Embracing Value-Based Contracts for a Sustainable Healthcare System

With the sustainability and affordability of the US healthcare system in dire straits, now is the time for collaboration on new payment models, explained chief executive officers from a health plan and an insurer during a general session on the second day of America’s Health Insurance Plans’ Institute & Expo, held June 7-9 in Austin, Texas.

The country needs to find a way to flatten spending as a percentage of growth domestic product (currently at 18%) without dampening the innovation coming out of laboratories, said David A. Ricks, president and CEO of Eli Lilly and Company.

“We’re embracing value-based pricing, which we see as 1 solution to achieve sustainability of consumer involvement, sustainability of spending, and increased innovation,” he said.

Eli Lilly and Harvard Pilgrim Health Care have a number of value-based agreements in place, one of which is unique because the price of the product—in diabetes—would change based on how it performs against other products in the same category.

“So, literally, the manufacturer putting our money where our mouth is,” Ricks said. "Not just making claims about superiority, but measuring outcomes and then adapting the value of the product versus other products in the class.”

While these agreements can be very beneficial, they are difficult to administer, which is what can hold organizations back, said Eric H. Schultz, president and CEO of Harvard Pilgrim Health Care. These contracts require bringing in clinical data, claims data, laboratory data, and other medical informatics in order for them to work.

Schultz added that his organization is interested in value-based payments because it allows them to get new products to patients faster. Value-based agreements have the most benefit with new products and payers and plans can share risk, Ricks said.

As the FDA strives to speed up its decision making to get medicines on the market and in patient hands faster, some drugs are being approved with less information available. Value-based pricing is a good response to deal with these newly approved drugs, Schultz explained, because plans can create a contract that it pays one price if the drug performs as well as the clinical trial and another price if the drug doesn’t perform as well.

Ricks and Schultz both agreed that value-based contracts won’t be needed for every drug. Starting the conversation on creating a value-based agreement is easiest when there is a high stakes category—there are a lot of people who could be impacted by the drug—and there are extensive medical consequences—the drug will lead to reduced costs for other issues. In addition, the earlier in a drug’s life cycle, the more likely these conversations are to happen.

“Earlier in the life cycle these [contracts] can play a stronger role,” Ricks said. “When we know a lot about it and it’s been backed up by real-world data, the utility is less clear.”

The contracts that Harvard Pilgrim has in place were all created because there was a “competitive event occurring," explained Schultz. The real challenge is getting pharmaceutical companies to sit down to make these deals when there isn’t another competing drug coming out, he added.

There remain differences in views between the drug companies and the health plans when it comes to pricing for drugs, and those differences will remain as long as the 2 sides aren’t meeting for conversations, Schultz said.

“We’re going to bump into each other and trip along the way, but we’re going to get there,” he believes.