Regulatory Barriers Impair Alignment of Biopharmaceutical Price and Value

This white paper highlights the challenges biopharmaceutical manufacturers and payers face when developing value-based contracts.

Author: National Pharmaceutical Council
Publication: June 2018
Download the white paper.

The National Pharmaceutical Council’s white paper, “Regulatory Barriers Impair Alignment of Biopharmaceutical Price and Value,” highlights the challenges biopharmaceutical manufacturers and payers face when developing value-based contracts. Value-based arrangements work by linking the price of a prescription medicine to its effectiveness, and by the manufacturer and the payer agreeing to share risk. For example, a biopharmaceutical manufacturer might receive one price for a medication that produces the desired and anticipated outcome, but refund a portion of the price of the medicine and cover associated costs, such as hospitalizations, for a medicine that fails to do so.

Through both a qualitative and quantitative analysis, the paper found four main regulatory and legal barriers that are standing in the way of advancing value-based contracts in health care. These barriers include restrictions on the information that manufacturers and payers can use in developing a contract, existing Medicare and Medicaid reimbursement mechanisms, and laws governing how organizations can partner with each other.

Potential approaches for addressing these hurdles include:

  • Allowing value-based arrangements to consider outcomes outside of the Food and Drug Administration (FDA) label. Currently, prescription medicine pricing cannot be based on an outcome, such as hospitalizations, if that outcome was not examined in the clinical trials included in the FDA-approved label. This is problematic because the outcomes in the FDA label often are not appropriate measures on which to build a risk-sharing agreement because they are not measurable or clinically relevant. Also, the link between the value-based agreement and the payer’s budget (the financial risk) may not be clear.
  • Creating a carve-out so that Medicaid’s best price caps do not apply to value-based contracts. Medicaid’s best price rules limit the rebates that manufacturers can provide for medications covered under Medicaid. Medicaid’s best price is set quarterly based on the single lowest price available from the manufacturer to any entity, such as payers and providers, in the U.S. The regulations stipulate that a manufacturer must provide Medicaid either the maximum rebate in the market or a 23.1 percent rebate, whichever is higher. Medicaid’s best price rules, therefore, increase the cost of contracting, creating a financial incentive to limit rebates on applicable medications.
  • Removing Medicare’s Average Sales Price (ASP) as a barrier to indication-based contracting to align medication value with net price. Under the FDA approval process, most medicines have a single brand, although each medication may treat multiple conditions and provide greater value for one condition over another. ASP does not take into consideration the value associated with multiple indications. That poses a significant barrier to value-based contracting for physician-administered medications, as it creates the potential for a physician to experience financial loss under a buy-and-bill approach.
  • Providing an anti-kickback safe harbor for value-based contracts. The federal Anti-Kickback Statute (AKS) effectively prohibits manufacturers from utilizing risk management tools that could bolster patient outcomes and save money in federal health care programs. Manufacturers in value-based arrangements take on the risk for successful outcomes. For example, if a medication does not work for a patient, the manufacturer loses money, even if the failure is due to factors out of the manufacturer’s control. Manufacturers could institute programs aimed at giving the patient the best chance of successful treatment, including patient education, nurse coaching, case management support, benefit assistance, adverse event monitoring and outcomes monitoring. The current AKS, though, threatens large penalties for providing anything of value that could be seen as driving business their way.