Real-world evidence and value-based contracting – swipe left or swipe right?
February 26, 2019
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 and VBC are key parts of a new era in healthcare
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.
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
RWE and VBC are becoming commonplace
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
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
There are many ways to set up VBC arrangements
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.
Defining populations and outcomes
It is necessary to collaborate with hospitals, providers, and professional societies to define inclusion and exclusion criteria and gain buy-in
Collecting, linking and analyzing the necessary healthcare data
It may be difficult to collect and link data from different sources
Data may be protected by law or be costly
Estimating causality between product and outcome
There may be externalities that affect causality like compliance and provider error
Infrastructure may be in place or it may have to be built
Lack of clear financial incentives to participate in value-based contracts when financial risk may be associated with poor patient outcomes or underperforming products
Trust among payers, providers and manufacturers needs to be created and maintained
RWE data may be heterogeneous, incomplete, lack use agreements, run afoul of privacy regulations, lack data standards, and lack unique patient identifiers
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
Regulatory and legal barriers
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
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)
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
The companies plan to share their findings. Seeing
success in this kind of system could inspire other companies to follow suit.
2. Direct partnerships
solution is direct partnerships between players in the healthcare
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
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
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.