As biopharma makes the shift toward a personalized healthcare system, it is also transitioning towards a pipeline full of innovative, high-cost therapies. We are moving to a value-based system, with two of the biggest ideas for this decade becoming more and more important: value-based contracting (VBC) and real-world evidence (RWE).
RWE and VBC are key parts of a new era in healthcare
RWE represents outcomes derived from a diverse patient population in a real-world environment. Data sources can include administrative claims, electronic health records (EHR), laboratory data, information and communication technologies (ICT), genomics, health app data, biometric devices and survey reports.
VBC uses RWE to allow both biopharma and health insurers to spread risk and make high cost therapies more available to patients. These arrangements aim to tie contracted drug prices and reimbursement rates more closely to clinical outcomes by collecting and analyzing RWE after a drug has been launched. Prices are linked to how a drug performs in the real world and an insurer will not pay the full cost of a drug that does not work as intended. Moreover, if a drug performs better than projected, the biopharma company may get a higher reimbursement rate.
RWE and VBC are becoming commonplace
Deloitte’s 2nd annual RWE Benchmarking Survey in 2018 found that 14 out of the 20 biopharma companies polled are currently engaged in VBC and 9 of these stated they are using RWE in contract design.1
In 2018, PhRMA reported that the list of publicly-announced VBCs had continued to grow over the last quarter from 39 to 43. In reality, this is a conservative estimate as many VBCs are not publicly announced.2 The U.S. government has shown interest in RWE as well. In December 2018, the FDA released its Framework for RWE3 which paves the way to use RWE to support the approval of a new indication for a pre-approved medicine and satisfy post-approval study requirements, as required by the 21st Century Cures Act of 2016.4 Key elements of the FDA RWE Framework include a broader consideration of RWE data sources, expansion of acceptable study designs (to include observational studies, pragmatic trials, hybrid designs, and RWE control arms), and the use of RWE to assess efficacy and effectiveness (beyond safety).
There are many ways to set up VBC arrangements
VBCs continue to emerge and evolve as payers and manufacturers gain experience in linking payments to measures of outcomes, utilization or spending. Most reviews categorize VBCs as outcomes-based or finance-based.5 RWE will play a pivotal role in outcomes-based VBCs, currently the most common type of arrangement.
VBC is not limited to pharmaceuticals. Medical device manufacturers are also striking deals based on a product or service guarantee, or risk sharing. For example, Stryker, an orthopedics company, offered a guarantee to hospitals on the SurgiCount product to address retained surgical sponges, as well as $5 million in product liability indemnification.6
Rising to the risks and challenges of RWE and VBC
RWE and VBC bring risks and challenges for both biopharma and payers.
The RWE and VBC challenge: is there a way to help?
Procuring RWE in support of VBC is vital, complex, and multi-dimensional so it is imperative to find solutions that speed up the delivery of data and address the unique challenges of RWE. Several options are below.
1. Simulations of VBCs using RWE to reduce uncertainty
Optum and Merck are collaborating on a multi-year project using RWE to co-develop and test advanced predictive models that will reduce clinical and financial uncertainty for VBCs.10 This would reduce risk on both the pharmaceutical and payer side entering into VBC agreements, would could increase the uptake of these types of contracts.
According to Curt Medeiros, president of Optum Life Sciences, “this collaboration offers an opportunity to leverage our collective strengths to increase knowledge about the design and implementation of outcomes-based contracts in the U.S. health system.” The companies plan to share their findings. Seeing success in this kind of system could inspire other companies to follow suit.
2. Direct partnerships
Another potential solution is direct partnerships between players in the healthcare field.
Pharmaceutical giant Amgen is currently partnering with pharmacy benefit manager Magellan Rx Management and Texas-based health care system Baylor Scott & White Health (BSWH).11 This allows them to work collaboratively and move beyond a purely transactional model for a cooperation-based approach to problem solving in VBP.
Delivery organizations like Magellan and pharmaceutical companies like Amgen bring the opportunity to develop RWE to feed into these types of approaches to VBP.
In Andrew Masica’s, Chief Clinical Effectiveness Officer of BSWH, words, “I think there is a real opportunity for organizations to use their own data and work with industry partners to help answer [many] types of questions.”
