Pay For Play

The latest wrinkle in pharma contracting? Deals that share risks between manufacturers and payers and focus on patient outcomes. Here's a look at the state of the art—and what to expect as these deals gain traction
Jun 01, 2009
By Pharmaceutical Executive Editors

In the turbulent world of healthcare reform, there's a lot of disagreement on the best way to eliminate unnecessary costs while preserving quality of care. But on one point, most stakeholders agree: Any effective solution will almost certainly involve realignment of financial incentives to guarantee rewards for disease-management efforts that result in high quality care.

That is the idea behind the growing "pay for performance" (P4P) movement, which rewards physicians, hospitals, and other caregivers for meeting quality metrics—hitting a target percentage of patients screened for a particular condition, for example, or adopting the use of information technology.

It's also the idea behind outcomes-based risk-sharing agreements (OBRAs), an emerging technique that could ultimately have a major impact on pharmaceutical contracting and pricing. These agreements come in various types, but they are generally contracts between payers and manufacturers that factor patient outcomes into pricing and other terms. For example:

» Requiring the payer to reimburse only when the drug actually makes the patient better

» Setting price according to how well patients hit targets such as blood pressure or cholesterol level

» Having the pharmaceutical company pay for treatment if the drug fails to prevent a negative outcome

STRATEGIZING THE DEAL: An OBRA can be used to accomplish multiple goals—but which?
Outcomes-based risk-sharing agreements are still fairly rare in the United States, but they have become a standard feature of European negotiations over market access, and a few recent US deals have pointed out the potential the technique has even in dealing with private-sector payers. It is time for US pharma marketers to prepare for the next curveball the market threatens to throw their way.

The European Experience

It is no surprise that OBRAs first came of age in Europe—if only because the healthcare systems there have a centralized payer and policymaking entity (i.e. the government) with a mandate to control healthcare spending. Existing programs in Europe typically focus on high-cost drug therapies for cancer, multiple sclerosis, rheumatoid arthritis, wet AMD, and the like. Prescriptions for these medicines cost from $1,500 up to $100,000 a year. In some countries, especially the UK and Italy, OBRAs have become an important element in gaining market access.

The UK can be a particularly precarious reimbursement environment for high-cost specialty drugs. Merck KGaA's Erbitux and Roche/Genentech's Avastin, both oncology drugs, and Wyeth's and Bayer-Schering's kidney cancer drugs Torisel and Nexavar were all denied reimbursement in the UK because they fell beneath the cost-effectiveness threshold set by the National Institute for Health and Clinical Excellence (NICE).

When a similar fate befell the MS drugs Copaxone (glatiramer), Avonex, Betaferon, and Rebif (all three forms of beta interferon) in 2002, the manufacturers (Teva, Biogen, Schering AG, and Serono, respectively) struck deals for a 10-year experimental OBRA with the UK's National Health Service (NHS).

Under the terms of the agreement, patients meeting certain criteria could receive one of the drugs. They would be assessed periodically against target treatment outcomes, and the price was to be adjusted so that NHS paid no more than 36,000 GBP per quality-adjusted life year (QALY).

The MS deal drew considerable criticism, but the underlying principle that drug costs should be tied to outcomes has continued to inspire a great deal of experimentation. Here are several examples of other innovative pricing approaches adopted in Europe to address payer concerns about drugs' uncertain clinical outcomes or unpredictable financial burden:

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