How can value-based contracting help biopharma companies share costs & risks of new drugs?

By Ralph Marcello, principal, Deloitte Consulting LLP; US Biopharma Segment Leader

Drug pricing has been under a microscope for the past several years. It was on the platform during last year’s presidential election and is a focus for the White House, Congress, and regulators. It seems only appropriate that we spend a little time discussing drug pricing at this year’s BIO International Convention.

Scientific progress is leading to effective but sometimes expensive treatments. How can the health care system continue to pay for these advances? One strategy might be to explore novel contracting agreements. Under a value-based contracting model, payment for drug treatments is tied to their performance in the real world. For treatments with outcomes that can be tracked, a value-based contract could give health plans a financial incentive to consider new therapies. A health plan, for example, might receive a rebate for a drug that fails to show benefits in a patient population. However, at this point, such contracts are complex and still relatively rare.

For such relationships to achieve the expected results, biopharma companies need to determine the level of risk they are willing to take. Health plans will have little interest in contracts that don’t offer financial rewards in exchange for taking on risk. Moreover, performance monitoring for such contracts requires new tools and technology, as well as infrastructure, that our biopharma clients really haven’t invested in over the past few years.

Stakeholders face four critical value-based contracting challenges

Most stakeholders have been dipping their toes in the water rather than plunging in head first. Biopharma and health plans that have begun implementing value-based contracts in the private sector commonly cite several challenges. These include:

  1. Determining the appropriate measures of value to link payment: Parties entering into a value-based contract should agree upon a definition of value that they can attribute to the drug therapy or device. This could include a demonstrated endpoint from clinical trials, an outcome that provider organizations are actively measuring under quality initiatives, or some other definition of value. Further, value should be defined according to the group of patients that stands to benefit most from treatment.
  2. Controlling for non-treatment factors that can influence outcomes: Other variables that could impact the outcomes of drug or device use include patient factors such as comorbidities and adherence, physician factors such as drugs prescribed off label, and reimbursement hurdles such as utilization management tools including step therapy or cost sharing.
  3. Administrative burden to operationalize value-based care: Value-based contracts require different skills and more resources to administer, monitor, and adjudicate than traditional contracts. Insufficient resources at the health plan might hamper the ability to actually execute at scale.
  4. Capturing, integrating, and analyzing real-world data: Value-based contracts require capturing and analyzing data and tracking individual patients, their treatments, and outcomes. Validation and analysis will require collaboration and trust between the biopharma company and the health plan, and both sides should agree on methodology early in the process.

Cures moves needle on value-based contracting

Value-based contracting is still in its infancy, but the 21st Century Cures Act (Cures), which became law last December, advances the idea and focuses its direction, as discussed in Deloitte’s recent report (21st Century Cures: The future of product innovation and approval).

Both the Food and Drug Administration (FDA) and health plans are interested in new types of data from drug manufacturers. Traditionally, biopharma companies have only needed to submit safety and efficacy data when moving a product through the FDA approval process. But those companies are increasingly being asked to include value-based data. While this is a significant change, our biopharma clients already capture some value data for their own internal decision-making.

Cures, by accepting new sources of evidence, could help biopharma companies win approval and access more quickly. Increasingly, these sources of evidence include data that is collected in the real-world, outside of randomized clinical trials (RCTs). This real-world evidence (RWE) can be used to offer health plans and prescribers more confidence in covering or prescribing treatments to specific populations. It can also be used to track outcomes tied to payments as part of value-based contracts. According to our recent benchmarking study (Getting real with real-world evidence), 54 percent of surveyed biopharma companies are investing in building up their capabilities around RWE. As companies build capabilities to capture, integrate, and analyze RWE, we may see the adoption of value-based contracts increase.

A few years from now, value-based contracting won’t be everywhere, but it will be far more common than it is today—particularly as health care reimbursement moves further away from volume in favor of value.


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Deloitte’s life sciences and health care practice is composed of more than 7,300 professionals in over 90 countries that provide audit, consulting, financial advisory, risk management, tax, and related services to industry clients. We understand the complexity of today’s life sciences challenges, including the journey to redefine patient-centric care, innovate, and grow, and help clients through the challenges that each part of the journey can bring. Our professionals are backed by a global organization whose tools, industry-wide experience, and knowledge are aligned to help companies see what’s in front of them and what’s ahead. To learn more, visit www.deloitte.com/us/lifesciences.

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