WHAT ARE OUTCOMES-BASED AGREEMENTS (OBA)?
Currently, market forces, including volume, competition, and Research & Development expenditures, determine the prices for pharmaceutical therapies in the U.S. market. However, as prices for therapies have been steadily increasing, so have the calls from payers, physicians and patient advocacy groups for manufacturers to take on a larger share of the financial burden.
Prices for the 20 most prescribed brand drugs under Medicare Part D have increased by over 10 times the rate of inflation between 2012 and 2017.1 Furthermore, branded non-generic drugs account for only 11% of drugs dispensed, but represent 74% of drug expenditures.2
Manufacturers are being held accountable for increased prices of specialty pharmaceuticals, with projected increases from 21% to 24% over the next three years 3 and would account for over 40% of overall drug spending by 2020.4
Mindful of maintaining the cost controls, payers and manufacturers have shifted towards redefining the way they share costs through value-based payment models. Of these, outcomes-based contracting is an innovative cost-sharing method that ties the price of therapies to their performance. Outcomes-based contracts are structured in such a way that the drug would be expected to perform just as well in the general population as during clinical trials. If such a scenario does not occur, then the manufacturer would provide a steeper discount or a full refund.
Currently, there are approximately 492 outcomes-based contracts around the globe, an increase of over 700% in the past decade. That being said, in 2018, only 45 of such contracts were active in the U.S.5 With global growth of outcomes-based contracts, U.S. payers want to develop more agreements.
A recent Avalere health survey found that 70% of U.S.-based payers view the use of outcomes-based contracts positively.6 Furthermore, the NEJM Catalyst Insights Council reported in July 2018 that 42% of respondents to a survey believe that outcomes-based contracts will be the primary source of the U.S. healthcare system’s revenue at some point.7
BARRIERS TO OBA GROWTH
Despite the interest in using outcomes-based contracts in the U.S., the growth of implementing such contracts has been marginal.8 While manufacturers see the use of traditional cost reduction methods, such as rebates, as more reliable ways to assure long-term financial predictability, payers believe that traditional pricing methods would yield higher rebates from manufacturers. Furthermore, according to a 2017 survey performed by the Academy of Managed Care Pharmacy (AMCP) and Xcenda, which studied the experiences and perceptions of outcomes-based contracts by payers and manufacturers, the primary concerns with implementing such contracts were the inability to determine set data-points to define outcomes, regulatory hurdles and cost barriers associated with data collection.9
OBA AND DATA COLLECTION
The implementation of outcomes-based contracts is pinned on lengthy longitudinal clinical trials, cost and comparative effectiveness studies and other real-world evidence data. These findings are presented to the payers by manufacturers. Currently, both manufacturers and payers find that the tools used to determine the long-term performance of the therapies on the larger population do not rise to sufficient standards to form outcomes-based agreements.
Furthermore, with no full-proof evidence that outcomes-based contracts would be assured to reap the same rewards as fee-for-service contracts, payers and manufacturers are hesitant to invest in data collection facilities and reorganize their internal structures to align with these types of analyses.
With that in mind, regulation has not been clear on information sharing between manufacturers and payers during these negotiations. Navigating the current laws created to minimize the misuse of data in the fee-for-service environment has created serious challenges to the expansion of outcomes-based contracts in the U.S. Manufacturers and payers have concerns about three potential regulatory barriers: The FDA’s regulation on manufacturer promotional communication, the Anti-Kickback Statutes, and the Medicaid Best Price requirement (MBP).
- FDA’s regulation on manufacturer promotional communication
Sensitive to the possibility that manufacturers might “overpromote” their products to payers by sharing off-label use, in 1997, the FDA passed the Food and Drug Administration Modernization Act (FDAMA), which regulated, amongst other things, the sharing of Healthcare Economic Information (HCEI) by the manufacturers. However, the Act provided little guidance to manufacturers about the specific types of information that could be shared, leaving many hesitant about how to proceed.In realizing the role economics and real-world evidence data might play in long-term pricing negotiations, Congress clarified its position in 2018 on what constitutes the type of data contained in an HCEI by amending the FDAMA, indicating that HCEI had to “directly relate” to an approved indication.
