Value-Based Contracting: Creating the Terms of Engagement Around High-Cost Cancer Therapies

There is good news and bad news ahead for patients with cancer, oncology care, and the US healthcare system. The good news is that a phenomenal array of breakthrough cancer treatments, and possibly cures, are now on the market or in the development pipeline; many of those under development will be approved and launched on the market within a few years. The bad news is that these treatments will be very expensive. As a nation, we have no strategy, or even a minimal notional framework, of how we will pay for or afford them.

These cancer drugs and other treatments—many of them “targeted” therapies tailored to the specific genetics and molecular pathways of different types of cancer—have already garnered plenty of headlines in the popular news media. Drugs already on the market, such as the chimeric antigen receptor T-cell therapy Kymriah (tisagenlecleucel) and the programmed cell death-1 inhibitor Keytruda (pembrolizumab), have demonstrated very successful outcomes for some patients and cancer types. For example, they can produce added months of survival without any progression of disease or total remission for some patients with previously untreatable or relapsed cancers. Other new cancer drugs have proved less effective. One recent study for the American Society of Clinical Oncology (ASCO) showed that fewer than 1 in 5 recently approved cancer drugs met ASCO’s goals for producing “clinically meaningful survival outcomes” in patients.¹

Many news stories about targeted cancer therapies have featured the drugs’ lofty list prices, and legitimate questions have been raised about just how high these prices should be. But there is little doubt that these “ultrapersonalized” therapies constitute a new category of treatments that take years of complex research and testing to develop, are often painstaking to produce and administer, and are likely to be suitable for relatively small numbers of patients. Wherever the prices end up after negotiations among payers, manufacturers, and the healthcare providers that administer them, they will still be high.

A related, and possibly even more important, question: What will be these treatments’ value—to patients, to families, and to society? Many of these drugs are likely to be reviewed and approved by the FDA under expedited pathways for drugs that address unmet medical needs in treating serious or other, life-threatening conditions. For example, the FDA approved Idhifa (enasidenib), a targeted treatment for a type of acute myeloid leukemia, after phase 2 trials alone were completed.² Such expedited approvals mean that at least some proportion of new therapies will not even have been tested in a broader phase 3 trial against standard therapies.

What’s more, many of these drugs will appear on the market quickly, long before health insurers have been able to factor the costs into their budgets or premiums for policyholders. For months, if not years, there will almost certainly be lingering uncertainties regarding which patients will be benefit from these drugs, let alone what the adverse effects and long-term consequences will be.

In the largest sense, it is important to establish broadly agreed-on and accepted frameworks for thinking about the value of such drugs so that we as a society can weigh the choices in front of us. Although groups such as ASCO and the Institute for Clinical Effectiveness Review have done important research and thinking to create frameworks for gauging the value of therapies, no framework to date has gained universal acceptance among all stakeholders.³ Because money isn’t unlimited, we will face trade-offs: investing more in lower-cost preventive agents such as vaccines, for example, versus high-cost cancer therapies. But even within a narrower context—deciding what drugs to pay for patients with cancer—we as stakeholders, and as a society, need some way of agreeing on the terms of engagement around their use. We need to devise frameworks for deciding which patients will receive these therapies, what expectations we should have of therapeutic performance, what we will attempt to learn about these therapies as we observe outcomes over time, and what we will pay.

In the absence of such broadly accepted frameworks, an alternative approach that has arisen is value-based contracting—a strategy in which payers and biopharmaceutical manufacturers agree to specific terms that tie payment to results.^4,5 Also known as outcomes- based contracting, there are multiple varieties of these contracts, but the overall objective is to hold manufacturers more accountable for value than the typical drug sales arrangements that tie net prices to the volume of drugs purchased. Value-based contracts compensate manufacturers based on whether they obtain improved outcomes for patients from the use of drugs or better financial outcomes overall (for example, from lower rates of hospitalization because patients are healthier). In many instances, these contracts also involve shared financial risks between the parties: For instance, drug manufacturers may have to pay more if drugs don’t work as well as demonstrated in clinical trials.

As many as several dozen of these contracts have been reached between manufacturers and payers in recent years, and there is great appetite among manufacturers for negotiating more. These emerging strategies are not themselves a solution to the challenge of paying for high-cost oncology therapies or other medications, nor do they yet add up to a cohesive framework around value. But they do start the parties down the road to agreeing on the terms of engagement around value as they pertain to particular drugs. And in the absence of overarching frameworks for having discussions about value of high-cost therapies—especially in as fragmented a system of healthcare payment and delivery as that of the United States—they may be the best available option.

