Many of the challenges and barriers to a successful execution of an innovative contract with payers tend to surface across brands and payers. Thorough research is a must to improve the level of success. Many pharmaceutical companies work with an experienced third party to reduce exposure.
Aventria Health Group, LLC



Keeping Pace With Industry Trends

Negotiated arrangements between drug manufacturers and payers that provide volume discounts to payers account for most of the outpatient prescription drugs being covered today as either a pharmacy or medical benefit.

US payers are moving toward innovative ways of contracting in an effort to respond to evolving market forces such as:

  • A continued rise in the cost of prescription drugs and an increased number of high-cost therapies entering the market each year, both of which place financial pressures on payers to keep costs under control
  • A desire to seek alternative payment models with drug manufacturers that place greater accountability on them to deliver on product claims in much the same way they are being held accountable to deliver value-based care
  • A public effort to better understand drug value as a function of clinical benefit, side effects, and improvement in symptoms or quality of life in relation to cost
  • Pressure from self-insured employers. Pharmaceutical spend now accounts for approximately 25% of their overall medical spend, up from 5%.1

Innovative contracting based on financial risk sharing is increasingly becoming the new norm in the marketplace, with patient outcomes being a key standard by which drug pricing is determined. Outcomes-based contracts, for example, reflect a shift to real-world demonstrations of effectiveness, in which drug payments to manufacturers are based on improved patient outcomes and not on the volume of drug sold. Agreements like these reinforce an industry shift toward value-based health care.

While the potential benefits to patients of innovative contracting include improved outcomes, payers could see acquisition costs decrease when drugs prove to be less effective than expected. Because payers fully expect medical cost offsets when therapeutic goals for patients are achieved, they are seeing the benefit of entering into contracts that increase prescription drug costs when these drugs perform as well as or better than anticipated. In addition to the possibility of increased revenues, drug manufacturers could benefit from long-term brand growth and enhanced market access when “real-world data” provided by payers support product claims.

While details of these contracts are not made public, and we know that strikingly few contracts are publicly disclosed, press releases of agreements between US payers and drug manufacturers provide a glimpse into the innovative payment schemes that are being woven into these contracts.


Innovative, outcomes-based contracting is occurring among medical device manufacturers as well. Medtronic’s agreement with Aetna “ties a component of Medtronic’s reimbursement to successfully meeting agreed-upon clinical improvement thresholds for Aetna members with type 1 and type 2 diabetes who choose to transition from multiple daily injections to a Medtronic insulin pump, with the goal of elevating patient experience, improving clinical outcomes and lowering the total cost of care.”13

Another type of innovative contracting is based on indication-based pricing, which reflects the difference in clinical benefit derived by subpopulations within the same indication or by different indications. In these types of contracts, pricing in one type of cancer where a drug is particularly efficacious could be significantly higher than in another type of cancer where it is less beneficial.14 Contracts based on indication-based pricing have yet to be publicly disclosed, in part because the design and implementation of such contracts face multiple administrative, legal, and regulatory challenges. Express Scripts is nevertheless pushing forward with pilot programs in oncology and inflammatory diseases to help advance the use of indication-based pricing.15

Express Scripts has proposed a work-around to Medicaid Best Price rules by receiving a “blended discount [from drug manufacturers] across all claims regardless of … the indication … [with] preferred products and nonpreferred products … administered on an indication-based level.” A prior authorization-like process could be used to monitor indication-level utilization.16

Barriers, Challenges, and Potential Solutions to Innovative Contracting

Federal regulations, such as Medicaid Best Price rules, have the potential to derail efforts to design and implement an innovative contract based on alternative payment models. Under current rules, drug manufacturers are required to provide all state Medicaid programs with the highest rebate available to commercial payers, which for some contracts translates into rebates offered for all nonresponders of drug therapy regardless of a Medicaid beneficiary’s response. Such rules could render innovative, value-based contracts unprofitable or impractical for a drug manufacturer. The federal Anti-kickback Statute (AKS) prohibits the exchange (or the offer of exchange) of anything of value in an effort to induce or reward the referral of federal health care program business, including business with the Medicare and Medicaid programs. Payers and manufacturers appear to be satisfied that the innovative, value-based contracts they are creating do not violate AKS provisions.

