How to Design and Implement Value-Based Contracts

Value-based contracts are written contractual agreements in which the payment terms for medications or other health care technologies are tied to agreedā€upon clinical circumstances, patient outcomes, or measures. Outcomes-based contracts involve rebates paid based on the actual performance of the drug in real-world clinical practice.

During a presentation at the AMCP Annual Meeting, James T. Kenney, Jr., RPh, MBA, president of JTKENNEY, LLC, in Waltham, Massachusetts, discussed various best practices and strategies for designing and implementing contracts.

Dr. Kenney outlined the design plan for creating contracts: meet to identify potential product(s), conduct additional meetings with proposed options, measure baseline data, determine reasonable outcomes, and, finally, develop the contract. He said data should be collected over a three- to 12-month period and submitted to a manufacturer or third party.

Multistakeholder collaboration is essential for progress of these contracts, but each stakeholder has different needs. Benefits of value-based contracting for manufacturers can include earlier product access on restrictive plan designs/formularies, reduced resistance to new agents, growth of market share, and the ability to gain a competitive advantage with favorable results. Incentives for health plans can include proof of efficacy with outcomes performance, limited products for a specific population, reduced financial risk, increased rebates and savings, reduced overall costs, and the ability to maximize pharmaceutical spending.

However, it can be difficult to accurately measure timelines, data collection methods, validation options/analytics, third-party participation, and Health Insurance Portability and Accountability Act considerations. Other barriers to success for value-based contracts include transaction/administrative costs, information technology limitations, selection of the outcomes measure, physician resistance or hesitance, concerns with trust, realization of savings and benefits, and legislative issues.

These contracts can create savings opportunities, including the following:

  • Event avoidance
  • Emergency room visits/hospitalizations
  • Office visits
  • Reduction in additional medication(s)
  • Ancillary resource utilization
  • Lower long-term medical and pharmacy expenses
  • Reduced disability claims

Dr. Kenney then noted that the latest focus for value-based contracts is on the total cost of care for a patient population for conditions such as diabetes, cardiovascular disease, and asthma, and new areas of interest also extend to gene therapy and orphan diseases.

He concluded by noting that the long-term goals of these contracts should include multiple outcomes contracts for competing therapies, use results to inform formulary decisions and changes, assess true benefits of treatments, reduce risks associated with new products, and obtain value for pharmaceutical spending.

Presentation V2: The Current State of Value-Based Contracting. AMCP Annual Meeting 2019.