively impact their own bottom line in the short term. Moreover, drug makers and insurers must also be willing to renegotiate an OBA if, for instance, newly published data demonstrate that a drug covered by an OBA has a different spectrum of benefits and risks than were previously known, and which are reflected in the terms of the OBA.
Strategies To Address Challenges
Payers and drug manufacturers need a range of strategies to reduce obstacles, both to identifying opportunities for OBAs, and to developing appropriate agreements.
Legal And Regulatory Changes
Reduced uncertainty around the legal and regulatory consequences of OBAs will enable stakeholders to use them more frequently. There are several ways this could be achieved. For example, policymakers could enact specific “safe harbors” for OBAs in current laws and provide additional clarity about how existing laws and policies apply to OBAs.
Increased Information Sharing
Given the extremely competitive pharmaceutical insurance environment and the strict confidentiality of contract negotiations, it is perhaps no surprise that there is very little publicly available information on OBAs. Efforts are underway in the academic community to develop best practices for OBAs, but the lack of information on these contracts—especially the ones that were never successfully negotiated—makes this challenging at best.
Stakeholders need mechanisms for sharing information on efforts to establish OBAs–including the reasons OBAs failed or were not implemented. This goal could be facilitated by an anonymous database or internet clearinghouse, or through interviews or surveys conducted by researchers. Pharmaceutical and insurance stakeholders could also invest in establishing internal knowledge banks and working groups designed to support contracting teams interested in developing an OBA.
More Investment In Infrastructure
Pharmaceutical companies and insurers also need to invest in the human capital and external and internal infrastructure necessary to develop and implement OBAs efficiently. These agreements share many similarities with prospective cohort studies, in which standardized methods are used to monitor a population over time and identify associations between an exposure and an outcome. However, most insurers don’t employ personnel with extensive clinical research experience, and many pharmaceutical companies have downsized clinical research staffs as they have outsourced significant amounts of clinical research to contract research organizations. Both insurers and pharmaceutical firms may need to hire personnel with new and different skill sets, including epidemiologists, study design experts, economists, and clinical research coordinators.
Furthermore, both insurers and drug makers need to develop information technology systems that facilitate data gathering and analysis and efficient communication with patients and providers about OBAs. In many instances, stakeholders will need granular clinical data from electronic health records (EHRs) to adjudicate OBA outcomes. Insurers and drug makers will need to work with clinicians, health systems, and EHR manufacturers to enable easy, efficient, HIPAA-compliant reporting of clinical data.
Finally, OBA participants should also consider investing in the creation of a data safety and monitoring board for their OBA — akin to those used in clinical trials. These boards—which could be responsible for data review, adjudicating outcomes, and addressing scientific disagreements—would be created by an OBA’s participants and include staff from both firms. The boards would be internal to the firms and, if structured correctly, could be adequately insulated from potential conflicts of interest. Ideally, the existence of such boards would help to mitigate any mistrust between the insurer and pharmaceutical company.
Looking To The Future
While tackling the major challenges related to OBA uptake will require considerable commitments from stakeholders—including the insurance and pharmaceutical industries, policymakers, clinicians, academics, and patients—few things worth doing come easily. Indeed, the challenges that OBAs face are significant but addressable.
Funding support was provided by Pfizer, Inc, to Precision Health Economics (PHE). Dr. Blumenthal is a consultant to PHE.