Can pay for performance help drive faster and broader access to new therapies at a fair price for those patients who benefit from them?
Advances in medicines significantly improve patient outcomes; however, the benefit of a given drug varies from indication to indication, between patient subpopulations and even from patient to patient. Ensuring that the price of a therapy accurately reflects the benefits patients experience in the real world, that all appropriate patients have access to innovative medicines and their benefits is a challenge for pharmaceutical industry and payers alike.
Pay for performance contracts may offer an important way forward to manage uncertainty about the expected value in routine clinical practice and may help to improve market access and product uptake.
Pay for outcomes rather than pay for pills
Under value-based pricing agreements payers and companies agree to link payment for a medicine to the value achieved, rather than the volume of medicines sold. Specifically, pay for performance contracts are designed to link prices and coverage to actual drug performance in the real world and define in advance the type of evidence to be collected for measuring drug performance. Those contracts involve a complete, or partial, refund to the purchaser if a predefined financial outcome target (financial risk-based contracts) or a targeted health outcome (health outcome based contracts) is not met or reached.
Pay for performance arrangements are still uncommon in many markets, yet increasing
While healthcare systems differ regionally, price and coverage decisions are typically based on data and evidence collected through a stringent clinical trial process before being approved for sale. This leaves Payers with uncertainty about whether a new drug will live up to its expectations in the real world or not.
- If a new drug does not deliver the expected value, the money spent is not just wasted but also not available for more beneficial health interventions.
- If a Payer refuses to list the new drug due to uncertainty, but additional evidence confirms the value of that drug later on, then many patients have missed out on a beneficial treatment.
Payers seek to reduce uncertainty by pushing for lower prices, which may have unintended effects on patient care and innovation, as companies may resist entering some markets or not do research in certain disease areas.
To address that dilemma, about 2/3 of OECD and EU countries use managed entry agreements (MEA, i.e., arrangements between firms and healthcare Payers that allow for coverage of new medicines while managing uncertainty around their financial impact or performance) to some extent, mainly for high priced therapies in oncology, rare diseases, neurology, rheumatology and endocrinology. Sweden, Italy and the Netherlands were early adopters in Europe of this practice. The use of MEAs has increased and spread to other markets such as Australia, Belgium, UK and some Central & Eastern European countries over time. 1) However, most MEAs are of financial nature i.e. reducing prices and/or budget impact of medicines without linking them to product performance in terms of health outcomes. There is only a small number of performance-based MEAs, mainly in Australia, Belgium, UK, US and Italy, most of them for cancer, endocrine and metabolic diseases. (*1)
Markets differ regarding capability, infrastructure and willingness of Payers and, despite progress made, no country has yet fully embraced value-based healthcare at the level of a national health system due to several obstacles:
- Lack of standards and unclear, or even prohibitive, regulatory frameworks (how do pay for performance arrangements fit within existing legislation?)
- Lack of data sources and systems to systematically collect, analyze and interpret data
- Lack of internal capabilities (payers & pharma alike) such as management of non-traditional, unstructured patient data and the ability to establish and negotiate value-based pricing models and pay for performance schemes
Lastly, due to confidentiality of most agreements, limited published evidence is available on whether pay for performance arrangements are working or not. This in turn contributes to the hesitancy to embark on pay for performance models on a larger scale. This combined with the costs that come with implementation and maintaining systems have slowed adoption of pay for performance models.
Nonetheless, awareness is growing that traditional approaches to push down prices have reached their limits. New digital technology increasingly supports the collection and analysis of outcome data needed, e.g., via electronic health records and e-prescriptions that allow for a combination with more traditional prescription/insurance claims data. Set up and maintenance costs are coming down as Payers gain experience in operating these agreements.
When should pharma consider pay for performance models?
In 2017, a survey of US biopharmaceutical executives showed at the time that 25% of participating companies had participated in value-based contracts tied to patient clinical outcomes, economic outcomes. By 2019 the number has jumped to 57%. (*2)
Given the pressure on healthcare systems to reduce costs, we expect pharma companies will increasingly be paid for outcomes rather than for products. Health outcome data is going to become an important lever for pharma to demonstrate value in terms of clinical or cost benefits.
Pay for performance models could help pharma companies differentiate and complement value demonstration efforts via clinical data and value adding solutions beyond the drug to gain and maintain access and drive product uptake. Especially when Payers or providers have concerns over the effectiveness and/or appropriate use of the product, pay for performance can help pharma companies address uncertainty and demonstrate confidence in the drug’s efficacy in a real-world setting. Moreover, it could be an option to address the issue of multiple indication pricing as it allows a medication to be priced according to the benefit it delivers for different indications. However, sales volume or sales potential has to be big enough to justify the cost of establishing and managing such an arrangement.
7 aspects to consider for pay for performance:
1. Use pay for performance for appropriate drugs only
- measurable outcomes that serve as an assessment metric for drug performance can be defined and evidence collection is feasible,
- no generics on the market
2. Design individual model by product
- Define appropriate measurable outcome(s)
- Define appropriate patient population (e.g., all, subpopulation of patients) and sample size (all patients receiving TX, a cohort of patients etc.) to be measured for performance
- Define performance indicators (e.g., threshold of outcome, timing of measurement)
- Define risk sharing component (e.g., appropriate discount rate for not achieving defined outcome)
3. Collaborate with Payers, providers and HCPs on outcome data definition and to get access to high quality data
4. Keep schemes as simple as possible (e.g., few measures, aligned data source, transparent discount scheme)
5. Keep transaction and administration costs on reasonable level (e.g., leverage existing data sources)
6. Test model in smaller patient cohorts first, then scale up
7. Optimize drug environment for performance – as other factors besides the drug itself can influence drug performance and lead to poor outcomes unrelated to the drug (e.g., adherence, hurdles in the care pathway), understand those factors and act upon them if possible (e.g., provision of additional services and solutions around the drug)
In the current climate, where drug pricing is under pressure, pay for performance deals will likely become more common, despite the current difficulties in their implementation as they provide compelling benefits:
- Reduce uncertainty in Payers’ decision-making process
- Provide faster and broader access to new therapies
- Ensure a price is more closely related to the real value of a drug
- Reward innovation
Realizing those benefits will take close collaboration of all stakeholders in the healthcare system. Pay for performance has the potential to transform the relationship between pharmaceutical companies, Payers, Policy makers and providers. It is time for pharma companies to be more than just suppliers of medicines, rather true partners in providing better, more affordable care for more patients.
Thanks to Steve Crom, OXYGY chairman and partner, for his contribution and advise.
(*1) Martin Wenzel, Suzannah Chapman; Performance-based managed entry agreements for new medicines in OECD countries and EU member states; OECD Health Working Papers No. 115; 2019; https://doi.org/10.1787/6e5e4c0f-en
(*2) PwC Health Research Institute (HRI) Launching into value US biopharmaceutical executive survey, June 2017 and February 2019
About the Author
Günter Kloucek is a Director at OXYGY. Prior to consulting, Günter was the General Manager of Takeda Germany. He has more than 25 years of experience in the pharmaceutical industry and held operating company responsibility as well as led corporate functions including business strategy for the Europe & Canada region.
Life Sciences @ OXYGY
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