Get the Most Out of Outcomes-Based Pricing

Outcomes-based Pricing Program Puts Money in Beneficiaries’ Pockets

Harvard Pilgrim’s program gives rebates to beneficiaries if Repatha doesn’t help them avoid a heart attack or stroke.

Last May, Harvard Pilgrim Health Care inked a deal with Amgen in which the health plan will receive a full rebate if patients taking Repatha, the cholesterol-lowering medicine, suffer either a heart attack or stroke. The move came shortly after the biotech company released study data showing that its injectable treatment, which has a list price of $14,000, was effective in reducing those serious cardiovascular events.

This was only the latest in a growing number of outcomes-based pricing agreements in which an insurer may get an extra discount from a drugmaker if a medication does not help patients as much as expected. Harvard Pilgrim, New England’s second-largest health plan, has been at the forefront of the trend. The not-for-profit insurer has signed several of these deals over the past two years with Novartis, Eli Lilly, and AstraZeneca.

But this particular deal with Amgen has an extra twist—Harvard Pilgrim beneficiaries will receive a full refund for their out-of-pocket costs for Repatha if the drug fails to work. This would be defined as a stroke or heart attack suffered by a patient who was on the drug for at least six months.

Right thing to do

“Our approach has been to use money that we get back, including rebates, to keep premiums affordable for everyone,” says Michael Sherman, MD, the plan’s chief medical officer. “This is the first deal in which it starts to get too close to a member’s health plan costs. The right thing to do is to make sure they get their cost share back.”

Of course, the downside is that the patient suffered a heart attack or stroke.

The insurer does not offer such refunds with its other deals, he explains, because rebates are much smaller, so the money involved is not large enough to return to beneficiaries. In some cases, for instance, the administrative costs to refund a small rebate would not be efficient, so the plan prefers to spread the dollars around in hopes of reducing premiums. “We are not pocketing the money, though,” Sherman says.

Whether other such deals will materialize is uncertain.

Regardless, interest in outcomes-based contracts is increasing. About 70% of health plans view these deals favorably, 24% already have one, and another 30% are currently negotiating at least one contract, according to a survey by Avalere Health, a consulting firm that queried 45 different health plans representing 183 million insured people earlier this year.

But contracts that benefit beneficiaries—they’re likely to be the exception. “The bottom line is that plans expect to see a reduction in total cost of care from these agreements,” says Dan Mendelson, who heads Avalere Health, “but savings are typically not directly passed to consumers in the form of lower copays for drugs.”

For that reason, one consumer advocate argues these agreements—which drugmakers and health plans like to talk up—really aren’t such a good deal from the consumer/beneficiary/patient perspective.

The challenge facing patients is high drug prices. “These discounted arrangements don’t address prices or lower the cost to patients or the system,” says David Mitchell, who heads Patients for Affordable Drugs. “And even if you tell me that you are going to pass through any rebates, I’m still in a bad place, because I don’t want to receive a drug that doesn’t work.”

One Wall Street analyst, meanwhile, contends that value-based pricing is something of a smokescreen that is allowing the pharmaceutical industry to deflect meaningful legislative action toward high prices.

“This has been the drug industry’s preferred solution to the question of drug costs,” Sanford Bernstein analyst Ronny Gal wrote in a recent investor note.

“While the argument, in principle, is logical—drugs should be priced to the value they provide—it turns every debate on drug costs into a convoluted economic calculation,” Gal said, “and the drug industry has so far run circles around payers in developing an economic model for the value of drugs they provide. To the extent value-based pricing is adopted as the main way to address drug costs, the industry will likely be in the clear on the drug issue for roughly a decade.”

An article published jointly by ProPublica and the New York Times in July mentioned the Italian health care system’s experience with outcomes-based pricing. Researchers who studied the program described the amount of money returned by drug companies as “trifling,” the article said.

Others have a more optimistic take on the situation. Roger Longman, who heads Real Endpoints, a research firm that tracks reimbursement issues, believes outcomes-based pricing deals will be “hugely important” and will soon cover anywhere from 20% to 30% of new drugs.

“I think this is a new way of thinking about contracting,” he explains. “Yes, there are plenty of challenges, but it does start to change the dialogue between pharma and payers. It forces payers, on one hand, to come clean about what value they’re really looking for—is it clinical or economic value? And on the pharma side, it forces them to do the kind of guarantees that virtually every other industry has to do with its customers.”

But, as Mitchell points out, “Why don’t we just lower the price at the outset?”

Ed Silverman founded the Pharmalot blog and has covered the pharmaceutical industry for 20 years.

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