With the emergence of gene therapies and other extended benefit treatments, payers, manufacturers, and associated stakeholders have developed new, unique payment models to address the large price tags. The Academy of Managed Care Pharmacy (AMCP) defines the new payment models under the umbrella of “value-based purchasing.” Potential payer and patient benefits from some of these models include paying only for measured clinical outcomes and value. PHSL believes that prudent stakeholders should carefully consider their options before entering into these arrangements.

Before reviewing the new models, let’s review the current methods in place for drugs with lower overall costs. Today, drug purchasing generally occurs via one of the three:

• A non-discounted model may be used whereby the drug is sold and no further discounts, rebates, or measurements are applied.
• A defined discount or rebate is applied, which reduces the drug cost either at the time of sale or retrospectively.
• A tiered or performance discount or rebate is used. These are predefined but adjusted based on measured sales during a time period.

Although there are numerous variations of each of these existing models, they make up the options currently used for dispensed drugs.

Per AMCP, value-based contracts come in three forms:

1. Outcomes-based contracts: These involve the measurement of outcomes resulting in payment and/or rebates. For these contracts, the key question is, “Does the additional work of gathering and measuring outcomes result in a lower price for the payer versus a typical defined or performance rebate model?” Each participant of the contract must be willing to take this risk without knowing the answer; this includes health plans and medical or drug manufacturers. An example of an outcomes-based contract occurred in 2014 when St. Jude Medical began offering to pay hospitals a 45% rebate on the net price of cardiac resynchronization therapies if a lead revision was needed within the first year of implantation. Essentially, there is a repayment to the patient if the device does not perform as promised.
2. Risk-based contracts: Similar to the previous contract, risk-based contracts require patient, clinical, or economic metrics to be measured. There is a shared risk between the health plan and manufacturer participants. If these become weighted convincingly in favor of one participant, and to the disadvantage of another participant, the relationship will likely fail and ultimately lack the benefit in the long run. In a new contract for BRILINTA® between UPMC Heath Plan and AstraZeneca, clinical outcomes of the drug will determine the level of shared costs and reimbursement. This means that there is a shared, two-sided risk associated for both parties.
3. Annuity-based contracts: These contracts extend the payments or rebates over time, breaking payments into installments based on achieving defined outcome metrics. This reduces the immediate inflated cost for gene therapy or extended benefit drugs with limited or single administrations. Except for cash-flow management assistance, this method may be no better in the long term than a fixed discount up-front.

AMCP classifies the next three options as “alternative payment contracts”:

1. The Subscription model: Under a subscription model, payers pay a set fee; the contract specifies which patients are included and defines the level of utilization or dosing. Depending on the demand for the product and the potential for competition, this model could result in higher payer payments, should lower priced options become available during the life of the subscription. For example, Louisiana adopted this model in the treatment of Hepatitis C. Since there is no additional cost per prescription after a certain utilization threshold, there is no need to conserve access to treatment. In fact, this will incentivize states to treat as many patients as possible. After adopting this model, Louisiana saw a 180% increase in Hepatitis C prescriptions.
2. The Warranty model: The warranty model offers a guaranteed rebate or remediation of negative financial or health outcomes. This provides an opportunity for payers to recoup funds from manufacturers when results do not meet the established goals. Like many of these options, the question is raised, could a fixed discount or rebate have resulted in the same or a better financial standing for the payer without the increased data gathering and monitoring?
3. Annuity-based payment model: Annuity-based payment models provide an alternative payment strategy without measuring outcomes, essentially allowing for the financing of product payments. The manufacturer loses out on immediate, up-front financial benefits of the full purchase price but gains a regular, recurring revenue stream. The payer gains cash flow benefits through smaller payments over a period of time; the cash-flow benefits must outweigh potential up-front discounts or fixed rebates associated with payment in full in order for this model to make sense. A good example of this occurred with GSK’s Strimvelis, a medication indicated for a severe immunodeficiency disease. With this new contract, payments from the payer to the manufacturer are made over time for the one-time therapy, with reduced payment if predetermined outcome measures are not met.

Finally, there is the option for a specific procurement model where the payer directly purchases the product instead of a pharmacy or provider. AMCP does not classify the payer procurement model as a value-based or an alternative payment contract. The payer is ensured to receive any up-front discounts and avoids hidden markups or fees. The insight and forecasting ability of the payer to pre-purchase is expected to be crucial, but the implementation would require intense focus on product requirements, such as storage and delivery logistics, which are not currently a concern of the payer.

As additional high cost, single dose medications enter the market, we are seeing more unique models to acquire and pay for drugs. There are advocates for these value-based models, but higher costs could result if not compared to existing models. Both payers and manufacturers should weigh the pros and cons before entering into a value-based arrangement. How is your organization preparing, implementing, and measuring these value-based purchasing models?