- Issue: Brand-name prescription drug prices are increasing in the United States, putting pressure on payers and patients. Some manufacturers have responded by offering outcomes-based contracts, in which rebate levels are tied to a specified outcome in the target population.
- Goal: To assess the expected benefits and limitations of outcomes-based pharmaceutical contracts in the U.S., including their potential impact on prescription drug spending.
- Methods: Semistructured interviews with payers, manufacturers, and policy experts.
- Key Findings: Pharmaceutical manufacturers and some private payers are increasingly interested in outcomes-based contracts for high-cost brand-name drugs. But the power of these contracts to curb spending is questionable, largely because their applicability is restricted to a small subset of drugs and meaningful metrics to evaluate their impact are limited. There is no evidence that these contracts have resulted in less spending or better quality.
- Conclusions: Outcomes-based contracts are intended to shift pharmaceutical spending toward more effective drugs, but their impact is unclear. Voluntary testing and rigorous evaluation of such contracts in the Medicare and Medicaid programs could increase understanding of this new model.
In an era of rising health care spending and constrained budgets, U.S. policymakers and payers have tried to shift providers’ financial incentives from those that pay for greater volume of care to those that pay for high-value care. This move from volume to value is in its early stages, with most payment still based on old fee-for-service models.1
However, fueling the move to value-based purchasing are provisions in legislation such as the Affordable Care Act of 2010 and the Medicare Access and CHIP Reauthorization Act of 2015. These provisions encourage providers to participate in risk-bearing arrangements and institute programs that base Medicare reimbursement on patient clinical outcomes measures, such as hospital readmission rates. Private payers have initiated similar performance-based incentive programs and risk-sharing arrangements for hospitals and physicians.
In this vein, some pharmaceutical manufacturers and private payers are seeking to apply an outcomes-based pricing model to the prescription drug market. Prices for brand-name drugs have risen far above increases in the consumer price index.2 According to a Kaiser Health Tracking Poll, 77 percent of Americans consider prescription drug costs to be unreasonable.3 Prescription drug spending is mostly driven by high-price, brand-name drugs, which account for about 12 percent of prescriptions but 72 percent of total drug spending.4
One response to these high prices has been increased interest in outcomes-based contracts, which tie rebates and discounts for expensive pharmaceutical products to the outcomes observed in the patients who receive them. Outcomes-based contracts are touted as possible ways for purchasers — such as insurers and health care systems — to improve value. That is because under such contracts, purchasers pay more for a drug when it works and less when it does not. However, whether such arrangements can achieve this goal remains controversial.
To gain insight into the benefits and limitations of outcomes-based pharmaceutical contracts, we interviewed pharmaceutical economics experts and individuals involved in developing these contracts, including those affiliated with pharmaceutical benefits managers and health plans. In this issue brief, we review the main themes that emerged from these data and evaluate whether these arrangements can help improve the value of pharmaceutical spending.