Some government-run programs also have the potential to adversely impact innovative contracting design and execution. As of January 1, 2018, the Centers for Medicare & Medicaid Services (CMS) reduced reimbursement rates on 340B qualified drugs from 6% above the average sales price (ASP) to 22.5% less than the ASP. The payment reduction will only apply to hospitals that are designated as disproportionate hospitals or rural referral centers. These cuts could mean those hospitals no longer can afford to pay for certain patient-driven initiatives like transportation services for patients or chronic disease programs.17 All drug pricing to payers, inclusive of pricing based on innovative contracting, factors into the ASP, thereby creating the potential for a provider to get reimbursed at a lower price than expected.

US payers and drug manufacturers are getting involved in helping to encourage regulatory changes that foster the increased adoption of innovative, value-based contracting arrangements. In a joint memorandum published in 2016, Eli Lilly and Company and Anthem proposed the “creation of legislative/regulatory exceptions for Best Price and all other relevant government pricing calculations and requirements as they relate to products sold or transferred under value-based contracts, as well as additional safe harbors to the federal Anti-kickback Statute (AKS) that protect value-based contracts from AKS liability.”18

In keeping with market trends, CMS has proposed new Medicare Part B prescription drug models “to improve outcomes and align incentives to improve quality of care and spend dollars wisely.” A proposed test for risk-sharing agreements based on outcomes would allow CMS to enter into voluntary agreements with drug manufacturers to link patient outcomes with price adjustments. A proposed test for indication-based pricing would link payment for a drug to its clinical effectiveness for different indications. For example, a medication that is used to treat one condition with high levels of success might be used in an unrelated condition with less effectiveness or for a longer duration of time.19

Challenges to innovative contracting reside with providers, payers, and drug manufacturers. A reliance upon providers to proactively manage patients using evidence-based guidelines, routinely monitor key metrics associated with therapy, and update electronic health records (EHRs) in a timely and appropriate manner for each patient is each a factor requiring consideration.

Obstacles that are internal to payer and manufacturer organizations deal primarily with infrastructure shortcomings that make it difficult to appropriately capture, share, and report drug use by indication, patient response to therapy, and/or patient adherence to therapy via EHRs.

Poor or suboptimal patient adherence to a drug can falsely lead payers to conclude that a drug is ineffective, so mechanisms need to be put in place to both promote adherence and reconcile cases of poor adherence with patient outcomes.

While hospitalization claims data and pharmacy claims data are both available to payers, the resources and/or tools needed to integrate and analyze such data in a manner that satisfies the agreed-upon performance benchmarks of an innovative contract may not exist in either contractual partner.

Lastly, and worthy of mention, is the possibility that the time needed to achieve some performance benchmarks could exceed the life of a contract. Health plan members who move to another plan during this time frame add another layer of complexity to the design of these contracts that needs to be considered, especially with regard to achieving agreed-upon performance benchmarks.

Shortcomings, which are internal to payers and drug manufacturers and key to the successful execution of innovative contracts, can be adequately addressed by external partners. While specialty pharmacy has been used for years by manufacturers to track adherence to their oncolytic drugs, a more proactive approach to ensuring adherence may be required.

Value Frameworks

Cancer drug costs are the most rapidly rising component of cancer care, with payers and patients bearing an increasingly high burden for these costs. The American Society of Clinical Oncology (ASCO) is in the process of developing a framework for assessing “the value of a particular cancer treatment regimen based on a patient’s individual preferences and circumstances.” ASCO defines value as “a combination of clinical benefit, side effects, and improvement in patient symptoms or quality of life in the context of cost.” ASCO hopes to transform its value framework into a user-friendly software tool for physicians to use in discussions with patients about treatment options.20

Other organizations that are participating in the national forum on value include the National Comprehensive Cancer Network, which recently introduced its evidence blocks to assess the value of drug treatments, and the Memorial Sloan Kettering Cancer Center, which has published its Drug Abacus.21

Expanding on the breadth of evidence above and beyond clinical trial data currently being used to determine drug value can have a positive impact on market access and positioning. Outcomes-based, innovative contracting that captures “real-world data” has the potential to create competitive advantage. In its agreements with Amgen and Sanofi/Regeneron, Cigna will analyze integrated medical and pharmacy claims data to look for cardiovascular improvements related to treatment with Repatha and Praluent beyond a reduction in cholesterol levels.22

Interestingly, only one of the 14 examples of innovative contracting cited in the above table involves a drug (Iressa) for the treatment of cancer, but public disclosure of the agreement does not elude to improved patient outcomes as a measure of success, as do the other examples cited in this table.


