Pharmaceutical Industry Slow to Embrace Value-Based Contracts

September 21, 2017 - Sixty-one percent of pharmaceutical companies are not yet participating in value-based contracts due largely to the belief that current policies make it too difficult to negotiate with payers and see a return on investment, according to a PricewaterhouseCoopers report.

Only 25 percent of pharmaceutical companies are participating in these contracts, and another 14 percent weren’t sure if they were.

Within the group of the pharmaceutic companies that is participating in value-based contracts, however, a majority reported positive results.

Thirty-two percent of value-based contract participants said they were very successful. Another 48 percent reported some success with the contracts. Only 8 percent of pharmaceutical companies participating in value-based contracts said that they weren’t successful.

Furthermore, 50 percent of pharmaceutical companies that participated in value-based contracts were very likely to renew contracts or sign brand new ones. Another 36 percent of participating drug companies said they were somewhat likely to renew value-based contracts.

Value-based contracts between payers and drug companies were most concentrated in oncology, rheumatoid arthritis, cardiovascular disease, rare diseases, respiratory disease, diabetes.

Thirty-four percent of these contracts were initiated during the pre-commercial phase contracts and another 28 percent were formed immediately following drug approval. Eighteen percent of contracts followed one year after a drug hit the market, while 4 percent were created during a drug’s market expiration period.

Prescription drug companies believe private payers are more likely to succeed in value-based contracts than public payers.

Twenty-five percent of drug company executives believe that private payers are very capable in participating in value-based contracts, while another 44 percent said that they believe private payers are somewhat capable at succeeding in these contracts.

Conversely, only 17 percent of pharmaceutical executives believe that federal payers are very likely to succeed in value-based contracts. Thirty-six percent see them as somewhat capable in these contracts.

Pharmaceutical companies also see government regulation, antitrust laws, and product “best price” concerns as major barriers to value-based contracts.

Agreeing on drug performance metrics, and the willingness to share data, also presented major hurdles between the formation of value-based contracts between payers and drug manufacturers.

Twenty-nine percent of pharmaceutical executives reported that the agreement between partners on metrics used to evaluate drug performance and patient outcomes was a significant operational challenge in value-based contracts, while 17 percent said the management of drug performance monitoring, data collection or analysis was another major challenge.

Other operational barriers between payers and pharmaceutical companies, as reported by pharmaceutical executives, included financial risk of poor drug performance or patient outcomes (16 percent), lack of clear financial incentives (15 percent), and lack of interest among leaders within their organization (3 percent).

Additionally, only 10 percent of payers strongly agreed that their organization would benefit from data-sharing partnerships with biopharmaceutical companies compared to 37 percent of pharmaceutical companies that see a benefit in data-sharing.

Value-based contracts are intended to provide financial rewards through performance-based risk, but pharmaceutical companies do not believe that the rewards outweigh the potential downsides.

Only 28 percent of pharma executives strongly agree that “value-based contracts are an opportunity to improve patient outcomes and reward manufacturers for bringing innovative and effective products to market,” while only 11 percent strongly agree that the benefits of contracts outweigh the risks.

Payers that bring specific needs to the negotiating table when establishing contracts, understand the resource commitment to properly analyze drug use, purchasing, and the effects on beneficiaries, and establish working partnerships with value-assessment groups can ease tensions and establish secure value-based contracts with manufacturers.