BioPharma, Payers

Outcome-based contracts likely to keep growing, evolving despite challenges

Although they’ve seen growth in the last few years, full implementation of outcome-based contracts faces hurdles like expensive technology, outmoded infrastructure and regulations that get in the way.

Agreements between drugmakers and payers under which reimbursement is contingent on specific outcomes have been a hot topic in healthcare for several years, but have been hamstrung by a variety of challenges. These include technological, infrastructural and regulatory limitations.

Yet, despite those challenges, outcome-based contracts are here to stay likely because of the potential for payers to save money. And experts anticipate that they will see continued growth.

To be sure, some of that growth is already happening. A January 2019 survey by Decision Resources Group showed that 22% of managed care organizations had outcome-based contracts already, while 49% planned to by the end of the year. Cardiology, oncology and hepatitis C were the indications most commonly covered under outcome-based contracts. Types of value-based contracts in the market included those that measure reduced or no use of adjunct drug therapy, reduction in total cost of care, discontinuation of therapy, surrogate clinical measures that may provide better long-term outcomes or reduction in a single data parameter of healthcare utilization.

One recent example is Abarca Health, a pharmacy benefit manager based in San Juan, Puerto Rico. Last month, the PBM said it had entered an agreement with Thousand Oaks, California-based Amgen for the drug Enbrel (etanercept) among patients on commercial health plans using it for moderate to severe rheumatoid arthritis. Under the contract, Amgen would issue rebates to Abarca’s clients when members discontinued use of Enbrel after three months. It is structured similarly to an agreement the two companies made in 2018 for the cholesterol drug Repatha (evolocumab) and agreements between Abarca and other companies.

The deal with Amgen is made possible by the PBM’s software platform, called Darwin, development of which Abarca COO Javier Gonzalez attributed to the company’s relative young age and nimbleness compared with the larger PBMs.

“They are all clinging to a legacy platform, and from what we’ve heard they have to build a lot of middleware and third-party stuff outside to try to bring their older legacy systems to a point where they can be successful in these types of initiatives,” Gonzalez said in a phone interview.

Still, that doesn’t mean setting up outcome-based contracts is easy or cheap.

Soumi Saha, senior director of advocacy and healthcare improvement company Premier, pointed to four significant challenges to the implementation of such contracts: anti-kickback laws; price-reporting metrics like Medicaid Best Price; regulations of communications between payers and manufacturers; and data access and interoperability.

Although there are ways around many of the challenges, the difficulty surmounting some, like the Food and Drug Administration’s anti-kickback statues, is illustrative.

The statutes forbid “favorable payments” between manufacturers and other parties that are on any federal program. In a blog post last year, IQVIA pricing, contracting and market access consultant Antoine Longuet wrote that increased rebates under an outcome-based contract for drugs that don’t perform as expected could be considered a favorable payment.

“The problem is that it’s very cumbersome,” Saha said in a phone interview, referring to ways of getting around the statutes.

Saha explained that companies looking to participate in an outcome-based contract can seek an advisory opinion from the Office of the Inspector General. But it can take 12-18 months to receive a response, and it is only applicable to the companies named in the opinion. If two other companies want to form an agreement, they must seek their own opinion, even if the contract is the same.

“It’s a regulatory minefield, so when you go in you have to be careful to not land on one of those mines,” Longuet said in a phone interview.

Then there are infrastructural challenges to overcome.

Longuet said PBMs tend to possess the technology, but not the infrastructure to track utilization of medications. That’s why it’s one thing to have an outcome-based contract for an extremely high-priced but one-time-use curative treatment – like gene therapy or CAR-T cells – and another to have one for a drug that’s relatively low in price but used regularly over a patient’s lifetime.

“From that perspective, this is where the definition of the outcome-based agreement needs to be adjusted for that length of time,” he said. “And from a technology perspective, you’re going to have to build systems that can track patients for a long period of time and throughout different pharmacies and health plans.”

One of the tough parts is collecting the data needed to do that tracking.

It can be cost-prohibitive to obtain some types of data, such as biomarker or electronic medical record data for oncology products, said Farhana Naz, vice president of business strategy at D2 Consulting. Another challenge is considering how contracts should be designed and what endpoints they should use to measure value, such as whether patients are rehospitalized or have to use adjunct therapies.

“Whatever can be the endpoint in an outcome-based contract should be based on easily accessible payer claims data,” Naz said in a phone interview. “These contracts will be the ones that are actionable and will be able to run operationally.”

Payers have shown a discomfort in investing in the capabilities needed for outcome-based contracts given that they are still considered new and unproven, Longuet said. Tracking hospitalization, blood counts and rebates all pose significant challenges.

“Imagine having to track actual doses or many different patients throughout time and constantly reevaluating when to give a rebate based on that,” he said. “It’s blending two systems that don’t talk to each other.”

PBMs and health plans are thus unwilling to commit resources to developing outcome-based contracts for low-cost, low-utilization drugs like antibiotics. Instead, they are focusing their efforts on high-cost and high-utilization ones, such as those for rheumatoid arthritis.

In addition to the challenges for payers and PBMs, drugmakers have challenges of their own with outcome-based contracts.

The move toward such contracts marks a shift from the environment that drugmakers have traditionally enjoyed where medical decisions to use drugs were made independent of their price, but manufacturers are increasingly being asked to demonstrate their products’ value. That creates a risk for biopharma companies, particularly given the tendency of some drugs to work better in some patients than in others, according to Eidos Therapeutics CFO Christine Siu. Eidos Therapeutics – a portfolio company of BridgeBio – is in the early stages of thinking about outcome-based contracts and had already had some conversations with payers in trying to understand how to approach them.

“Not all therapies are effective for 100% of the population, and that is not well-understood,” Siu said in an interview at the J.P. Morgan Healthcare Conference in San Francisco last week. “Now, you’re asking pharmaceutical companies to justify their pricing.”

That’s where diagnostics technology like genomic sequencing could potentially become an important part of outcome-based contracts.

“That goes back to the outcomes and savings you can provide and just better understanding of outcomes – when patients are responding, when they’re not and why,” Foundation Medicine CEO Cindy Perettie said in an interview at the J.P. Morgan conference.

For the time being, the agreements are here to stay.

“This is probably something that won’t go away,” Gonzalez said. “Pharma will continue to learn through time, and we’ll continue to see evolution in this space.”

Photo: IvelinRadkov, Getty Images