A Money-Back Guarantee for Prescription Drugs
By Sandip Shah and Joe Black
President Trump will soon issue an executive order to lower drug prices. The order likely will encourage federal health agencies to make greater use of "outcomes-based" contracts.
That's great news for patients. These contracts link a drug's price to its effectiveness. If a drug cures or treats patients as advertised, insurers pay the full price. If the drug is less successful than hoped, insurers pay a reduced price or nothing at all.
Freed from the fear of paying for expensive yet ineffective treatments, insurers will be more willing to give patients quick access to advanced drugs while getting assurance that the drugs work. This will improve Americans' health and drive down long-term healthcare spending.
Value-based contracts have become more popular in recent years. A quarter of health plans now have at least one value-based contract -- and 30 percent more are currently negotiating one.
In the past, insurers hesitated to spend money on advanced drugs. To minimize costs, many insurers required patients to try older, cheaper drugs first. Only if those drugs failed would insurers cover the cost of more advanced medications.
Such "step therapy" delays proper treatment for patients.
Value-based contracts negate the need for step therapy. If it turns out drugs aren't as effective as the pharmaceutical companies claim, insurers simply pay the drug companies less. And if the drugs works, patients get better faster, saving healthcare dollars in the long-run.
Value-based contracts also can nudge insurers to cover treatments that they once flat-out denied.
Consider the high-cholesterol drug Repatha. The drug cuts the risk of heart attack by 15 to 20 percent, but it costs a hefty sum. Many insurers didn't want to let patients switch from older, cheaper statins to the more effective Repatha. Unfortunately, this refusal to cover the drug led to 100,000 preventable heart attacks and strokes in 2016.
The drug's manufacturer, Amgen, recently agreed to pay insurers a full refund if eligible patients have a heart attack or stroke while taking Repatha. Health insurer Harvard Pilgrim, which covers 2.7 million people, took the deal. The agreement will no doubt save lives and keep people healthier, lowering long-term spending.
Value-based contracts also help make medicines more effective.
Drugs undergo extensive clinical trials before they're put on the market. But clinical trials are an imperfect tool to measure a drug's effectiveness.
In the real world, patients might pop a pill during dinner -- even though it's supposed to be taken on an empty stomach. Or they might miss a dose.
These differences mean that the drug may perform differently in a real-world setting as compared to a clinical-trial setting. For example, the cancer drug sorafenib prolonged patients' lives by an average of three months during clinical trials. In the real world, though, the drug did not boost life expectancy.
Pharmaceutical companies already track real world data on drug effectiveness. But value-based contracts can guide them to improve physician prescribing directions and patient dosage information, in order to maximize medicines' effectiveness and get the best value for the money spent on the medicine.
Healthcare innovation doesn't always come in the form of a pill. Sometimes, it can be as simple as a new contracting model that expands patients' access to cutting-edge medicines. Pharmaceutical companies are willing to bet on the effectiveness of their drugs. Will insurance companies rise to this challenge?
Sandip Shah is the founder and president of Market Access Solutions, a global market access consultancy, where he develops strategies to optimize patient access to life-changing therapies. Joe Black is a director at Market Access Solutions.
