A Better Way in Drug Contracting

Value and outcomes-based contracting models are getting a lot of attention these days, and for good reason. Unlike the one-size-fits-all pricing of the past, these approaches tie the ultimate price of a drug to factors such as whether the medication worked as planned, or whether it was cost effective versus the alternatives.

Both of these approaches represent a departure — we think a big improvement, actually — from the traditional fee-for-service model because they hold the drug maker accountable for the performance of their product. However, these types of contracts have been slow to catch on, in large part because they require the payer or the PBM to capture data on patient outcomes and costs that they are not tracking currently.

For example, a physician may discontinue a patient’s drug therapy either because it isn’t delivering the expected clinical outcome or because the patient is experiencing intolerable side effects. Generally, this information is not shared with the payer or the PBM in the traditional pricing model, but these data points necessary in order to obtain the discounts offered under an outcome-based contract.

Similarly, value-based agreements typically assess whether a therapy is cost effective based on the total cost of care for a patient. If a medication does not deliver the expected clinical and safety results, thus failing to lower the patient overall cost of care, then the payer would be entitled to an additional discount or refund for the medication. However, the underlying data points required to calculate the math on these value-based arrangements can be complicated, and all of the data inputs needed may not always be available to the payer.

So, while these models are great in theory, they can be difficult to put into practice. This is why many PBMs and payers are taking a wait-and-see approach.

We can’t blame them. But we can’t help ourselves. If it means more rational pricing and greater accountability, at Abarca, we are “all in.” Our team can figure this out, and that’s exactly what we are doing.

To date, we have announced value-based agreements with Amgen and Biogen, and are negotiating several more. We are fortunate to have enthusiastic payer and pharma partners, and together we are developing ways to collect and analyze the data and operationalize the contracts.

“We think these contracting models achieve something that is much needed — they rationalize pricing and align incentives across the supply chain,” said Samir Mistry, Abarca Vice President, Rebates and Pricing Strategy. “Over the long run, you can’t put a price on that.”

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