Value-based contracts are one way to counter the ever-increasing spending on specialty drugs, and two speakers at the National Business Group on Health’s (NBGH) Business Health Agenda 2017, held March 29-31 in Washington, D.C., offered some details about such arrangements. While the deals may not be appropriate for all drugs and conditions, there are some well-suited for it, said speakers during the session, titled “Innovation in Pharmacy Delivery: Value-Based Purchasing for Drugs.”

Moderator Dylan Landers-Nelson, senior analyst at NBGH, noted that at the association’s employer summit the past two years, the top concerns among attendees were “employee engagement and specialty pharmaceutical cost trend.” Employers are trying to balance “making sure employees are getting the medications they need” without breaking the bank.

According to Surya Singh, M.D., corporate vice president and chief medical officer at the CVS/Specialty division of CVS Health, various market changes make the specialty drug space challenging to manage:

  • The rising spend across the pharmacy and medical benefits, which means it’s “a lot more complicated to get a complete picture of a person’s care across the continuum”;

  • “Complex multidrug regimens”;

  • Technology that is driving clinical innovation, producing better outcomes, as well as the ability to track what those outcomes are;

  • Value-based management;

  • The specialty drug pipeline, including not only new drugs but also new indications for drugs already on the market;

  • “Rising launch prices”;

  • “Emerging management models”; and

  • Biosimilars.

Within the specialty pipeline, hepatitis C drugs were the big news in 2014, followed by the PCSK9 inhibitors in 2015, said Singh during the March 30 session. “More recently, some orphan drugs” are the prominent approvals. “The pipeline of what’s being introduced is driving” value-based contract opportunities, he maintained. And while biosimilars aren’t having much of an impact now, they will in the future.

Singh detailed three types of value-based models:

(1) Indication-based formulary: This arrangement is “trying to take advantage of the published trial data” on which the FDA has based its approval and “use it as a proxy” for which indications a drug is most effective. There may be multiple drugs within a class, for example, the autoimmune therapeutic class, in which many therapies have multiple indications, such as for psoriasis and rheumatoid arthritis, but “not all the drugs have all the same indications.” The model “builds upon a preferred drug strategy” and takes a “differentiated rebate structure” based on a specific indication or patient diagnosis.

(2) Indication-based pricing: Such an approach can “take a number of different forms,” said Singh, including “different prices for different indications,” and is based on “differential net cost.” For instance, hepatitis C has “several different genotypes.” About 70% of people in the U.S. with the virus have genotype 1 infection, so if you group all the genotype 1 patients together in one group and then all the other genotypes into a second group, this allows you to choose a preferred regimen for each. The high-volume genotype 1 group means more drugs and more competition, resulting in a “larger rebate,” and thus a “lower net cost to pass onto employers.” The second group will be “lower volume, so there is less rebate” passed along.

Model Could Set Different Prices for Same Drug

Sarah Emond, executive vice president and chief operating officer at the Institute for Clinical and Economic Review (ICER), noted during the session that this model also could be used to establish “two prices for the same medication.” For example, Express Scripts Holding Co.’s Oncology Care Value program features an indication-specific pricing model for drugs to treat certain cancers. One of those drugs, Tarceva (erlotinib), is indicated for both non-small cell lung cancer and pancreatic cancer, but the average survival rate in people with lung cancer is about five months versus chemotherapy, compared with about 12 days for pancreatic cancer. Based on those outcomes, Express Scripts believes the cost of the medication for people with pancreatic cancer should be lower than when it’s used to treat lung cancer (SPN 6/15, p. 8).

(3) Outcomes-based contracting: “This is where we all want to be,” asserted Singh. Payers need first to determine “what outcomes can we assess, and what outcomes do we want to assess?” Having “real clinical endpoints” that can be tracked and measured are key for this approach. For instance, with PCSK9s, payers may look at whether they reduce the risk of adverse cardiovascular events, but with Duchenne muscular dystrophy, “the assessment of outcomes is much more subjective,” so the “question of what outcome you’re trying to measure becomes more important” (SPN 10/16, p. 1).

Then, “once you have those outcomes, what happens? Either a rebate is given or a payment is withheld,” Singh said. One potential issue, though, is that once an endpoint is agreed upon, outcomes for the drug could change once it’s on the market.

