This document discusses outcomes-based contracts between pharmaceutical companies and payers. It provides background on rising healthcare costs, describes the benefits of outcomes-based contracts for stakeholders, and gives examples of existing contracts linked to outcomes like reduced hospitalizations or reaching clinical targets. The document also outlines challenges, keys to success, and potential future applications in areas like specialty medications.

1. Outcomes-Based
Contracts
Ryan J. Junkins
Pharm.D. & M.B.A. Candidate
Butler University 2017

2. Agenda
1. Background
2. Benefits
3. Examples
4. Challenges
5. Keys to Success
6. Future Possibilities

3. 1. National Healthcare Expenditures
2. Prescription Drug Expenditure
3. Traditional Pricing Model
4. Fee-For-Value
Background

4. 4
National Healthcare Expenditures
Source: National Health Expenditure Data. Centers for Medicare & Medicaid Services website: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/index.html. Accessed: June 29, 2016.

5. 5
Prescription Drug Expenditures
Source: National Health Expenditure Data. Centers for Medicare & Medicaid Services website: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/index.html. Accessed: June 29, 2016.

6. 6
Healthcare Affordability A Top Concern
Source: Kaiser Family Foundation Health Tracking Poll, October 2015

7. 7
Traditional Pricing Model
Source: J Carlson, et al. “Linking payment to health outcomes: A taxonomy and examination of performance-based reimbursement schemes between healthcare health plans and manufacturers.” Health Policy. 2010 Aug;96(3):179-90.

8. 8
Fee-For-Value Becomes Mainstream
Source: Kuzel M. 5 Keys to Success in New Patient Economy [webcast]. MM&M. http://engage.vevent.com/index.jsp?eid=1058&id=886&seid=885. Published June 23, 2016. Accessed: June 23, 2016.

9. Value-Based
Drug Contracts
Outcomes-Based
Pay-For-Performance

10. 10
What are Outcomes-Based Contracts?
Source: J Carlson, et al. “Linking payment to health outcomes: A taxonomy and examination of performance-based reimbursement schemes between healthcare health plans and manufacturers.” Health Policy. 2010 Aug;96(3):179-90.

11. 11
Value-Based Pricing Agreements

12. 1. Pharma Companies
2. Health Plans (Private & Public)
3. Employers
4. PBMs
5. Prescribers/Health Care Professionals
6. Consumers
7. Policy Makers – State & Federal Government
Stakeholders
Source: Stanley E, Keckley P, Snyder G. Value-based pricing for pharmaceuticals: implications of the shift from volume to value. Deloitte Center for Health Solutions: http://deloitte.wsj.com/cfo/files/2012/09/ValueBasedPricingPharma.pdf. 2012. Accessed: June 6, 2016.

13. Benefits of Outcomes-Based Contracts
Pharma Companies
• Improve drug’s position on a health
plan’s preferred drug list
• Accelerate availability of new treatments
• Secure reimbursement when long-term
benefits are less known
• Gain faster access to the market
Health Plans
• Lower costs
• Better performance
• Reduced risk of paying too high a price for a
pharmaceutical that may ultimately have low-value
in the real world
• Improve allocation of resources toward customers
likely to receive the most benefit
Consumers
• Pay less out of pocket
• Better outcomes (due to receiving
targeted, high-value pharmaceuticals)
• Transparency of the medications value
contribution
Providers
• Financial Rewards via “Shared Savings Models” with payers
• Selecting the correct high-value pharmaceutical at the
right time for the patient
• Monitoring, collecting, and submitting consumer value
attribute data
• Assessing and addressing drivers and obstacles to
consumer compliance
Source: Stanley E, Keckley P, Snyder G. Value-based pricing for pharmaceuticals: implications of the shift from volume to value. Deloitte Center for Health Solutions: http://deloitte.wsj.com/cfo/files/2012/09/ValueBasedPricingPharma.pdf. 2012. Accessed: June 6, 2016.
Source: Drug value in the new health ecosystem. PwC: http://www.pwc.com/us/en/health-industries/health-research-institute/publications/assets/pwc-10min-drugvalue.pdf. July 2013. Accessed: June 16, 2016.
Source: Weisman R. Harvard pilgrim adds new drugs under ‘pay-for-performance’ deals. Boston Globe. June 27, 2016. https://www.bostonglobe.com/business/2016/06/27/harvard-pilgrim-adds-new-drugs-under-pay-for-performance-deals/2OQYId32R5RSc0s8wGKooM/story.html. Accessed: June 28, 2016.

14. 1. Payment based on desired outcome
2. Larger rebate in absence of desired outcome
3. How well drug performs against competitive drug(s)
4. Indication-specific pricing
Types of Outcomes-Based Contracts

15. 1. Payment based on desired outcome
• Heart Failure
• Novartis AG
• Aetna, Cigna, & Harvard Pilgrim
• Payment based on reduction in
hospitalizations
15
$5,475 per year
Source: Livingston S. Cigna, aetna enter outcomes-based contract with Novartis for heart drug. Business Insurance. February 10, 2016. http://www.businessinsurance.com/article/20160210/NEWS03/160219978. Accessed: June 6, 2016.