Resources and processes needed to address some of the challenges of innovative contracting—such as monitoring patient progress, capturing patient symptoms, monitoring medication adherence over time, and optimizing outcomes—may not exist within contract partner organizations.

Partnering with external resources may be the key to addressing some of the challenges and barriers to the successful execution of an innovative contract with payers. External partners can help support innovative contracting by

  • Educating on the importance of standardized, evidence-based care across providers and the product’s standing within guideline documents, clinical pathways, and/or value frameworks
  • Educating providers on the importance of appropriately updating EHRs on a timely basis
  • Helping to facilitate the collection and relevant transfer of HIPAA-compliant patient data within EHRs at baseline and throughout the life span of an innovative contract to those responsible for data analysis and reporting
  • Educating on the importance of medication adherence and engaging patients in the management of their disease
  • Participating in the creation and administration of patient support programs designed to improve overall patient health
  • Designing and administering simple interventions to increase medication adherence, solicit and capture patient-reported symptoms, and improve patient outcomes
  • Helping to ensure success by managing the contract as a project, with regularly scheduled meetings that include responsible parties and milestones that capture progress throughout the life span of the contract
  • Helping to promote “real-world data” provided by payers, which further support product claims

A recent study by Basch et al compared the clinical benefits of using tablet computers to solicit and collect patient-reported symptoms with the discretionary reporting of symptoms by treating physicians, which occurs with the usual care of patients receiving chemotherapy for advanced solid tumors. Median overall survival increased by 5 months among patients who self-reported symptoms, which was accompanied by an improvement or less of a worsening of health-related quality of life. In this study, emails were sent on a weekly basis to patients with tablet computers that prompted them to report symptoms. Treating physicians received symptom printouts prior to office visits, and nurses received email alerts when patients self-reported severe or worsening symptoms.23,24 This study exemplifies the importance of engaging patients in the management of their disease and how simple interventions, which can be easily designed and administered by external partners, can significantly impact patient outcomes.

A Call to Action

A quote, which has been used in the past by Billy Tauzen and others, sums up the importance of innovative contracting to market access and brand success: “If you don’t have a seat at the table, you’re probably on the menu.” The take-home message for market access teams is to get involved before competitors secure formulary positioning ahead of you and before value frameworks are cast in stone that give preference to competitive products or the current standard of care.

Market access teams at drug manufacturers who are not currently using some type of innovative contracting with US payers need to quickly increase their knowledge of

  • Market forces with the potential to impact product value, including value frameworks
  • How competitors are using innovative contracting to secure market access and create competitive advantage
  • The performance benchmarks upon which innovative contracts can be based and the critical elements of successful outcomes-based contracts
  • The challenges and barriers to both creating and executing an innovative contracting solution that becomes a win-win for both payers and manufacturers
  • How internal and external partners can help market access teams create success stories that increase revenues and strengthen market positions

Consider the following steps in your approach to designing and implementing innovative contracting within your organization:

  • Prepare your organization to understand and potentially consider the role of innovative contracting in brand success.
  • Define the patient population(s) and the corresponding product(s) for which your organization might want to assume risk.
  • Define the performance benchmarks (eg, hospital readmissions, emergency department visits, cure rates, A1c levels) by which your product should be evaluated during the life span of the contract and the milestones to be achieved along the way.
  • Determine and compare the value proposition to be offered payers with traditional discount-and-rebate models and assess the potential impact a change in pricing models will have on revenues.
  • Determine internal and external contributions required for the success of innovative contracting, such as:
    • The bandwidth and readiness of internal partners to participate in reconciling the financial impact on revenue streams, complying with federal regulations, assisting in data collection and statistical analysis, etc
    • The bandwidth and willingness of payers to track and measure performance benchmarks
    • Payer and provider adjustments to infrastructure to more appropriately capture, share, and report drug use by indication, patient response to therapy, and patient adherence to medication via EHRs, as well as any other measures relating to the proposed performance benchmarks
  • Seek and engage external partners to address the challenges and barriers to executing innovative contracting that cannot be addressed internally.