As important as these value-based contracts may be in setting the terms of engagement, however, they also pose innumerable challenges that must be overcome if they are

to become a standard feature of the healthcare landscape. My organization, the Network for Excellence in Health Innovation, described these challenges and issued a number of recommendations to address them in a recent white paper.⁵ To encapsulate the difficulty of some of these challenges, consider the example of Kymriah, the Novartis therapy approved by the FDA for use in patients up to 25 years old who have acute lymphoblastic leukemia that is either relapsing or refractory (ie, the cancer did not go into remission with other leukemia treatments).

The FDA approved the treatment in August 2017, after a phase 2 trial in which 63 patients showed an 83% remission rate within 3 months of infusion.⁶ To produce the therapy, a patient’s white blood cells are extracted through a special process in qualified hospitals, frozen, shipped to a special manufacturing facility where they are genetically reprogrammed, shipped back to the hospital, and reinfused into the patient after the patient undergoes low-dose chemotherapy to prevent the reengineered cells from being rejected.

At the time of approval, Novartis said that Kymriah would cost $475,000 for the onetime treatment for pediatric and young-adult patients.⁷ Some of the roughly 40 treatment centers that have been certified to offer the treatment have told payers that their “all-in” costs of treating a patient, including the cost of Kymriah, will top $1 million.⁸

At the same time as the FDA issued its approval of Kymriah, Novartis also announced an agreement with CMS,⁹ presumably around the use of the therapy for patients on Medicaid. Under the agreement, Novartis offered the assurance that if a patient treated with Kymriah for this indication does not respond in the first month, there will be no charge for the drug to patients, and to payers, including Medicaid. CMS heralded the agreement and the approval of Kymriah as “reinforc[ing] our belief that current healthcare payment systems need to be modernized in order to ensure access to new high-cost therapies.” It promised to issue future guidance to explain how pharmaceutical manufacturers can engage in these and other innovative payment arrangements.

The parties said little else about the contours of the agreement, but reading the tea leaves, observers guessed that some commitments had been made about navigating around an important obstacle to value-based contracting: Government Best Price and Price Reporting requirements, the stringent rules that drug manufacturers must comply with as a condition of participating in federal healthcare programs such as Medicare and Medicaid. Complex calculations carried out under these federal requirements are designed to ensure that federal health programs—Medicaid, the 340B Drug Discount Program, and Medicare Part B Drug Reimbursement—benefit from discounts provided in the broad commercial healthcare market. These requirements stipulate a minimum discount for Medicaid of 23.1% off the so-called Average Manufacturer Price—the average price paid by wholesalers to manufacturers for drugs distributed to retail pharmacy, minus discounts— and locks in a similar discount for hospitals, health centers, and various safety-net providers under the 340B program.¹⁰

For Novartis to have agreed to “no charge” for patients who did not respond within a month of treatment—without the “price” then becoming zero and triggering the same improbable price, or a deeply discounted one, for all of Medicaid, 340B, and Medicare Part B—it appears that CMS simply agreed that in such circumstances, no sale would be deemed to have taken place. But CMS has said nothing publicly since to confirm this interpre- tation, nor has it yet issued any of the promised guidance about how other innovative payment arrangements could legally be struck in the face of other federal regulations that pose similar obstacles, such as the Anti-Kickback Statute.

Aside from regulatory barriers to value-based contracts, there are other obstacles. Biopharmaceuticals and manufacturers alike would like the FDA to issue clear guidance about what will be permissible in the realm of communications from manufacturers about therapies that have not been approved and about uses of a given therapy that may not have been spelled out on the therapy’s label but are consistent with it (eg, data from patient-reported outcomes collected in the course of the drug’s FDA-approved clinical trial).

Enormous operational challenges will also accompany value-based contracting, chiefly around the collection, analysis, and use of data. Predicating a contract on patient outcomes means there must be a means of tracking them, not just in the immediate aftermath of the treatment but possibly for years. At no level, anywhere in healthcare, are current data tracking systems sufficient to accomplish this task. As the Blue Ribbon report of the Cancer Moonshot called for in 2016,¹¹ we need to build the national cancer data ecosystem that is equal in dimension to the disease burden cancer imposes on society and the resources that we plow into cancer care.