- Anti-Kickback Statutes
Despite positive movement, a particularly complex barrier is a set of statutes that lie under the umbrella of the FDA’s Anti-kickback rules. These statutes prevent any form of “favorable payments” between manufacturers and other parties on any federal program. In the case of outcomes-based contracts, increased rebates for therapies failing to perform as expected might be considered “favorable payment.”10 While certain exceptions allow for outcomes-based contracts, the narrow legal framework of these statutes is complex to navigate.
Medicaid Best Price (MBP) requirement
Another barrier limiting the expansion of outcomes-based contracts that specifically affects manufacturers is the MBP requirement. To guarantee the affordability of Medicaid and limit the high price of therapies, this policy requires manufacturers give a 23.1% rebate off list price to Medicaid. If the outcomes-based contracts in the private sector offer steeper discounts than the 21.1% offered to Medicaid agencies, the new, lower price could be construed as the new benchmark that manufacturers would be required to give to Medicaid, based on MBP requirement.11
THE WAY FORWARD
As prices rose on the heels of new therapies over the past decade, OBAs have played an important role in reimbursement strategies by shifting the shared financial burden existing between payers and manufacturers. The recent clarification by the FDA on manufacturer promotional communication has re-energized the discussion on the use of OBAs. However, these innovative contracts face several barriers that impede their growth. Manufacturers and payers view them as alternatives to fee-for-service, and not a replacement. Furthermore, regulatory barriers around the Anti-Kickback statutes and the MBP requirement have created complex negotiating environments.
Recent trends of high-priced therapies, coupled with the launches of outcomes-based contracting have put further pressure on payers and manufacturers to re-examine the current cost sharing through the fee-for-service model.
The next edition of this blog will discuss how OBAs will address the role of outcomes-based contracts in an era of high-priced therapies, both in blockbuster and orphan diseases markets.
1 Homeland Security and Governmental Affairs Minority Staff Report (2018) Manufactured Crisis: How devastating drug price increases are harming America’s seniors.
2 HSGAC Senate website. 2 Association for Accessible Medicines (2017) Generic Drug Access and Savings in the US. AAM Access Savings Report.
3 2010 Drug Trend Report: A Market and Behavioral Analysis. April 2011. B. Nease, S. Miller, S. G. Frazee et al. (St. Louis, Mo.: Express Scripts).
4 2011 Drug Trend Report. The Express Scripts Research & New Solutions Lab. Express Scripts.
5 2018 Value-Based Reimbursement in the US. DataMonitor Healthcare.
6 Avalere experts say use of outcomes-based contracts could further goals to improve patient outcomes and manage drug costs. May 30, 2017. Sung Hee Choe, Sarah Butler Donovan, John E. Linnehan. Avalere.
7 New Marketplace Survey: Transitioning Payment Models: Fee-for-Service to Value-Based Care. Nov 8, 2018. Thomas W. Feeley, Namita Seth Mohta. Insights Report.
8 US Outcomes-Based Contracts: Big Uptick in Interest, But not Execution by Cathy Kelly. Nov 6 2016. In Vivo Pharma Intelligence.
9 The Current Status of Outcomes-Based Contracting for Manufacturers and Payers: An AMCP Membership Survey. Duhig AM, Saha S, Smith S, Kaufman S, Hughes J. J Manag Care Spec Pharm. 2018 May;24(5):410-415. Epub 2017 Dec 22.
10 Overcoming the Legal and Regulatory Hurdles to Value-Based Payment Arrangements for Medical Products. Dec 2017. Margolis Center for Health Policy, Duke University.
11 The FDA’s New Guidance on Payer Communications: Implications for Real-World Data and Value-Based Contracts. Jul 17, 2018. Peter J. Neumann, Harry Weissman. Health Affairs.