Outcomes-Based Pricing for Pharmaceuticals: An Emerging Opportunity for Application of Analytics

By Ken Perez, vice president of healthcare policy, Omnicell, Inc.

Ken Perez
Ken Perez

Paying for high-cost drugs based on the patient outcomes they produce—an approach known as outcomes-based pricing—is gaining momentum as health plans seek to slow the growth of healthcare costs in the face of rapidly escalating drug prices.

Under outcomes-based pricing, health plans and drug manufacturers agree to a contract in which the revenue the manufacturer receives is adjusted based on how well the medication performs in a real-world population. In practical terms, in the event the patient outcomes are less favorable than expected, the manufacturer must issue a refund or rebate to the health plan, which in effect constitutes a price adjustment.

Aetna, Anthem, Cigna, Harvard Pilgrim and UnitedHealth Group have all signed outcomes-based contracts with drug makers. According to Avalere Health, a healthcare consulting and research firm, one in four health plans has at least one outcomes-based contract, and another 30 percent of health plans were negotiating one or more outcomes-based contracts as of early 2017.

Several of the early outcomes-based deals are for treating common, high-cost conditions for which there is a lot of outcomes data, such as high cholesterol and diabetes. According to the Centers for Disease Control and Prevention, over 100 million American adults have cholesterol levels above healthy levels, and similarly, more than 100 million American adults have diabetes or prediabetes.

In addition, pharmaceutical firms with new cancer drugs that have little data proving their longer-term outcomes value should be motivated to enter into outcomes-based agreements.

Given the Trump administration’s anti-regulation bent and focus on spurring drug price competition through expedited approval of generics and biosimilars, the Department of Health and Human Services is unlikely to experiment with outcomes-based pricing during the next few years. Thus, commercial health plans should remain the key promoters of outcomes-based pricing for the foreseeable future.

The biggest challenge to implementing outcomes-based pricing pertains to gathering data. Under these agreements, the health plan is responsible for tracking an individual patient’s health status and for collecting and reporting patient-level longitudinal data. In addition, many consumers have privacy concerns about sharing data. Per a PwC Health Research Institute Consumer Survey conducted in September 2017, while 48 percent of surveyed consumers were comfortable having their medical and health information shared among healthcare organizations, only 31 percent felt comfortable sharing their information to determine whether the performance of a drug they are taking justifies the cost.

Because outcomes-based pricing requires a lot of data and analysis for health plans and drug makers to agree on price adjustments, the increased adoption of these value-based contracts should be a boon for analytics vendors, with a continued focus on the aforementioned data-rich, high-cost common conditions, as well as cancer.

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