Value-Based Contracts

Value-based contracts (sometimes referred to as risk-sharing agreements or outcomes-based contracts) are a type of innovative payment model that brings together two key stakeholders—health care payers and biopharmaceutical manufacturers—to deliver medicines to patients. Under value-based contracts, biopharmaceutical manufacturers and payers agree to link coverage and reimbursement levels to a drug’s effectiveness and/or how frequently it is utilized.

The benefits of value-based contracts include:

  • Reducing payers’ risk of a sub-optimal purchase;
  • Providing earlier access to biopharmaceuticals for patients and consumers;
  • Offering more efficient pricing mechanisms; and
  • Serving as a catalyst for generating enhanced real-world medical evidence.

However, there are existing barriers, described below, that make it difficult to design and implement value-based contracts in the current environment.

Value-based Contracts in the United States

In the United States to date, value-based contracting activity has been limited. But interest in these agreements among both payers and biopharmaceutical manufacturers is strong, and a changing health care environment may generate more activity in this arena in the future.

There are compelling arguments for both manufacturers and payers to consider value-based contracts:

  • Manufacturers said they can use value-based contracts to differentiate and demonstrate the effectiveness of their product versus their competitors, which can assist payers in making formulary decisions.
  • Payers can utilize value-based contracts to gain experience with a product, reducing uncertainty regarding clinical value, performance and financial impact.

There are many challenges in implementing value-based contracts:

  • Significant payer and provider infrastructure is necessary to monitor an outcomes-based agreement. For example, payers may not have the capability to monitor and track the pharmaceutical usage of individual patients.
  • Manufacturers are reluctant to accept financial consequences when they can’t control how a drug is prescribed or used.
  • Agreeing upon outcomes that are meaningful and measurable within a reasonable timeframe is challenging.

Potential for the Future

It is likely that there will be more value-based contracting activity in the future. This expansion could be fueled by (1) improved data systems, which can help create the mechanisms to monitor patient usage of biopharmaceuticals and their effect on health outcomes; and (2) the changing of incentives within the health care system toward value-based orientations. The increased use of accountable care organizations, for example, may lead to enhanced health system alignment with value-based contracts.