Outcomes-Based Drug Contracts Do Not Move Us Closer to Value

Polls show that high drug prices are voters’ No. 1 concern in health care. Unsurprising, given that the U.S. ranks highest both in drug spending and in patients stopping their medications because they are unaffordable. According to many pharmaceutical corporations and academic health care economists on Big Pharma’s dole, outcomes-based contracting for drugs is the solution.

Policymakers should not dive into this pool; we propose a toe in the water at most. Odds are that outcomes-based contracts will do little to ameliorate the crushing cost of drugs in the U.S., and may delay reforms that actually link a drug’s price to its benefits.

After all, paying a refund to an insurer through an outcomes-based contract does not ensure the drug’s price afterwards will be “value-based.” That can only be achieved when the drug’s price and the size of the refund both make sense.

Amgen’s outcomes-based contract with Harvard Pilgrim over its cholesterol medication Repatha shows the problem. Repatha’s list price is $14,100 per year. Amgen promises a refund for patients on Repatha who have a heart attack or stroke, which according to clinical studies will be about 3.5 percent of all people.  That makes the effective price $13,620. Neither the start price of $14,100 or the adjusted price of $13,620 has anything to do with the benefits of the drug.

Based on how well the drug was expected to work the independent non-profit Institute for Clinical and Economic Review proposed that Repatha should cost around $2,200 to $5,000 per year. That was before final data on Repatha demonstrated it worked about half as well as ICER had assumed when producing their estimates. Don’t trust ICER’s estimate of value? Then pause to consider that the company has raised Repatha’s price 3 percent even with these new findings that the drug does not, as anticipated, appear to lengthen life.

Given these intrinsic disassociations between price and benefit, outcomes-based contracts should at least have the potential to arrive at a value-based price by starting with a launch price that can be supported by an ICER type assessment. This is not some impractical ivory tower idea: Regeneron used an ICER assessment to price Dupixent earlier this year.

The contracts are also confidential, and when these payment arrangements are explored, the successes, failures and learnings are rarely disclosed according to a review from the University of Washington. Illustrating the level of secrecy in this new payment approach, the pivotal table in a report focused on an outcomes-based contract for Roche’s cancer drug Avastin states “not reflective of actual financial terms.” “Trust us” can hardly be considered foundation for good public policy.

Logistics, like medical record review, patient surveys, and outcomes adjudication will also reduce these programs’ scalability. Italy has gone all in on outcomes-based contracts. By 2012 the aggregate savings amounted to only 3.3 percent of their total drug spending. In our more fragmented system, how are we going to dent the $400 billion plus in spending we are racking up annually, which is now 19 percent of all healthcare spending?

If these contracts were centered on patients, that would be a reason to endorse them. But after-the-fact refunds do nothing to affect a drug’s list price, which is what most patients pay. We have yet to hear of a contract where patients get the refund they are due on the back end.  Worse, patients will be called, their charts will be gone over, and tests and scans will be ordered to resolve contract terms rather clinical questions.

Still, outcomes-based contracts might be worth a try if they can be pursued in pilot projects that are transparent and objectively evaluated and disseminated. In this case, the starting price and refund amount should be likely to result in a value-based price. The contract terms should not inconvenience patients.

This can all be done without ticking off a single item on Pharma’s regulatory rollback shopping list, which includes exemption from rules that give Medicaid access to the lowest prices in the market; protection from prosecution if they claim their drug has a benefit the FDA has not agreed it does, and freeing up their ability to pay insurers inducements that clear the way for their products. There is an easier way — give proper guidance and waivers to companies on the specific pilot projects they plan to conduct. Only.


Anna Kaltenboeck is a senior health economist and program director and Peter B. Bach is the director of the Drug Pricing Lab at Memorial Sloan Kettering Cancer Center in New York.

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