Value-based contracting (VBC) continues to advance after a hiatus during 2020 resulting from the COVID-19 pandemic. As progress in this area resumes, it is worth a moment to review some of the learnings of the past years, explore some of the newly identified challenges, and consider how VBC may continue to progress.
Efforts to enact VBC over the past years have often resulted in much discussion and little implementation. During this time, we have learned that they are not applicable in all areas. They appear to be best suited for areas where the product costs are high (hematology, oncology, orphan drugs), competition is limited, and there is significant variability in the expected patient outcome. For larger therapeutic categories with less expensive products, especially those with well-established discounts, VBC does not offer clear advantages. This distinction is driven by the fact that creating and implementing a VBC is challenging and time consuming, and probably not worth the effort, when traditional, volume-based contracting primarily drives the formulary decision process.
In addition to the challenges traditionally associated with VBC (data collection, agreement on outcomes, measurement timeframes, etc.), several others have been recognized. These include a lack of predictability regarding value, limited transparency with respect to product pricing, and the regulatory environment. The first issue makes it difficult for a plan to assign a value to the contract, resulting in no way to integrate it into premium and cost calculations. For this reason, VBCs should not be considered a replacement for rebates. The second factor, a lack of transparency in how a product’s price is established, leaves open the question of overall value. If a payer is unconvinced that a product should be reimbursed at the asking price, they are unlikely to have the appetite to accept the challenge of crafting a VBC. Finally, the regulatory environment has been in a significant state of flux over the past 3+ years, with most participants expecting changes, but having little idea what they may entail. A lack of defined safe harbor for VBC, anti-kickback concerns, and best price implications all serve to slow the contracting process.
Several possibilities exist for how VBC may advance in the future. The first is a mindset change regarding the purpose of a VBC. It may be beneficial to view them largely as a “product warranty,” rather than a price concession. With this mindset, the focus can be on if the product is providing the benefits it is supposed to, rather than what level of value is resulting from the agreement. This may help to eliminate the complaint that for many VBC, the effort is not worth the value. Pricing transparency concerns are difficult to address, given that there is no universal definition of “fair profit.” Regardless, manufacturers should provide as much information as possible regarding how the pricing was established, preferably based on objective measures. At the same time, payers need to acknowledge that there is value in subjective measures (QOL as an example), and that manufacturers must make a profit. Another option may be combining VBCs with the CED (coverage with evidence development) approach. This has been used in Europe, and, to a limited degree, by CMS in the US. CED allows coverage of a medical technology or drug during a period of evidence gathering. At the end of the period, pricing and reimbursement are negotiated based on the outcomes recorded. While there may be concerns regarding allowing a product to gain market share before net pricing is agreed on, this should be manageable if conducted as a pilot program. With respect to the regulatory environment, continued lobbying and educational efforts, preferably in a cooperative fashion from payers and manufacturers, are needed. Value-based care is a focus of CMS, and as such, VBC for pharmaceuticals should be given protection from the regulatory hazards described above.
As a final comment, advancement of VBC could be enhanced if there were more efforts to share information and develop guidelines/best practices. As it stands, most contracts feel like a “build it from scratch” effort every time. To the extent that more information was published on the process, and how hurdles have been overcome, all participants would benefit. All would need to be done while respecting confidentiality (and competitive advantage), but additional disclosure would only help the industry.