Lastly, and most importantly, keep it simple at first. Learn from what works, adopt best practices, and keep adjusting to an evolving, and hopefully complementary, regulatory landscape that fosters growth in the use of innovative contracting between US payers and drug manufacturers.


1. Thomas T. Why employers need to continuously monitor their PBM.
-pbm-tim-thomas/. Published April 13, 2017. Accessed January 16, 2018.
2. Loftus P, Mathews AW. Health insurers push to tie drug prices to outcomes. Wall Street Journal. May 11, 2016.
3. Harvard Pilgrim signs second groundbreaking contract with Amgen for Repatha. Harvard Pilgrim Health Care Web site. Accessed September 13, 2017.
4. Harvard Pilgrim signs outcomes-based contract with Amgen for Enbrel. Harvard Pilgrim Health Care Web site. Accessed September 13, 2017.
5. Harvard Pilgrim signs outcomes-based contracts with AstraZeneca for Brilinta and Bydureon. Harvard Pilgrim Health Care Web site. Accessed September 13, 2017.
6. Abarca Health announces innovative value-based contract with Biogen for Multiple Sclerosis Therapies. PR Newswire Web site.
-300495968.html. Accessed September 13, 2017.
7. Harvard Pilgrim signs value-based contract with Eli Lilly for Trulicity. Harvard Pilgrim Health Care Web site.
-detail?nt=HPH_News_C&nid=1471911699289. Accessed September 13, 2017.
8. Harvard Pilgrim signs value-based contract with Eli Lilly & Company for its osteoporosis drug, Forteo. Harvard Pilgrim Health Care Web site. Accessed September 13, 2017.
9. Cigna signs agreement with Gilead to improve affordability of hepatitis C treatment for customers and clients. Cigna Web site.
-customers-and-clients. Accessed September 13, 2017.
10. Aetna and Merck sign a unique value-based contract for Januvia and Janumet. Aetna Web site. Accessed September 13, 2017.
11. Cigna implements value-based contract with Novartis for heart drug Entresto. Cigna Web site.
-releases/2016/cigna-implements-value-based-contract-with-novartis-for-heart-drug-entrestotm#. Accessed September 13, 2017.
12. Pay-for-performance deal with Novartis. Harvard Pilgrim Health Care Web site. Accessed September 13, 2017.
13. Medtronic announces outcomes-based agreement with Aetna for type 1 and type 2 diabetes patients. Medtronic Web site. Accessed September 13, 2017.
14. Indication-specific pricing of pharmaceuticals in the United States health care system. Institute for Clinical and Economic Review Web site. Accessed September 13, 2017.
15. 3 solutions healthcare payers need now. Express Scripts Web site.
-payers-need-now. Accessed September 13, 2017.
16. Express Scripts leads indication-specific pricing with launch of OCV program. AIS Health Web site. Accessed September 13, 2017.
17. Sederstrom J. The winners and losers of 340B changes. Drug Topics Web site.
-losers-340b-changes?page=0,0&GUID=&rememberme=1&ts=18012018. Published January 11, 2018. Accessed January 19, 2018.
18. Promoting value-based contracting arrangements. Lilly Web site. Accessed September 13, 2017.
19. CMS proposes to test new Medicare Part B prescription drug models to improve quality of care and deliver better value for Medicare beneficiaries. Centers for Medicare & Medicaid Services Web site.
-items/2016-03-08.html. Accessed September 13, 2017.
20. ASCO value framework update. American Society of Clinical Oncology Web site.
-value-framework-update. Accessed September 15, 2017.
21. Schnipper LE, Davidson NE, Wollins DS, et al. Updating the American Society of Clinical Oncology value framework: revisions and reflections in response to comments received. J Clin Oncol. 2016;34(24):2925-2934.
22. Cigna’s two new value-based contracts with pharma for PCSK9 inhibitor cholesterol drugs tie financial terms to improved customer health. Cigna Web site.
-financial-terms-to-improved-customer-health. Accessed September 13, 2017.
23. Basch E, Deal AM, Kris MG, et al. Symptom monitoring with patient-reported outcomes during routine cancer treatment: a randomized controlled trial. J Clin Oncol. 2016;34(6):557-565.
24. Basch E, Deal AM, Dueck AC, et al. Overall survival results of a trial assessing patient-reported outcomes for symptom monitoring during routine cancer treatment. JAMA. 2017;318(2):197-198.