Ways to build on early value-based drug payment models include focusing them on high-cost drugs with uncertain outcomes, according to the executive.


Sept. 13—Value-based payment for pharmaceuticals offers a possible pathway to control spiraling drug spending. But some are warning that those approaches may do little to counter the increases.

Harvard Pilgrim Health Care garnered headlines in 2016 for pursuing value-based payment deals with several drugmakers. For instance, the insurer obtained a conditional discount from Novartis based on whether a new treatment for congestive heart failure produced a specific decrease in hospitalizations, according to a STAT report.

Such deals have garnered increasing attention as insurers gird for a growing number of high-cost drugs. A 2017 survey of health plans, conducted by Avalere, found that 70 percent have favorable attitudes toward outcomes-based contracts (OBCs) with manufacturers. One-quarter of the health plans surveyed had at least one OBC in place, and another 30 percent were negotiating one or more.

But this week Michael Sherman, senior vice president and chief medical officer for Harvard Pilgrim Health Care, warned that such initiatives are still in the early stages. He said at a Washington, D.C., policy discussion that the insurer’s dozen or so such agreements are mainly “proof of concept” pilots and warned “that the hype is getting a bit ahead of the pilots.”

“Part of that is just natural to the environment; people want to see results quickly,” Sherman said.

Practical limitations slowing the spread of OBCs include the need for patients to take a drug for six months to two years before results can be evaluated. Additionally, the proliferation of such models is limited by the tendency of pharmaceutical companies to take a careful approach, essentially just “dipping their toes in the water,” he said.

“These [models] are part of the solution, but I don’t think that they are the entire solution,” Sherman said.

Others likewise warn about excessive expectations for such value-based payments.

“I have been skeptical about innovative contracts over the years in the sense that the hype has outpaced the reality,” said Peter Neumann, professor of medicine, Tufts Medical Center and Tufts University.

However, Neumann said he hoped that more such agreements emerge.

Limitations on the impact of the agreements include an inability to sharply reduce the cost of over-priced drugs. For instance, Sherman noted that an OBC might reduce by only 20 percent the amount paid for a drug that costs 300 percent of what it should (based on third-party value determinations).

“It’s better than the alternative, but it doesn’t really solve anything,” Sherman said. “That’s what I think a lot of people are picking up on and questioning.”

The new value-based models are just the latest way that insurers have sought to control drug costs, joining established methods such as prior authorization and narrow formularies.

“But if you’re trying to do that without limiting access for people who need it, you’re limited in how far you can go,” Sherman said, referring to traditional approaches. “So, we have been moving toward [OBCs] or performance-based contracts.”

Future Approaches

Ways to build on such value-based “experiments” include focusing them on high-cost drugs with uncertain outcomes, according to Sherman.

Such an approach is not necessary for Hepatitis C drugs, for example, Sherman said. High prices for those drugs have been driving national discussions about the threat of rising drug costs, but the treatments cure about 95 percent of patients.

Instead, value-based payment for high-cost pharmaceuticals with uncertain benefits could include setting their initial price at the benchmark established by a third party, such as the Institute for Clinical and Economic Review (ICER). Then, if treatments like a recently approved $475,000 CAR T-cell therapy prove ineffective in a patient, the drugmaker would pay back 90 percent of the payment.

“We haven’t seen that yet,” Sherman said.

Payment models could include up-front payments and rebates from drugmakers to payers if patients don’t meet certain survival time frames, or up-front payment followed by ongoing payments based on a patient’s status.

“These are not conceptually rocket science, but we haven’t seen any papers,” Sherman said.

Similar approaches are possible for payment models with diagnostics companies. An as-yet-uncompleted agreement between Harvard Pilgrim Health Care and one company offered to end coverage restrictions if the company guaranteed that the health plan’s costs would stay flat via offsets.

The Food and Drug Administration’s first-time approval in August of a cell-based gene therapy for cancer—which carries a massive price tag—opens a field of high-cost medications that are “begging for value-based agreements,” Sherman said.

Additionally, drugmakers could find broader willingness by payers to cover such drugs if the drugs are submitted for third-party recommendations based on value, he said.

Improvements Needed

Such third-party groups have drawn criticism for lacking the patient’s perspective when defining value.

Referring to ICER and other third-party organizations that insurers use to determine the value of the drugs they pay for, Alan Balch, PhD, CEO of the Patient Advocate Foundation, credited the groups for starting to reach out to patients through “patient engagement platforms.” They could build on that effort by establishing ways to broadly incorporate patient-reported outcomes “in more meaningful ways—ways that matter to patients—into these frameworks,” Balch said.

Until that happens, the extent to which such value determinations should be used in plac e of formularies or other payer approaches is unclear.

“We still have a long way to go in understanding what is value and applying that concept,” Balch said.

Regulator ‘Pushback’

Without industry agreement on ways to reduce the cost of breakthrough therapeutics, the likelihood of government price regulation increases, Sherman said.

Medications consumed 25 percent of 2016 spending by Harvard Pilgrim Health Care, even as the share paid by beneficiaries has declined in recent years.

“The problem is if the individual isn’t paying for it, we all are, which for me as a health plan CMO is problematic because we’re getting tremendous pushback from the regulators, from employers, from everyone,” Sherman said. 

As part of the regulatory approach, many states have advanced price-setting transparency statutes that will force drug makers to meet a patchwork of requirements demonstrating how they set prices across the country.

“I’d much rather see all of us work together to come up with a solution than [have] some regulatory solutions,” Sherman said.


Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Wednesday, September 13, 2017