A Look at Value-Based Drug Contracting Strategies

03.30.17

Dr. Surya Singh, Vice President and CMO for Specialty at CVS Health, recently participated in a panel at the annual meeting of the National Business Group on Health about value-based drug contracting strategies and their potential to help control health care costs. Here, he discusses how we’re thinking about this topic at CVS Health.

Why pay for something that doesn’t work? Or pay the same amount across all patients for something that works well only in some specific subpopulations? In our current health care system, this happens a lot when it comes to paying for prescription medications.

As the cost of drugs continues to rise, health care stakeholders are looking at new, value-based drug purchasing models, or contracting strategies that align a drug’s price to the evidence behind it, in terms of efficacy and/or patient outcomes. Setting prices based on the value of a good or service is not a new economic concept and one that is widely used across consumer goods industries. In health care, payors and manufacturers are now starting to use these strategies with the goal of creating additional value for the overall health care system.

At CVS Health, we are exploring new ways to share risk with pharmaceutical manufacturers to ensure that our clients are getting the most possible value from their drug spend by more closely linking the net cost of drugs to the outcomes that those drugs deliver.

We are actively working on three value-based models, including:

  • Indication-based Formulary: By negotiating formulary positions based on the specific indications rather than at the level of broad therapeutic categories, we aim to help create greater competition, lower costs and improve value for payors. For example, many autoimmune drugs have several different indications and the clinical utility may vary by indication, so our goal is to create a differentiated rebate structure per drug based on indication or patient diagnosis.

  • Indication-based Pricing: In this model, payors and manufacturers agree on different prices for a drug’s different indications based on efficacy and outcomes. For example, clients pay more for the use of a given drug in diseases where the drug is shown to be more effective and less in diseases where the established benefit is not as clear.

  • Outcomes-based Contracting: In this strategy, reimbursement is linked to a set of value-based attributes that can be measured and tracked to evaluate performance of a drug over time, and manufacturers then pay retrospective rebates based on the measurement of clinical outcomes.

As payors continue to explore new ways to address the rising cost of prescription drugs, value-based purchasing models show promise in ensuring that a drug’s price is based on its value and not simply what the market will bear.

For more information on how CVS Health is working to ensure consumers have access to affordable medicines, check out our Rising Drug Prices information center. And to stay informed about the most talked-about topics in health care, register for content alerts and our bi-weekly health care newsletter.