Posts Tagged value-based pricing

Real-world evidence and value-based contracting – swipe left or swipe right?

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.

Examples (outcomes based)

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.

  1. Defining populations and outcomes
    1. It is necessary to collaborate with hospitals, providers, and professional societies to define inclusion and exclusion criteria and gain buy-in
  1. Collecting, linking and analyzing the necessary healthcare data
    1. It may be difficult to collect and link data from different sources
    2. Data may be protected by law or be costly
  1. Estimating causality between product and outcome
    1. There may be externalities that affect causality like compliance and provider error
  1. Measuring outcomes
    1. Infrastructure may be in place or it may have to be built
  1. Lack of clear financial incentives to participate in value-based contracts when financial risk may be associated with poor patient outcomes or underperforming products
  1. Trust among payers, providers and manufacturers needs to be created and maintained
  1. RWE data may be heterogeneous, incomplete, lack use agreements, run afoul of privacy regulations, lack data standards, and lack unique patient identifiers
  1. There is a lack of data scientists and outsourcing companies to process and work on RWE data to keep up with the fast growth of the industry
  1. Regulatory and legal barriers
    1. Even with the updates of the 21st Century Cures Act, it is still unclear how RWE usage will be integrated into the FDAMA 114 Act, which regulates the use of information for promotional activities by biopharma and has been the start of law suits about improper use of data for promotion
    2. Anti-kickback statutes in the Center for Medicare & Medicaid Services (CMS) complicate the ability of biopharma to enter into value-based contracts because they may be viewed as inducing providers to prescribe certain medications– additional safe harbor laws could be created by Congress and CMS to prevent this7 (kickbacks are currently being addressed by Health &Human Services Secretary Alex Azar)
    3. Medicare’s “best price” policy requiring that biopharma offer a price equal to the best commercially available discount price is a challenge in value-based contracting8

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.

Works Cited

  1. 2018 RWE benchmark survey. Deloitte Insights Available at:
  2. Drozd, M. Number of value-based contracts continues to rise. PhRMA (2018). Available at:
  3. FDA. Framework for FDA’s Real-World Evidence Program. (2018). Available at:
  4. 114th Congress. 21st Century Cures Act, Public Law No: 114-255. (2015).
  5. Policy, M. C. for H. Developing a Path to Value-Based Payment for Medical Products. Duke University (2017). Available at:
  6. Parmar, A. Here’s four types of value-based contracting with providers that companies can pursue. MedCity News (2018). Available at:
  7. Hayes, T. Current Impediments to Value- Based Pricing for Prescription Drugs. AAF (2017). Available at:
  8. Comer, B. Pharmaceutical value-based contracting: Collaboration is key. PwC (2018). Available at:
  9. HealthEconomics.Com, Scientist.Com Partner on RWE/HEOR Initiative. HealthEconomics.Com (2018). Available at:
  10. Optum and Merck Collaborate to Advance Value-Based Contracting of Pharmaceuticals. UnitedHealth Group (2017). Available at:
  11. Value-Based Partnerships: Engaging in Value-Driven Innovative Collaborations. The American Journal of Managed Care (2018). Available at:
  12. Staton, T. Lilly’s Trulicity joins pay-for-performance trend with Harvard Pilgrim deal. Fierce Pharma (2016). Available at:
  13. Staton, T. Novartis defies naysayers with newfangled pay-for-performance deals on Entresto. Fierce Pharma (2016). Available at:
  14. Teichert, E. Harvard Pilgrim Scores Discounts on Novartis, Lilly Drugs. Modern Healthcare (2016). Available at:

, , , , , , ,

No Comments

CVS Caremark’s foray into cost-effectiveness analysis raises questions about the future of prescription medicines in America

Written By:

Americans spend more on prescription drugs than anyone else in the world. In a move to address this, CVS Caremark announced in August that it would allow self-funded insurers to exclude from their plan any drug launched at a price greater than $100,000 per QALY (quality adjusted life year).1

A bold move in the shift to value-based reimbursement

CVS advertises its program as incentivizing pharmaceutical companies to lower launch prices, pointing to QALYs approaching the $300,000 to $500,000 range, a stark contrast to thresholds on medicine pricing in Europe ranging from $10,000 to $50,000/QALY. The policy will use analyses from the non-profit Institute for Clinical and Economic Review (ICER) but excludes FDA-defined “breakthrough” therapies.1

