Value-Based Contracting as an Alternative for Drug Spending Caps in Medicare

November 18, 2022

With drug pricing reform in the US looming over the industry, pharma must look ahead to payment models that serve as a potential compromise to benefit patients, payers, and pharma. In a recent PharmaExec.com article, Girisha Fernando of Lyfegen speaks about value-based contracting as a potential way forward.

According to Fernando, “Value-based drug contracting could be the better “third way.” This means basing the newly-allowed price negotiations on patient value and outcomes—rather than on spending or price caps. Under a value-based pricing model, a drug is priced based on its effectiveness and outcomes–with pharmaceutical makers charging more for drugs with overall positive outcomes, and charging less (or supplying rebates if a drug is paid for in advance) for treatments that do not meet criteria. The more effective a drug, the higher the target price payers submit–with discounts and rebates given for drugs that are less effective than expected. (For full disclosure, my company’s digital analytics platform was developed to create value-based contracts by pharmaceutical companies and payers.)”

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