Value-Based Contracting: What's the Industry Risk-Benefit?

December 13, 2016
Stan R. Mehr

Gaining rapid uptake for biosimilar products is a challenge for manufacturers and payers.

Value-based contracting may be a boon to biosimilars, for obvious reasons: a biosimilar priced significantly below the innovator product takes care of the cost denominator of the value equation. Equivalent outcomes take care of the quality numerator. The only question remaining is access.

Gaining rapid uptake for biosimilar products is a challenge for manufacturers and payers. Clinicians and patients are less concerned because the originator products are already available. And the drug makers can do what they must to get preferred positioning, resulting in a deal that excludes the originator from coverage, or they can beat their competition to the punch and offer an outcome- or risk-based contract. In this contract, the manufacturer guarantees the drug’s performance (based on some prespecified measure[s]) and works out a system of monitoring performance. Although this may sound straightforward, it is not. (Otherwise, plans and insurers would be clamoring for outcomes-based contracting across many disease states.)

These contracts tend to be utilized in diseases where the outcomes are easier to measure: the PCSK9 drugs, where monitoring drug adherence and cholesterol concentrations are key, or osteoporosis drugs, where bone fractures or admissions to hospitals for fractures can be easily flagged. For biosimilars, this may be easier to do for autoimmune medications—for example, because of drug discontinuations, the need for dose escalation, or agreed-to disease activity scale reductions—than for oncology drugs. In the latter case, there may be difficulty in coming to agreement on the outcome of interest, such as progression-free, disease-free, or overall survival, and measuring populations versus individual patients.

These are technical issues that can be overcome if interest on both sides is sufficient to drive value-based contracting forward. In an outcomes-based contract, the risk is generally one-sided, on the pharmaceutical company’s shoulders; this is not unreasonable. Biologic medications cost a great deal of money, based partly on their development costs and what the market will bear. Therefore, assuming the drug maker has extreme confidence that their medication will successfully treat appropriate patients, there should be no problem. There is a bit of risk on the payer side, however: they will have to expend money and resources to collate and analyze the results of drug treatment.

Complicating these issues is the variability in individual patient presentations: comorbidity burden, age, and adherence can all contribute or hinder success. A pharmaceutical company may argue that if its drug is successful in treating a patient and proving its overall value, should it be entitled to lower discounts (ie, higher payments) in line with this value? I’ve not heard it argued yet that drug companies are underpricing their products.

For biosimilar makers, we need to be realistic on 2 fronts: (1) in early launches, drug prices were not lowered much (especially in the face of rising originator prices) and (2) these are not generic drugs and will not be priced as such. In other words, no biosimilar maker is expecting to earn $50 million per year in sales of product. They are expecting a large bite of multibillion dollar revenues. If the competition on the market intensifies, and say, 3 infliximabs are available for use, each company can still cash in revenues of $1 billion—a substantial drop in the $5.78 billion in Remicade sales in 2015, but still highly profitable.

This movement toward value-based pharmaceutical contracts is gaining (at least in discussions) in originator drug arenas. Biosimilar drug makers may have even more to gain, including early adoption, and less to lose.

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