Nicholas Simmons-Stern

	The United States healthcare landscape is evolving rapidly. As healthcare budgets and health insurance prices continue to rise, innovation in contracting and reimbursement is more important than ever.  Pharmaceutical and biopharmaceutical manufacturers must start thinking about new ways to navigate this evolving marketplace while continuing to deliver life-changing therapies to patients and responding to the demands of an increasingly informed and sophisticated customer base.

	Financial pressures are expanding the footprint of integrated delivery networks (IDNs) and accountable care organizations (ACOs).  By reforming how risk and incentives are aligned, these entities seek to optimize care and lower health system costs while delivering improved patient outcomes. IDNs and ACOs are driving a shift from the traditional customer structure toward a new landscape that will require innovative thinking to achieve mutual value and success. With this new approach also come new opportunities for manufacturers to address these challenges.

	As facilities migrate toward more blended payer/provider organizations, they will look past traditional provider-based contracts for physician-administered products or payer-based contracts for access and coverage for pharmacy-based products.

	The growth of IDNs and development of ACOs are causing organizations to require that manufacturers prove how product use can directly support and deliver cross-stakeholder value for patients, providers, and payers alike. The traditional approach to demonstrating “value” in this setting leveraged health economic outcomes studies and value dossiers to justify drug pricing and coverage; however, the “trust me” aspect had minimal or no look-back validation once coverage was established and parties agreed on pricing. 

	Recent developments in electronic medical record (EMR) systems, financial accounting and reporting systems, and big data analysis capabilities provide more opportunity than ever to leverage real-world outcomes when evaluating and validating health economic claims in near real-time. These data and analysis innovations are on the verge of supporting a risk sharing-based approach to pharmaceutical product and medical device contracting. Consequently, manufacturer contracts could soon be based on a “show me” model rather than the traditional “trust me” approach. As such, manufacturers will need to demonstrate more transparency when determining contracting and pricing premiums and account for pharmaceutical and medical costs when evaluating risk against total cost of care. 

	Many opportunities to develop value-based and risk-sharing contracts with these middle-ground organizations are emerging; however, for all the promise they hold, many questions remain, such as: What outcomes and measures will be allowed in such contracts; over what time period should the contract be; and using which data and provided by whom?  Who will perform the analysis?  How much of a drug’s price can or should be put at risk?  What financial mechanisms or escrow process will be used for the at-risk costs?   

	Similar to innovations in the emerging value space, the expanding collection of data on product use and access to that data through contract data agreements (either directly with managed-care organizations or through syndicated third-party sources) are driving opportunities in payer and provider contracts. The primary difference here is that these innovations give manufacturers visibility into how their efforts are affecting behavior change in the system and, in turn, provide insight into how best to apportion dollars.

Payer contracting: Payer scorecards through indexing and control impact

	For payer “access” contracts, data are the key element to innovative analysis and contract optimization.  Once data become available after one to three years of analog product references, analytical tools can provide significant opportunities to optimize an organization’s product or portfolio contracting efforts and help them address several key questions:

	·       With which payers and pharmacy benefit managers (PBMs) should I contract? Which are effective at actually controlling or driving product use through formulary positioning and controls? Which are not?

	·       Assuming I should contract with particular payers, what positioning do I need to achieve for my contract?  

	·       Finally, once I know what’s worth putting contract money toward, how much contract value should I be willing to leverage? What is the utilization upside (downside) of having a preferred position (avoiding being disadvantaged) within a basket of products? 

	Contracting and marketing teams are better prepared to address the above questions by leveraging advanced analytics-payer control indexing, control impact analysis, payer scorecards and dashboards-to help shape new contracts and renewals, optimizing the value of each contract dollar. By creating these data-based tools, manufacturer leadership will have real-time data at their fingertips to understand how contracts can drive strategic priorities. 

Provider contracting: 360-degree contract modeling

	Provider contracting in a buy-and-bill environment for physician-administered products is certainly not a one-size-fits-all situation. The questions (and answers) oftentimes depend significantly on the type of product, provider or facility, and even on a provider’s patient demographics. The following four essential elements should be considered when developing a provider-based contract:

Product profile and coverage/reimbursement implications

 Gross to net (GTN) implications and administrative/operational factors associated with contracts

 Some customers may win but others may lose-who and how much? Are there additional external partnerships to leverage (group purchasing organizations [GPOs] etc.)?

 Implications of commercial discounts, best price, and consumer price index–all urban consumers (CPI-U) on mandated Big4 and public health service (PHS) discounts and average sales price (ASP)-based reimbursement

	Effective analysis of any provider contract must always consider each of these elements in an integrated fashion. Doing so will help manufacturers determine the reasons behind contracting in the first place and help answer the question: What barriers, challenges, or communications issues will a contract help overcome? 

	Once a manufacturer establishes sound contract strategy rationale, a variety of cutting-edge models and analytical tools can help finalize the organization’s contracting decisions, provide greater fidelity to key decisions, and generate greater understanding of implications and sensitivities. Integrated tools include: GTN modeling, account-level net cost recovery analysis, pro-forma government pricing impact analysis, performance component thresholds, and discount/rebate sensitivity testing. With these tools, manufacturers can create a consolidated 360-degree assessment and confidently align contract offerings with strategic objectives.

	Data advancements coupled with greater sophistication on the part of providers, payers, and manufacturers have driven innovation in contracting evaluation and design. Manufacturers need to evolve with the market and explore how to optimize the wealth of data available to inform future contracting strategy. 

 is an engagement manager at Trinity Partners, 

Articles

Pharmaceutical and biopharmaceutical manufacturers must start thinking about new ways to navigate the evolving healthcare marketplace while continuing to deliver life-changing therapies to patients and responding to the demands of an increasingly informed and sophisticated customer base.