Addressing barriers that inhibit value-based contracts

Katie Koziara
Katie Koziara February 21, 2020

Addressing barriers that inhibit value-based contracts.

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With 56 new medicines approved by the U.S. Food and Drug Administration (FDA) in 2019 and over 8,000 medicines in development around the globe, innovative medicines are transforming the way we treat and fight diseases. To help ensure patient access to these medicines, we need to bring similar innovation to payment methods.

That’s why biopharmaceutical companies are collaborating with insurers to develop flexible contracting arrangements for medicines. These innovative arrangements – which include results-based contracts, also known as value-based arrangements – focus on real-world results for patients and can improve outcomes and lower out-of-pocket costs while providing savings for the health system. However, outdated policies can create uncertainty around these contracts, which deters biopharmaceutical companies from adopting them.

Addressed Barrier

  • Confusion in FDA regulations and policy: The FDA previously regulated conversations between biopharmaceutical companies and insurers, which presented an obstacle to communicating health care economic information. This type of communication is critical to negotiating value-based contracts, so this barrier was significant. In 2018, the FDA released two guidance documents that provide clarity on how biopharmaceutical firms may communicate certain information, including health care economic information, consistent with FDA regulations.

Outstanding Barriers

  • Lack of clarity in the Anti-Kickback Statute (AKS): The AKS is a federal law aimed at prohibiting fraud in federal health care programs. But this broadly worded statute can inadvertently discourage beneficial low-risk health care arrangements through the threat of civil, criminal and administrative sanctions. This uncertainty can discourage companies and plans from entering into certain types of beneficial value-based contracts. To remove this uncertainty, Congress or the Department of Health and Human Services could create a safe harbor or exception to the AKS, which would reassure companies and plans as they enter into these contracts.

  • Dated and complex Medicaid price-reporting rules: Biopharmaceutical companies must adhere to a complex set of government price-reporting rules for calculating best price in Medicaid. This highly technical price-reporting rule was established prior to the introduction of more innovative payment approaches. While the price-reporting rules do permit biopharmaceutical companies to make reasonable assumptions, there is ambiguity about how to capture innovative pricing methods in the best price framework. This ambiguity can create uncertainty for innovators and payers, lessening their interest in entering into value-based contracts. The Centers for Medicare and Medicaid Services could, through rulemaking or new guidance, clarify how sales and discounts under value-based arrangements are reported under Medicaid Best Price.

By removing these two remaining barriers to value-based contracts, this innovative, market-based solution can help provide patients with affordable access to new medicines.

Learn more at www.phrma.org/value-collaborative.

Topics: Access, Out-of-Pocket Costs, Medicaid, The Value Collaborative, Let's Talk About Cost