Survey on Outcomes-Based Contracts Shows Mixed Results for Novel Therapies

"Who is going to pay is the $10,000 question. And it's not just health plans," says one Avalere executive.

Avalere Health's fifth annual survey of outcomes-based contracts (OBC) for novel therapies showed varied results in overall participation and across specific therapies. OBCs center on "high-cost novel treatments and other types of products" and "typically include an agreement between health plans and drug or device manufacturers that ties product reimbursement to specific clinical, quality, or utilization outcomes." John Neal, an Avalere managing director notes: "These products come with big price tags. Payers want to make sure the outcomes are what was indicated in clinical trials."

Year-over-year survey results were mixed and include:

• 56% of payers participate in OBCs.
   
• There was an increase in payers with more than 10 OBCs in place (from 6% to 12%) but a notable decrease among those with 5–10 contracts (from 19% to 9%).
   
• The number of payers with only one OBC or 2–5 was steady.

The September 2021 survey included 51 U.S. health plans and pharmacy benefit managers of diverse size and their approximately 59 million lives.

Interest across therapies

Payers are deploying OBCs across multiple treatment areas. Included in the Avalere results were high-uptake areas like respiratory, endocrine, oncology, and heart. These OBC types were followed by infectious and immune/inflammatory diseases, then orthopedics and mental health. Therapeutic-specific results were mixed as well:

• The largest therapeutic area increases were: endocrine (49% to 68%), respiratory (45% to 54%), and cardiovascular (70% to 79%).
   
• Three areas saw the largest declines in the number of OBCs: oncology (62% to 18%) and infectious disease (41% to 31%).
   
• Rare/Orphan diseases represent the smallest number of OBCs, which also dropped sharply from 18% to 5%.

What the results suggest

Of the results overall, Neal says: "While there was continued and steady interest and growth from payers—especially in transformative areas with new therapies and big price tags—declines in the number of contracts was probably due to COVID. This was especially true in oncology and areas where treatment and data measurement was deferred," he notes.

Avalere head of client solutions, marketing, and operations Sarah Butler adds: “The significant increase in payers who have more than 10 OBCs in place is showing us that some payers are successfully executing these agreements. … At the same time, however, the decline in payers that have tried one OBC indicates fewer new entrants in this space.”

OBC payer challenges

Applying alternative payment and financing methods to novel therapies is particularly challenging. "Successful implementation and adjudication of an OBC or other type of value-based contract requires significant investment into infrastructure that can support outcomes tracking and coordination among entities involved."

The survey results highlight that payers are looking not only for cost control but outcomes, especially for novel therapies. Brigit Kyei-Baffour, an associate principal with Avalere, emphasizes: "It's not just how much the payer saves but also patient results like avoiding readmissions, preventing complications, and improved adherence—all of which have important cost offsets."

"Not just payers"

These risks and challenges are acute with OBC payment and financing. "These therapies are a huge upfront investment," says Avalere consultant Zach Zalewski. "Where the rubber meets the road is when a product hits the market and the question is, 'How am I going to front a $2 million price tag.' "

"Who is going to pay is the $10,000 question. And it's not just health plans," says Neal. "This is where value-based contracting comes into play, having some certainty that products will work will help forecast risk."

"Where payers need help," Kyei-Baffour adds, "is increased education around novel therapy added values and benefits. Thinking about a patient's trajectory is part of the value story when there are so many unknowns."

Innovative solutions

OBC design for these areas will need to be as innovative as the products they cover.
These new entrants include cell and gene treatments that range from curative, one-time therapies to those that could span multiple payers if members change plans.

"For patients who travel to other payers, risk pooling can capture longitudinal reinsurance," says Neal. "These kinds of arrangements could massively accelerate but there is a huge operational challenge."

The Alliance for Regenerative Medicine has researched and identified multiple payment alternatives for one-and-done therapies that distribute cost and risk over time. These include:

• The aforementioned risk pooling and reinsurance.
   
• Installments: Payment made over time with amounts and time frames calculated based on patient benefit. 
   
• Hybrid: Payment also made over time and with incentive payments linked to defined health outcomes.

Payers will need more pilots to build the systems to support these alternative payment approaches. These will take place if payers see that the long-term value of one-and-done treatments can offset higher initial costs.

A better endgame

Earlier collaboration between pharmaceutical companies and payers could be an answer. Some stakeholders are recognizing the benefit of discussions on data needs, effectiveness, and market potential as early as Phase II of clinical trials, according to Clinical Leader.

The endgame is the potential for a longer, healthier life.

"There is a lot of payer interest on the manufacturer side. We're talking about new, transformative therapies where there are no good alternatives and where you have an opportunity to modify a disease to transform people's lives."