16. 2. Larger rebate in absence of desired outcome
• High Cholesterol
• Amgen, Inc.
• Cigna & Harvard Pilgrim
• Larger rebates for missing
cholesterol goals and exceeding
utilization goals
16
$16,920 per year
Source: Weisman R. Harvard pilgrim strikes ‘pay-for-performance’ deal for cholesterol drug. Boston Globe. November 8, 2015. https://www.bostonglobe.com/business/2015/11/08/harvard-pilgrim-strikes-pay-for-performance-deal-for-cholesterol-drug/iGIV7rBie4K20HNbKORsPJ/story.html. Accessed: June 6, 2016.

17. 3. Performance against competitive drug(s)
• Type 2 Diabetes
• Eli Lilly and Company
• Harvard Pilgrim
• Rebate amount based upon
Trulicity patients reaching A1c
target (< 8%) compared with
those using other GLP-1 drugs
17
$8,967 per year
Source: Stanton T. Lilly’s trulicity joins pay-for-performance trend with harvard pilgrim deal. FiercePharma: http://www.fiercepharma.com/pharma/lilly-s-trulicity-joins-pay-for-performance-trend-harvard-pilgrim-
deal?utm_medium=nl&utm_source=internal&mrkid=22430845&mkt_tok=eyJpIjoiWldSbU5qTXhOREE0TlRBNSIsInQiOiJBQnJcL3dtcjFwMU5iVWk0MkpwSmE1QUErbzdjS1ZsWTZCYmVVeFMwXC92eVQ5dEFnZFwvXC9mNE5zZ0FmRW5HQkxkY1ZhcTZSNkZHdFF2SGp5amM3cWJMTTN0Nm9jaFBpZmVDNEdVT2RsMl
VnaUU9In0%3D. June 28, 2016. Accessed: June 28, 2016.

18. 4. Indication-Specific Pricing
• Lung & Pancreatic Cancer
• Genentech, Inc.
• Express Scripts
• Higher pricing in lung vs.
pancreatic cancer based on
survival benefits
18
$105,788 per year
Source: Edlin M. Performance-based pricing for pharmaceuticals. Managed Healthcare Executive: http://managedhealthcareexecutive.modernmedicine.com/managed-healthcare-executive/news/performance-based-pricing-pharmaceuticals. September 30, 2015. Accessed: June 6, 2016.

20. 1. Finding the “Right” Drug
2. Finding the “Right” Partner
3. Determining (and agreeing upon) Outcome Measure
4. Admin Burden of Collecting Necessary Information
Challenges of Outcomes-Based Contracts
Source: Merrill J. Outcomes-based contracts aren’t so easy, harvard pilgrim cautions. Health News Daily: https://www.pharmamedtechbi.com/Publications/Health-News-Daily/2016/6/6/OutcomesBased-Contracts-Arent-So-Easy-Harvard-Pilgrim-Cautions?result=3&total=136&searchquery=%253fq%253dharvard%252520pilgrim. June 6, 2016.
Accessed: June 9, 2016.

21. Keys to Success – Pharma Companies
• Ability to measure outcomes in short time frame, with clear indicator (biomarker)
• Undeveloped evidence base, opportunity to gather real-world evidence
• Product with clinical advantage over lower-cost competitors
• Few comorbid conditions, limited size of target patient population
• Availability of multiyear clinical data (midlife cycle rather than newly launched products)
• IT infrastructure to track and audit data and manage patient registries
Source: Reinke T. Drug companies ask plans to just say ‘yes’ to risk. Managed Care: http://www.managedcaremag.com/archives/2016/4/drug-companies-ask-plans-just-say-yes-risk. April 2016. Accessed: June 17, 2016.

22. Keys to Success – Health Plans
• IT infrastructure to track outcomes and switched patients, simple audit systems
• Clear payment or reimbursement mechanism (free initial therapy preferable to later rebates
if outcomes are not reached)
• Unequivocal outcome measure (for example, valid biomarker)
• Clear outcome-reporting flow from physicians
Source: Reinke T. Drug companies ask plans to just say ‘yes’ to risk. Managed Care: http://www.managedcaremag.com/archives/2016/4/drug-companies-ask-plans-just-say-yes-risk. April 2016. Accessed: June 17, 2016.

23. Future Possibilities – Therapeutic Areas
Source: Desai R. Health plans are interested in tying drug payments to patient outcomes. Avalere: http://avalere.com/expertise/life-sciences/insights/health-plans-are-interested-in-tying-drug-payments-to-patient-outcomes. June 16, 2016. Accessed: June 29, 2016.

