It’s that time of year where we’re in the final quarter of the year. In 2018, we have witnessed a fundamental change in the concept of value, going far beyond pharmacological properties and clinical effects, to not only to include patient value, quality of life and patient management, but also to integrate systems and societal value dimensions more broadly. Where are we in our journey towards the new frontier in the ‘paying for value’ discussion in the US?
Strategic Pharma Considerations
Based on our experience, developers of pharmaceutical products are motivated by a variety of business objectives to pursue OBA (Figure 13). The exact rationale varies by product and particular business case, but factors generally include the opportunity to ensure greater patient access to new medications (and potentially mitigate the impact of tiered formulary placement) and the attempt to demonstrate the full clinical and financial value of products in the marketplace, so as to ultimately increase market share in crowded therapeutic classes for instance. For brand teams, the ability to improve prescriber confidence in the products is certainly an upshot of well-executed OBA contracts we witnessed. Payers see it as a benefit to be able to give physician and members choices in medication selection.
Pharma strategy goes beyond product specific advantages. Deep relationship building, as described by Harvard Pilgrim’s Dr. Sherman above, is understood to be a natural consequence of the concerted payer-pharma engagement, even in cases that may not ultimately lead to a contract in the market. Executives at pioneering companies would add that the early investment in the OBA approach has already resulted in economies-of-scale for later contracts, in terms of both useful learnings and building infrastructure to reduce future time and resource needs during negotiation and execution. One of our clients, a leader with more than a dozen agreements in the market, was able to report an efficiency factor of 90%, meaning resource needs shrunk to 10% of what they had been for an early benchmark pilot. Such remarkable efficiency gains are driven by growing cross-functional expertise, the setup of analytics platforms and use of guiding frameworks, templates and best practices. We refer to this as an OBA approach at scale.
Strategic Payer Considerations
From the health plan perspective, a core promise of an OBA is to provide members with access while reducing risks around budgetary uncertainty: The list of available innovative therapies can be expanded while patients with the greatest need are prioritized, generating positive reception by consumers, media and patient associations alike. In reality, OBAs are only one of many value initiatives and US payers spend the vast sum of time and resources on provider-driven value-based models, network optimization, integration and consolidation. However, increases in the cost of specialty medications have sharpened payer rhetoric around OBA. Interestingly, most of the payer executives we spoke with are not outright dismissive of the overall costs of high-value pharmaceuticals but point to misgivings about paying premium prices for treatments that turn out to provide little value in real world use. Looking forward, those budget holders have concerns about specialty pharmacy utilization costs, but they are even more worried about the emergence of innovative combination therapies priced markedly above existing standard cost of care. They are open to better formulary placements and removal of utilization restrictions, but only if such will result in reduced drug spend for non-responders, optimized treatment durations and overall cost savings. This puts value-based contracting squarely into the payer toolkit for achieving value for money. We would argue that this actually represents an opportunity rather than a threat for manufacturers in view of the most likely counterfactual (considering measures to manage budgets payers tend to consider at their disposal such as drastic increases in rebate levels, potentially heavy utilization restrictions and unfavorable formulary placement or even list exclusions).
Historically, when payers began to create value for money analyses, their initial basis relied on the “known” aspects of the drug’s reported value proposition – that is, using data based on completely controlled populations, placebo controlled, double-blind research. The advent of real world evidence has changed the equation. For plans, the critical question becomes not only ‘What will it cost?’ but more importantly ‘Which members are most likely to respond, and when should we stop therapy when it becomes clear is it not working and what types of controls would be acceptable to accomplish this?’ To develop a meaningful value proposition in the construction of OBAs with respect to payer budgeting, manufacturers are well-advised to develop population based models that capture total medical costs (utilization, diagnostics, medical costs, hospital beds, and more) and show impact on quality and efficiency of care. Judicious use of diagnostic markers and advanced modeling can help to identify the right patients (for instance, those for whom the drug is most likely to work and those who are likely to be non responders). As we outline further in chapter III, resulting models around real world effectiveness must be brought to bear during OBA contract negotiations so that optimum clinical and financial outcomes for both payers and drug manufacturers can be achieved.
Payer representatives we spoke with would urge manufacturers aiming to enter OBA negotiations to develop strategies and evidence that supports actuarial and population-based decision-making and where possible go beyond product or even disease specific analyses. This is born out of the simple but compelling fact that health plans carry fiscal responsibility for “full” members (as opposed to patients of a certain therapeutic intervention only). Such perspectives are of course neither new nor exclusive to innovative contracting, but it can be advantageous to see OBAs and the intense collaborations that enable them as a unique vehicle to bridge divergent understandings. As one of our interviewees on the pharma side told us, “OBAs are the best investment in payer intelligence we currently have”. To understand OBAs as an exercise and opportunity in mutual trust building cannot be overemphasized.
Figure 14 shows how payers with existing OBAs see the benefits these have brought to their organization. The list synthesizes responses of the most recent US survey research but also reflects that at this stage, plans are still on a learning curve when it comes to outcomes-based contracting. Generally, payers have an eager interest to obtain real-life insights on disease management and treatment pathways, and active partnerships that include pharma responsibilities “beyond the pill” are welcome. Dissatisfaction with the contracting process mostly sets in when negotiations become lengthy and impenetrably complex, when talks get lost in contractual minutia and trust erodes as the other side is believed to show no ability to make any concessions.
We noticed that the use of clinical and actuarial analytics platforms is growing when it comes to the understanding (and definition) of meaningful endpoints and the range of factors that modify real world usage, including adherence, persistence, therapeutic selection bias – information payers expressly value.
Those drawing on outcomes-prediction technology report that internal analytics teams may end up in the contract design stage for up to six months. External expertise is often requested to accelerate the path to OBA launch.28
25 Goble, J. A., et al. (2017). Performance-Based Risk-Sharing Arrangements: U.S. Payer Experience. Journal of Managed Care & Specialty Pharmacy, 23(10), 1042-1052. doi:10.18553/jmcp.2017.23.10.104226 Avalere (2017); Survey of 50 decision makers representing 45 health plans and 183 million covered lives. Avalere Policy 360,Payer Perspectives on Outcomes-Based Contracting;
27 Brown, J. D., Sheer, R., Pasquale, M., Sudharshan, L., Axelsen, K., Subedi, P., . . . Kamal-Bahl, S. (2018). Payer and Pharmaceutical Manufacturer Considerations for Outcomes Based Agreements in the United States. Value in Health, 21(1), 33-40. doi:10.1016/j.jval.2017.07.009
28 IBM Watson Health/ Truven Health Analytics (2018). When do outcomes-based contracts make sense. The Payer Perspective. Opinion Brief. January 2018