Implementing Outcomes-Based Contracts: Key Considerations

With the recent pricing wars among pharmaceutical and biotech drug manufacturers, the U.S. government, and even the patient population, one thing is certain — it’s not stopping anytime soon. Manufacturers are being “asked” (read: strongly urged) to justify all product pricing to all parties impacted. That said, while some price adjustments are justified based on the costs of bringing a product to market, the majority of the customer population (payers, institutions, providers, government, and patients) need “safeguards” in place to protect them from financial burden.

To this end, outcomes-based contracting strategies were born. Outcomes-based strategies are intended to “guarantee” (to an extent) that the drug purchased by the GPO, covered by the payer, and prescribed by the provider is effective for the majority of the patient population. It’s also intended to limit or reduce the financial burden endured by one of the preceding channels. For example, if your drug is intended to have a positive effect in managing diabetes, and the outcome is that the majority of your patient population is successfully managing their diabetes, then the channels are less likely to incur additional patient costs. However, if the drug is not as effective as marketed or documented, then patients will be returning to providers and filing additional claims with payers, and pharmacies could return products deemed “ineffective,” causing negative impact to manufacturer sales and utilizations.

Also, keep in mind, that effective for the majority of the patient population is a highly subjective phrase. For instance:

  • How is patient data used to determine efficacy? Is a .0001% decrease in some biomarker adequate or does it need to be more extreme, an 85% decrease?
  • Additionally, what constitutes a majority? Is it greater than 50%, or two standard deviations, which represents 95% of the population? How is “patient population” defined? Are all patients on your product included, or are unclassified conditions disqualified?

Other Key Challenges

People: From IT to legal, product regulatory to finance, an extensive number of people and teams must be involved to get an outcomes-based strategy off the ground.

Process: Documenting the strategy — including all terms and conditions — is critical and complex. And once the initiative is underway, who will own and support the infrastructure? How will analysts know how to prep data submissions, verify calculations, and prepare payment analytics?

Business Data: With so many data points, it’s no small task to identify and gather specific data elements that are required for your strategy. For example, should the levels of a biological marker be used, such as A1C for diabetes or calprotectin or Lactoferrin for Crohn’s disease? And is there a time component that needs to be evaluated to show a relapse was prevented?

Technology: A strategy of this intricacy can be supported with a variety of tools, but the volume of data and the complexity of evaluations and calculations will create a tedious manual process to support. Are the leading revenue management tools mature enough to support it? Does the system require strategy designing and/or formula building?

Additional Considerations

With the above in mind, here are some important questions to also consider when thinking about creating an outcomes-based strategy:

  • HIPAA Compliance and Data Security:
    • What precautions need to be implemented for patient data?
  • Contract Compliance:
    • Have you clearly defined how a rebate is earned? What will void a rebate? Is there a rebate cap?
  • Data Quality:
    • Is your customer capable of capturing data for such a strategy? How do you ensure your customer is capturing the best — and most importantly, correct — data?
  • Care Model Management:
    • Who will be connecting with the patient to ensure adequate and timely measurements? Resources from the payer? The physician? The manufacturer?

While the industry is working through these challenges, the outcome of this type of contracting is yet to be seen. Each type of outcomes-based agreement provides its own unique set of challenges, some of which may fall outside of what was covered here. However, for a manufacturer, an important takeaway is to start thinking about implementation challenges during contract negotiation. A thorough and clearly written outcomes-based contract should achieve its intended strategic objectives, while maintaining implementation feasibility. And asking tough questions in the beginning is a smart way to mitigate risk.