24. Growth in Specialty Medicines
Source: “Affordability and value – the economics of pharm’s new science”, Accenture, 2016

25. Outcomes-Based Contracts
 Benefits for patients, payers,
pharma companies, and
providers
 Not without challenges
 Future is bright

26. • Cigna signs outcomes-based contract that may be first deal for specialty drug. Specialty Pharmacy News. 2011; 8(4). https://aishealth.com/archive/nspn0411-01. Accessed: June 17, 2016.
• Edlin M. Performance-based pricing for pharmaceuticals. Managed Healthcare Executive: http://managedhealthcareexecutive.modernmedicine.com/managed-healthcare-executive/news/performance-based-pricing-
pharmaceuticals. September 30, 2015. Accessed: June 6, 2016.
• Loftus P, Mathews A. Health insurers push to tie drug prices to outcomes. The Wall Street Journal. May 11, 2016. http://www.wsj.com/articles/health-insurers-push-to-tie-drug-prices-to-outcomes-1462939262. Accessed: June 17,
2016.
• Mehr S. Value-based contracting for pharmaceuticals: getting ready for prime time? AJMC. 2013; 19. http://www.ajmc.com/journals/evidence-based-oncology/2013/2013-1-vol19-sp3/value-based-contracting-for-pharmaceuticals-
getting-ready-for-prime-time/P-2. Accessed: June 17, 2016.
• Stanton T. Lilly’s trulicity joins pay-for-performance trend with harvard pilgrim deal. FiercePharma: http://www.fiercepharma.com/pharma/lilly-s-trulicity-joins-pay-for-performance-trend-harvard-pilgrim-
deal?utm_medium=nl&utm_source=internal&mrkid=22430845&mkt_tok=eyJpIjoiWldSbU5qTXhOREE0TlRBNSIsInQiOiJBQnJcL3dtcjFwMU5iVWk0MkpwSmE1QUErbzdjS1ZsWTZCYmVVeFMwXC92eVQ5dEFnZFwvXC9mNE5
zZ0FmRW5HQkxkY1ZhcTZSNkZHdFF2SGp5amM3cWJMTTN0Nm9jaFBpZmVDNEdVT2RsMlVnaUU9In0%3D. June 28, 2016. Accessed: June 28, 2016.
• Weisman R. Harvard pilgrim strikes ‘pay-for-performance’ deal for cholesterol drug. Boston Globe. November 8, 2015. https://www.bostonglobe.com/business/2015/11/08/harvard-pilgrim-strikes-pay-for-performance-deal-for-
cholesterol-drug/iGIV7rBie4K20HNbKORsPJ/story.html. Accessed: June 6, 2016.
• Risperidone. Lexi-Comp Online™, Lexi-Drugs Online, Hudson, Ohio: Lexi-Comp, Inc.; Accessed: Jun 30, 2016.
• Ticagrelor. Lexi-Comp Online™, Lexi-Drugs Online, Hudson, Ohio: Lexi-Comp, Inc.; Accessed: Jun 30, 2016.
• Prasugrel. Lexi-Comp Online™, Lexi-Drugs Online, Hudson, Ohio: Lexi-Comp, Inc.; Accessed: Jun 30, 2016.
• Sacubitril and Valsartan. Lexi-Comp Online™, Lexi-Drugs Online, Hudson, Ohio: Lexi-Comp, Inc.; Accessed: Jun 30, 2016.
• Gefitinib. Lexi-Comp Online™, Lexi-Drugs Online, Hudson, Ohio: Lexi-Comp, Inc.; Accessed: Jun 30, 2016.
• Sitagliptin and Metformin. Lexi-Comp Online™, Lexi-Drugs Online, Hudson, Ohio: Lexi-Comp, Inc.; Accessed: Jun 30, 2016.
• Sitagliptin. Lexi-Comp Online™, Lexi-Drugs Online, Hudson, Ohio: Lexi-Comp, Inc.; Accessed: Jun 30, 2016.
• Alirocumab. Lexi-Comp Online™, Lexi-Drugs Online, Hudson, Ohio: Lexi-Comp, Inc.; Accessed: Jun 30, 2016.
• Interferon Beta-1a. Lexi-Comp Online™, Lexi-Drugs Online, Hudson, Ohio: Lexi-Comp, Inc.; Accessed: Jun 30, 2016.
• Evolocumab. Lexi-Comp Online™, Lexi-Drugs Online, Hudson, Ohio: Lexi-Comp, Inc.; Accessed: Jun 30, 2016.
• Erlotinib. Lexi-Comp Online™, Lexi-Drugs Online, Hudson, Ohio: Lexi-Comp, Inc.; Accessed: Jun 30, 2016.
• Dulaglutide. Lexi-Comp Online™, Lexi-Drugs Online, Hudson, Ohio: Lexi-Comp, Inc.; Accessed: Jun 30, 2016.
References