Key Considerations for Entering Into Risk Sharing

Imagine purchasing a new car or appliance only to learn that it doesn’t work as advertised and there’s nothing you can do about it. In most realms of commerce, if a product fails to deliver what’s been promised, consumers are financially covered through refunds and warranties.

The healthcare industry is unique in that until recently, costs have not been linked to outcomes and consumers and other stakeholders have not been protected from ineffective medical care or products. However, as patients continue to assume more responsibility for their health payments, they will become more engaged, with higher expectations of the products and services they pay for. At the same time, payers are growing more frustrated with the degree of uncertainty surrounding real-world outcome-based evidence, especially as more targeted therapies become available for specified patient populations.

In short, insurers are no longer willing to pay for products that lack a convincing value story without some form of “guarantee”. This is forcing providers and manufacturers to re-think their commercial models and market access strategies.

If you recall, in a previous column, I discussed the importance of using data to link a product’s value to its price, and called on manufacturers to explore alternatives to conventional pricing and reimbursement practices (e.g. rebates). Risk-sharing…value-based pricing…performance-based agreements…these three terms can be used interchangeably in many respects to describe agreements between payers and other key stakeholders that link payment to performance. Such strategies have been implemented, albeit sparingly, since the 1990’s, and while they may not be universally applicable, they are gaining momentum in certain markets and may play a useful role in enhancing economic efficiency.

Tightening budgets have prompted national health authorities in European markets to increasingly “hedge” their reimbursement decisions with risk sharing agreements (RSAs), pricing controls, or negotiated price cuts to control costs. In the United States, private and public payers have recently begun to transition to value-based contracts with hospitals to help reduce wasteful spending. Most notably, CMS’ Hospital Value-Based Purchasing program which was enacted into law in 2010 has created an incentive system that rewards “exceptional” performance based on defined metrics and penalizes hospitals’ ineffective care. As risk sharing efforts continue to gain traction, manufacturers should be asking themselves “what does our organization stand to gain – or to lose - through these contractual arrangements with payers?”This month, I’ll discuss strategies to develop effective RSAs with insurer networks, the key considerations for manufacturers both prior to and throughout implementation, and the opportunities and risks associated with this particular marketing approach.

Risk sharing based on product performance can serve as an effective approach in certain circumstances, but it’s not a model that applies to all situations, and it certainly does not guarantee success. While approximately 179 performance-based schemes have been publically identified to date, according to the University of Washington PBRS Database, their success has been inconsistent, largely attributed to poor conceptualization and design. This further underscores that careful thought is required on both sides when considering this type of arrangement. Clearly, from a payer’s perspective, RSAs help protect against paying for innovations that do not return value to patients. However, the short-term and long-term advantages of entering into RSAs for manufacturers may not be as clear, and will likely vary, depending on the situation.

Manufacturers who are confident in their product and the value it creates may proactively seek out RSA opportunities to achieve a premium price or to create a market barrier for existing and future competitors.  Unfortunately, structuring RSAs with payers is not an exact science, but there are some key questions that manufacturers must be prepared to answer before electing to pursue these types of arrangements.

  • Do we have confidence in our claims of product effectiveness or efficiency, and is the rewardsignificant enough to justify an RSA? Manufacturers who have clinical and economic data are at least able to negotiate from a known position of relative strength. However, regardless of how strong the data appears, there are still the inherent risks posed byfactors outside of their control that can compromise outcomes (e.g. inefficient healthcare delivery, poor patient compliance). As such, manufacturers in this position should always ensure that the ends justify the means.
  • Are the proposed outcomes to be assessed the right ones? In order to link pricing and reimbursement to performance and ultimately improved health outcomes, there must be an adequate basis for measurement. The brief history of RSAs has shown that schemes that rely on the tracking of long-term, complex outcomes will likely prove to be costly and ineffective (e.g. multiple sclerosis scheme among manufacturers and the U.K. NHS in 2002). It is critical that manufacturers understand that the measures being agreed upon should not only directly relate to the disease being treated, but that they must also be objective, clearly defined, reproducible, and difficult to manipulate (e.g. fractures for Actonel and blood glucose for Januvia). Moreover, payers will look more favorably upon RSAs that do not add extra costs for tracking outcomes but rather rely on regular monitoring procedures that are typically performed for the patients involved.
  • Are we able and willing to invest the resources required to pursue such an arrangement?Implementing an RSA requires time-consuming negotiations and costly administration and relies on capturing real world evidence in an organized and efficient manner. Manufacturers must ensure they have high-quality information system capabilities in place, accompanied by strong operational and analytic expertise.

Unfortunately for manufacturers, the decision to explore contractual RSAs with payers may not always be theirs to make. For instance, manufacturers may be forced into these arrangements to secure reimbursement for products characterized by weak value propositions or ambiguous outcomes data, especially if the alternative is reference pricing or non-coverage. In fact, most outcome-based schemes, at least in markets outside the U.S., have originated in response to negative recommendations for market access based on lack of cost-effectiveness (e.g. J&J’s Velcade in the U.K.). 

Irrespective of whether manufacturers are entering into performance-based agreements willingly or at the demand of payers, there remains the need for data demonstrating a product’s value. Manufacturers will be better prepared to negotiate RSAs if they have a clear understanding of their product’s ability to deliver value based on data from RCTs and real-world evidence, if available. Of course, implementation is equally important. To this end, organizations must build the framework and capability set to structure, collect, analyze, and report RWE from multiple sources. Ultimately, it may still be too early to tell how pervasive RSAs will become, but one thing is certain – the forces that motivated interest in linking payment to performance are very real and will continue to hinder organizations that fail to develop the data capabilities needed to demonstrate value throughout a product’s life cycle.

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Real World Data Europe

Apr 28, 2014 - Apr 29, 2014, London, England

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