Multiple steps are needed to build such a data ecosystem, including greater standardization and sharing of routinely collected cancer data, albeit within appropriate privacy safeguards. In a disease state as vast as cancer, it is also almost beyond comprehension why a core set of patient-centered and patient-reported cancer outcomes measures has neither been proposed, agreed on, or put into effect. Stakeholders should make adopting such a core measure set a priority. In addition to various quality-of-life metrics, given the costs of new cancer drugs, it will be critical to gather information on financial toxicity, or the problems that patients with cancer have that are related to their costs of treatment.

Given the complexities of value-based contracting, the barriers that stand in the way of it, and the operational difficulties that will accompany it, it would be easy to dismiss this approach as impractical and infeasible. But what other serious alternatives exist? These therapies will come onto the market; they will be useful and life-extending for many patients; and even if costs are heavily discounted from initial list prices, they will still be expensive. We need to hold these therapies up to the careful scrutiny that value-based contracting makes possible and then hold ourselves collectively accountable for spending resources wisely—to get appropriate treatments to the right patients, to understand the consequences, and to continue our research and development efforts to treat and cure cancer.Author Information

Susan Dentzer is the president and CEO of the Network for Excellence in Health Innovation, a nonprofit, nonpartisan organization composed of more than 100 stakeholder organizations across all key sectors of health and healthcare. NEHI’s mission is to advance innovations that improve health, enhance the quality of healthcare, and achieve greater value for the money spent. With offices in Washington, DC, Boston, Massachusetts, NEHI conducts independent, objective research and thought leadership to accelerate these innovations and bring about changes within healthcare and public policy.References

1. Kumar H, Fojo T, Mailankody S. An appraisal of clinically meaningful outcomes guidelines for oncology clinical trials. JAMA Oncol. 2016;2(9):1238-1240. doi: 10.1001/jamaoncol.2016.0931.
2. FDA approves new treatment for leukemia. Genet Eng Biotechnol News. genengnews.com/gen-news-highlights/fda-approves-new-treatment-for-leukemia/81254750. Published August 2, 2017. Accessed February 2, 2018.
3. Dalzell M. Considerations for designing “value calculators” for oncology therapies. The American Journal of Managed Care^® website. ajmc.com/journals/evidence-based-oncology/2016/ peer-exchange-spring-2016-oncology-stakeholders-summit/con- siderations-for-designing-value-calculators-for-oncology-therapies. Published May 12, 2016. Accessed February 14, 2018.
4. Rewarding results: moving forward on value-based contracting for biopharmaceuticals. Network for Excellence in Health Innovation website. nehi.net/publications/76-rewarding-results-moving-forward-on-value-based-contracting-for-biopharmaceuticals/view. Published March 23, 2017. Accessed February 2, 2018.
5. Dentzer S, Hubbard T. Value-based contracting for oncology drugs: a NEHI white paper. Network for Excellence in Health Innovation website. nehi.net/publications/79-value-based-contracting-for-oncology-drugs-a-nehi-white-paper/view. Published October 24, 2017. Accessed February 2, 2018.
6. FDA approval brings first gene therapy to the United States [news release]. Silver Spring, MD: FDA Newsroom; August 30, 2017. fda. gov/NewsEvents/Newsroom/PressAnnouncements/ucm574058.htm. Accessed February 14, 2018.
7. Nisen M. Read the fine print on the $475,000 price of a cancer breakthrough. Bloomberg Businessweek website. bloomberg.com/news/articles/2017-08-31/novartis-kymriah-cancer-drug-475- 000-but-read-the-fine-print. Published August 31, 2017. Accessed February 14, 2018.
8. Szabo L. Cascade of costs could push new gene therapy above $1 million per patient. Kaiser Health News website. khn.org/news/cascade-of-costs-could-push-new-gene-therapy-above-1-million-per-patient/. Published October 17, 2017. Accessed February 9, 2018.
9. CMS: innovative treatments call for innovative payment models and arrangements [press release]. Baltimore, MD: CMS Newsroom; August 30, 2017. cms.gov/Newsroom/MediaReleaseDatabase/ Press-releases/2017-Press-releases-items/2017-08-30-2.html. Accessed February 2, 2018.
10. Medicaid drug rebate program. Medicaid.gov website. medicaid.gov/medicaid/prescription-drugs/medicaid-drug-rebate-program/index.html. Updated November 24, 2017. Accessed February 14, 2018.
11. Cancer Moonshot Blue Ribbon Panel. National Institutes of Health website. cancer.gov/research/key-initiatives/moonshot-cancer-initiative/blue-ribbon-panel#ui-id-3. Published April 26, 2017. Accessed February 2, 2018.

Download PDF: Value-Based Contracting: Creating the Terms of Engagement Around High-Cost Cancer Therapies