3. A marketplace to connect researchers and suppliers
Another option is more efficient collaboration, using a resource such as the HEOR & RWE Marketplace for researchers and suppliers of RWE services, offered by HealthEconomics.Com and Scientist.Com. HealthEconomics.Com and Scientist.Com are two trusted life science brands who have partnered to connect researchers and suppliers in HEOR, RWE and related areas with the aim to facilitate research, overcome challenges, trim costs and bolster market access.9
As Deloitte’s 2nd annual RWE Benchmarking Survey said, “hiring experts to build and implement advanced systems … can help existing talent derive insights from structured and unstructured disparate RWD [real-world data] sources. But attracting this talent could prove difficult, given the current market demand for data scientists.”1The HEOR & RWE Marketplace is a way for biopharma companies to source that talent and a way for consulting and data companies to offer their services and products so that these value-based deals based on RWE can be implemented and assessed more quickly and efficiently.
VBC and RWE may not be the easy way forward for biopharma or for payers. But this path has the potential to contain costs and allow for the development of more personalized medicines that facilitates better outcomes. RWE holds the promise of collecting and utilizing the vast amount of available data to gain meaningful insight. Regardless, now we must focus on the challenge of how to structure VBC contracts that fairly share risk, how to source robust data and how to use resources like direct partnerships, VBC simulations and the HEOR & RWE Marketplace to drive faster insights.
- 2018 RWE benchmark survey. Deloitte Insights Available at: https://www2.deloitte.com/insights/us/en/industry/life-sciences/2018-real-world-evidence-benchmarking.html.
- Drozd, M. Number of value-based contracts continues to rise. PhRMA (2018). Available at: https://catalyst.phrma.org/number-of-value-based-contracts-continues-to-rise.
- FDA. Framework for FDA’s Real-World Evidence Program. (2018). Available at: https://www.fda.gov/downloads/ScienceResearch/SpecialTopics/RealWorldEvidence/UCM627769.pdf.
- 114th Congress. 21st Century Cures Act, Public Law No: 114-255. (2015).
- Policy, M. C. for H. Developing a Path to Value-Based Payment for Medical Products. Duke University (2017). Available at: https://healthpolicy.duke.edu/sites/default/files/atoms/files/value_based_payment_background_paper_-_october_2017_final.pdf.
- Parmar, A. Here’s four types of value-based contracting with providers that companies can pursue. MedCity News (2018). Available at: https://medcitynews.com/2018/09/heres-four-types-of-value-based-contracting-with-providers-that-companies-can-pursue/?rf=1.
- Hayes, T. Current Impediments to Value- Based Pricing for Prescription Drugs. AAF (2017). Available at: https://www.americanactionforum.org/print/?url=https://www.americanactionforum.org/research/current-impediments-value-based-pricing-prescription-drugs/.
- Comer, B. Pharmaceutical value-based contracting: Collaboration is key. PwC (2018). Available at: https://www.pwc.com/us/en/industries/health-industries/library/pharmaceutical-value-based-contracting-collaboration-is-key.html.
- HealthEconomics.Com, Scientist.Com Partner on RWE/HEOR Initiative. HealthEconomics.Com (2018). Available at: https://www.healtheconomics.com/industry-news/healtheconomics-com-scientist-com-partner-on-rwe-heor-initiative.
- Optum and Merck Collaborate to Advance Value-Based Contracting of Pharmaceuticals. UnitedHealth Group (2017). Available at: https://www.unitedhealthgroup.com/newsroom/2017/0525optumlearninglab.html.
- Value-Based Partnerships: Engaging in Value-Driven Innovative Collaborations. The American Journal of Managed Care (2018). Available at: https://ajmc.s3.amazonaws.com/_media/_pdf/AJMC_A818_06_2018_VBP_Whitepaper(1).pdf.
- Staton, T. Lilly’s Trulicity joins pay-for-performance trend with Harvard Pilgrim deal. Fierce Pharma (2016). Available at: https://www.fiercepharma.com/pharma/lilly-s-trulicity-joins-pay-for-performance-trend-harvard-pilgrim-deal.
- Staton, T. Novartis defies naysayers with newfangled pay-for-performance deals on Entresto. Fierce Pharma (2016). Available at: https://www.fiercepharma.com/sales-and-marketing/novartis-defies-naysayers-newfangled-pay-for-performance-deals-on-entresto.
- Teichert, E. Harvard Pilgrim Scores Discounts on Novartis, Lilly Drugs. Modern Healthcare (2016). Available at: https://www.modernhealthcare.com/article/20160628/NEWS/160629889.