Asked about payers’ “ability to implement these strategies, Emond noted that “over the last 10 years or so, we’ve seen other parts of the health care system move from volume to value.” However, “we’ve not seen it with pharmaceuticals until the last few years,” a shift stirred up in large part by costly new hepatitis C therapies. Payers want to know what they’re getting for the money they’re spending, she said. At the same time, the shift to generics, which had been able to offset specialty spending, started to end a few years ago.

Groups Need to Agree on Outcomes, Value

For value-based contracts to be successful, she contended, it’s “really important that the starting price in conversations” between manufacturers and payers be based on patient outcomes and the long-term value of drugs and that the stakeholders are somewhat close in that starting price. If not, this will make for a difficult conversation between the two groups. “You have to agree on what success looks like,” said Emond.

“In general, these types of arrangements will be helpful” in addressing high drug spending, she said, “but they’re not a panacea.”

Asked how much of an effect the ICER reports are having, Singh acknowledged that the organization “definitely” is having an impact on the pharma space, but “there needs to be a more structured place for it to” really have more of an impact. There was a “gap before ICER,” but payers “are in the toddler mode” of trying to figure out how to best use the data, he said.

“We have no skin in this game,” maintained Emond. Rather, ICER is focused on “how can we incentivize the system to ensure patients are getting access to drugs? We advocate for a formulary that reflects the value that drugs are bringing to patients.”

In response to a question about whether employers should bypass PBMs and instead purchase drugs directly, Emond acknowledged that while “we need more transparency in the system,…PBMs have a role to play.” Still, she said, “there are opportunities” for companies to come together and negotiate as a group. “I expect we would see it with drugs where it makes sense,” like the hepatitis C space.

Singh cited the issues of “visibility, transparency, trust and risk” as crucial to the relationship between employers and PBMs. “Think of us as a giant group purchasing organization.” He said his company does have “some arrangements with point-of-sale rebates” that involve “none of this after-the-fact rebating.” But with value-based contracts, if a drug fails to hit the agreed- upon outcome threshold, “who holds the risk?” he asked. It could involve an “extra 20% or 40% of the money on the table. Someone needs to be at risk for that,” he maintained, noting it’s “complicated…how risk gets passed down that chain.” That said, “it can’t be too complicated because that decreases transparency.”

When asked “can you incorporate physical and financial toxicity” within value-based contracts particularly for cancer drugs, Singh stated this is “a huge topic right now” that belongs “in the bucket of what outcomes you assess.…The short answer is ‘yes.’…This gets to the question of what are you trying to prioritize in outcomes. Did the drug have more toxicity than expected?…How did it impact the patient financially?”

Another issue with these models is on a drug’s long-term impact vs. its short-term cost. Emond noted, for instance, hepatitis C drugs that employers pay for an employee who might leave the company in three years but not develop liver disease for 20 years. “It’s a time horizon issue,” said Singh. “Value can be assessed over 10 years, but…affordability is a short-term horizon.” He cited gene therapies that are “likely to hit the seven-digit threshold,” with the first ones expected “to come to market this year.” The fact that “value accrues over a very long time horizon” is an issue payers “are grappling with.”

Employers, Emond said, need to consider for “which drugs and conditions does this [contracting model] make sense?”

In response to the question of whether employers should ask their PBMs to also function as care management companies, Singh replied, “yes,…especially in the area of specialty.…And not just the PBM; it is whoever is managing your pharmacy network.…Yes, there should be care management services for patients,” he reiterated. And amidst all the “talk about capitated arrangements and accountable care organization deals where drugs are carved out,…what if we go with a carved-in approach, where drugs are part of the picture?” When these groups “have responsibility for drug spend,…what kind of utilization changes” will that spur?

With value-based contracts involving drugs, “it’s early days for us in terms of has [this approach] changed the overall cost profile,” said Emond, who noted that none of the companies with value-based contracts have reported outcomes. However, she pointed to Harvard Pilgrim Health Care, Inc., which has multiple such contracts (SPN 3/17, p. 1), and said the insurer must have “some business reason for continuing to try them.”