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Meeting the Three Biggest Challenges of Pharma Value-Based Agreements

October 25, 2019

By Erica Bartlett, Product Manager

Value-based agreements (VBAs), sometimes called outcomes-based agreements, are on the rise. According to Aetna, it is estimated by 2020 that 75-80% of its spending will be in value-based contracts.  While most of this spending will be directed at healthcare services, payers are increasingly looking for value-based approaches to buying drugs, devices, and even digital medicine and personalized medicine technologies.  This is good news for patients as it increases their treatment options, but it also adds some logistical challenges for manufacturers to track the outcomes and pay rebates accordingly for these unique and innovative contracts. 

Before going into those challenges, though, it helps to have some background on VBAs and why they’re gaining in popularity. 

What are Value-Based Agreements? 

In the U.S., the traditional health care model involves patients and insurance companies paying for treatment based on physician recommendationsoften without objective analysis of the outcome or value provided.  Evidence-based medicine protocols are intended to take more data into account, but their determination may be affected by patient and provider preferences, payment bias, and other issues that put newer or innovative treatments at a disadvantage in clinical decision making. 

Value-based agreements (VBAs) are emerging as a way to correct for some of these issues. These types of agreements are primarily for drugs with widely accepted outcomes and clear biomarkers that can be quantified and measured. Some also focus on quality of life outcomes and might look at pain levels or other indicators, although these are more difficult to measure. 

VBAs are made between a manufacturer and a payer, where the manufacturer agrees to owe a rebate to the payer based on the outcome. This is often defined by how well the treatment performs, but the contracts can also be based on financial or economic outcomes. 

For example, an agreement might look at a patient’s lab results to determine if a prescription is effective. If the therapy is meant to change the levels, and the results match the expectation, then the manufacturer doesn’t owe any extra rebate. If the levels change in the wrong direction, though, then more discounts apply. That’s when the payer receives additional rebates. 

How Common are VBAs? 

Getting an accurate count of VBAs is difficult since they’re not required to be public, but interest is high. In one recent poll, 70% of payers and 60% of manufacturers expressed interest in outcomes-based contracts. 

This is also coming up on the government side. The Centers for Medicare & Medicaid Services (CMS) has approved a value-based approach to supplemental rebates for Medicaid in five states, and more will likely follow. CMS has also initiated several other VBAs, including hospital, renal disease, and nursing facility programs.  Internationally, indication-based pricing is also growing as a way to introduce value-based pricing into treatment. 

Benefits of Value-Based Approach 

Part of the reason interest is so high in VBAs is the promise of increasing the value to patientsproviding cost savings and improved outcomes, and improving access to medications.  A value-based approach may give a patient access to new and experimental/unproven treatments that would not be available otherwise.  Payers often don’t like the high prices and risk associated with innovative but unproven treatments, but when they are effective, the patient may have a more complete cure, with a shorter treatment time and fewer side effects compared to other treatments, at lower cost, so everybody wins. The patient has a better outcome, the manufacturer can demonstrate value and potentially accelerate access to more markets, and the payer saves on the cost of treatment for the original disease as well as side effects that are avoided.  The payer is able to offer the benefit of the new treatment because the value-based payment defrays the cost if it doesn’t work.  Depending on their benefit plan and deductible levels, the patient may also benefit financially. 

VBAs can also act as a differentiator for manufacturers by allowing them to demonstrate how effective their product is compared to that of the competitor, in real world treatment situations. They can then leverage this data to expand access to new and innovative treatments, and to give newer approaches like digital medicine or personalized medicine a platform to show their value when compared to traditional treatments. 

Challenges with Value-Based Agreements 

Implementing value-based agreements is not always straightforward, though One of the initial challenges is identifying the right outcome to measure. The payer and manufacturer must also agree on what levels trigger payment, as well as how to measure the outcomes. This includes finding the right timeframe to look at the outcomes. Since many therapies will take time to have an impact, VBAs are more likely to be evaluated on an annual basis rather than a quarterly one, and the timeframe may depend on the duration of the episode of care. 

Another challenge focuses on manufacturers and their concerns about participation. Some of this comes from agreeing to a financial penalty when they don’t control how their product is prescribed or used. Additionally, VBAs can have implications for government pricing. Manufacturers want to ensure that these agreements don’t impact Medicaid Best Price.  

The third challenge is capturing all the data needed to monitor the results, especially since this can change depending on whether the results are for an individual or a cohort of patients. Manufacturers might need to look at additional data, which means updates to systems used to track prescription information. The data needed may also lie outside the boundaries of the information contained in standard EDI transaction sets, requiring additional integration. Adding to the complexity is the fact that any information needs to remain compliant with HIPAA.  

Finding the Right Solution to Manage VBAs 

For manufacturers to feel comfortable entering into value-based agreements, which includes taking on the additional effort for measuring outcomes and managing the associated rebates, they need to have the right tools. The right solution will support flexible contracts, configurable data fields, data validations, and robust analysis to review all the information and identify when a payment will be made.  

Having this type of solution in place will allow manufacturers to meet the needs of the evolving world of VBAs, and it will support better long-term care for patients. 

Model N offers a suite of products that can help you manage your contracts and rebates, including value-based agreements. If you’d like to learn more, contact us today and one of our representatives will be happy to assist you.  

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