A controversial announcement

Robert Dubois, MD, PhD, Chief Science Officer of the National Pharmaceutical Council (NPC), criticized the move as being “too much too soon” with the potential to “hamper patients’ access to needed medications”. He points to the many limitations of the QALY and endorses a wider value assessment framework that considers factors like the importance of high cost medicines for inadequately treated illnesses as well as secondary values like increased economic productivity of patients. Some of these are in line with considerations by European organisations like the National Institute for Health and Care Excellence (NICE). He goes further to criticize the threshold of $100,000 per QALY as arbitrary, preferring the approach of tying formulary tiers and co-payments to cost-effectiveness to make a broader set of medicines available.2

CVS executives hit back, pointing out that the steady increase in launch prices has contributed to the rise in cost per QALY.3 By emphasizing their policy’s potential to push pharmaceutical companies to lower prices, they shift the focus from problems with the cost per QALY approach to the pharmaceutical industry’s role in rising prices.

In Bloomberg, Biopharma Opinion Columnist Max Nisen writes that CVS’s plan lets pharmaceutical companies off too easy, citing the fact that the FDA’s breakthrough designation has been applied to over 50 drugs over the past few years, commonly some of the highest priced on the market.4

Even patient groups have gotten involved, with over 90 advocacy groups writing an opposition letter to CVS stating that the new policy “…discriminates against the chronically ill, the elderly and people with disabilities, using algorithms that calculate their lives as ‘worth less’ “.5 QALY’s are often deemed less valuable as a cost-effectiveness tool for the elderly because of their insensitivity to health status improvements and shorter life expectancy compared with non-elderly.

CVS’s policy raises questions about the fundamental meaning of value

In the context of the move towards value-based care in America, perhaps this was a logical next step. But what does it mean for healthcare going forward?

The use of the QALY and ICER’s involvement in the US healthcare system is not going away. ICER’s drug assessments have already been used by the New York Medicaid Program and Veterans Affairs in drug coverage decisions.6 7 Moves such as this have started to formalize ICER’s role in coverage decisions and may have the potential to shift the balance of power from pharma to a pricing arbiter. A key question is whether other pharmacy benefit managers will follow CVS’s lead, putting more pressure on pharmaceutical companies.

From a practical standpoint, are QALYs useful in real-world decision-making to payers in the United States? As healthcare consultancy Milliman points out, an analysis conducted using a list price and the “average” patient may not be applicable for payers that serve specific subpopulations and utilize discounts and rebates.8 However, a 2018 ICON plc survey of over 20 U.S. payers seems to show that payers do consider them useful with more than 75% of respondents saying they would use an ICER threshold as a basis to negotiate a rebate contract. 9

Are QALYs being used to look at the most valuable treatment in a given context or simply as a tool for reducing cost? Do cost-effectiveness thresholds capture what individual patients and providers value or are they a step too far into a one size fits all process, especially in an age of individualised medicine?

If we do accept limitations to the cost per QALY approach and move to a broader framework as suggested by NPC’s Dr. Robert Dubois, how will we calculate and weight aspects of value like societal benefits and inadequately treated illnesses?

These are some of the questions that we now need to ask as cost-effectiveness becomes a staple in conversations around medicine cost. There is no doubt that these issues will be at the forefront of policy and economic conversations about medicines in the coming months.

Let us know what you think by commenting on the blog. To stay up on news related to cost-effectiveness around the globe, subscribe to the HealthEconomics.Com weekly newsletters.


  1. CVS. Current and New Approaches to Making Drugs More Affordable. (2018). Available at:
  2. Dubois, R. CVS To Restrict Patient Access Using Cost-Effectiveness: Too Much, Too Soon. Health Affairs (2018). Available at:
  3. Brenna, T. & Surya, S. Why CVS Is Giving Plans A New Tool To Target High Launch Prices. Health Affairs (2018). Available at:
  4. Nisen, M. CVS’s Drug-Price Plan Lets Pharma Off Too Easy. Bloomberg Opinion (2018). Available at:
  5. PIPC. Over 90 Advocacy Groups to CVS: Don’t Discriminate on Care. (2018). Available at:
  6. Thomas, K. A Drug Costs $272,000 a Year. Not So Fast, Says New York State. New York Times (2018). Available at:
  7. ICER. The Institute for Clinical and Economic Review to Collaborate With the Department of Veterans Affairs’ Pharmacy Benefits Management Services Office. (2017). Available at:
  8. PhRMA. New whitepaper identifies reasons why ICER’s cost-effectiveness analyses are not useful for payers. (2018). Available at:
  9. White, N. What ICER Pricing Would Mean for US Drug Spend: A Preliminary Analysis. LinkedIn (2018). Available at:

, , , , , , , , ,

1 Comment