Session 8 Lecture Value Based Contracting in Pharmacy: An ... · PDF fileSession 8 L, Value...

Session 8 L, Value Based Contracting in Pharmacy: An Actuarial Perspective

Moderator:

Gabriela Dieguez, FSA, MAAA

Presenters: Anna L. Bunger, ASA, MAAA

Naomi Reitz Gregory L. Warren FSA, FCA, MAAA

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Value-Based Contracting in Pharmacy: An Actuarial PerspectiveJune 12, 2017

SOA Health MeetingHollywood, FL

Gabi Dieguez, FSA, MAAA

Principal & Consulting Actuary

Agenda

I. Introduction

II. Pharma perspective on value-based contracting

III. An actuarial framework for establishing value-based contracts

IV. Example of contracts implemented in the US

V. Discussion

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Not a New Concept for Health Economists. What Can Actuaries Bring to the Table?

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Defining “Value”: Possible Outcomes

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Clinical

Proportion of patients meeting a threshold

Average outcome for selected population

Financial

Adherence (medication possession ratio (MPR))

Non-Adherence (free or discounted scripts for those who drop out of treatment)

Per Member Per Month (PMPM), fully capitated

Practical Obstacles to Value-Based Contracting

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Payers/Manufacturers Alignment on Outcomes, Patients Measures, Data Collection

Challenges in Identifying Meaningful Clinical Outcomes

Sample Size / Credibility

“Real World” Clinical Data from Payer/3rd Party

Access to / Processing of Claims Data

HIPAA and Pharma Regulatory Issues (Medicaid Best Price)

Building a Framework for Value Based Contracting in Pharmacy

Anna Bunger, ASA, MAAAMilliman

CAVEATS AND LIMITATIONSThe views expressed in this presentation and during today’s session are those of the presenter and not of their employer or of the Society of Actuaries. Nothing in this presentation is intended to represent a direct recommendation or be an interpretation of actuarial standards of practice.

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Agenda

1 Understanding the Stakeholders of Value Based Contracting

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3

Defining Value

Navigating Challenges

4 Applying a Framework for Effective Contracting

Value Based Contracts are a new way of thinkingin pharmacy

Reimbursement tied to value not volume

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The challenge

Value based contracts are not “One Size Fits All” due to the many stakeholders

Stakeholders vary in pharmacy contracts Moving VBC forward

Different definitions of value

Different challenges Different capabilities Varying levels of data

availability and integrity

All stakeholders (payers, manufacturers, regulatory bodies) can maximize value by using a framework to understand each other’s interests and capabilities

There are three components to successful value based contracting in pharmacy

Understanding the Stakeholders

Determining the Potential Value


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Understanding the Stakeholders

Commercial Population

Medicare Population

Medicaid Population

Manufacturer EmployerProvider Groups /

IDNs

PBM Member / Patient

Building a value based contract may be of interest to many entities

Health Plans

Other Entities

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“Value” can be defined in many different ways and may vary across stakeholders

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Stakeholders

Quantitative

• Economic Value• Medication Cost• Total cost of care (may include cost

avoidance)• Enhanced reimbursement (quality

adjusted FFS premium)• ICER (qualitative life years)

Qualitative

• Clinical outcomes not monetarily linked• Patient experience• Societal impact

Determining the Potential Value

What’s in it for me?

Manufacturer Payer(e.g., health plan,

employer, IDN)

PBM

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Different from competitors Create barriers for competitors Accelerate or retain market

acceptance Leverage stronger products to

promote weaker products (portfolio)

Obtain better formulary placement

Collect more actionable data Build a better partnership with

customers

Reduced uncertainty around products─ Cost of product or class of

products (through caps)─ Product performance

Align product cost with clinical value

Generate evidence on products that work

Potentially improve outcomes for patients / members / employees

Lower medical costs through increased adherence

Motivated to steer utilization to profitable channels

Mail order or specialty pharmacy

Increase utilization (additional revenue through rebates)

Positively market to payers Receive additional rebates for

drugs in risk-based contracts Encourage manufacturer

competition (e.g., through indication-based pricing)

Contract Considerations – Creating Value

Cost of Care Total Cost of Care (Health Plan) vs. Rx Only (PDP) vs. None (PBM)

Profit Drivers MembershipRebatesQuality Ratings

Quality Metrics Star ratingsCMS Quality Scores

Commitment to Value Payer / PBM has made a public commitment to pursue value based arrangements

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Navigating the Challenges in Value Based Contracting

Contract Considerations – Challenges / BarriersLevers of control Formulary Control

Utilization Management (ST/PA/QL)Prescribing power

Data Access to data (Medical / Rx / Clinical)Timeliness of data availabilityDefining targets / benchmarksAdministering the contract

Time horizon Outcomes may not be measurable within acceptable contract horizonCost of first year implementation / administration may exceed potential savings

Legal Hurdles Price Reporting (impact to ASP / Best Price)Data Privacy (HIPAA)Contracting within labelAnti-Kickback StatutesLack of FDA Safe Harbors

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Applying a Value Based Contracting Framework

Using a framework to build effective contractsWhile contracting is not “one size fits all”, a consistent approach can be helpful.

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Understand the payer’s environment

Current challenges / opportunities

Emerging challenges / opportunities

Typical contracting style

Evaluate the payer’s contracting capabilities

Consider the product characteristics

Determine the appropriate value based contracting approach

Definition of value Challenges present

Ability to collect measurable data

Indicated population Label considerations Other legal

considerations

Outcomes based vs. Financial based

Timing, data, legal considerations

Contracting with Medicare Plans

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Star ratings MACRA considerations Coverage gap closing Less competition Highly restrictive

formularies

Emerging Landscape

Current Landscape

Important market due to growing number of beneficiaries and high

utilization(MAPD / PDP)

Strategy varies on medication’s coverage under Part B vs Part D

MAPD Revenue driven by star quality ratings


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Value Opportunities Presence of ChallengesCost of Care MAPD – Total Cost of Care

PDP – Pharmacy Only

EGWPs – Total Cost of Care

Levers of Control Strong control of formulary and utilization management strategies

Profit Drivers MembershipRebatesControlling Waste

Data MAPDs: strong access to medical and pharmacy claimsPDPs: may only have pharmacy claims

Consider turnover (low for EGWP/vary for MAPDs)

Quality Metrics Subject to CMS star ratings Reimbursement Risk

Not concerned with ASP / Best Price

Commitment to Value

Low level of priority, but present

Time Horizon Plans will typically have a short-term outlook (one year or less)

EGWPs may have a longer time horizon

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Opportunity Value CreatedContract

ConsiderationsPotential

ChallengeRebate paid for increased adherence to a diabetic product

Improves total cost of care (pharmacy / medical cost tradeoff)

May be Star Rating implications for the plan (for improved adherence to diabetic medications)

Payer offers improved formulary position

Definition of adherence, threshold for improvement, measurement period

Population targeted (Anyone taking the product? What if they discontinue?)

Access to accurate adherence data metrics

Patient adherence is impacted by many things out of the payer and manufacturer’s control

Population churn may make contract unappealing


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Emerging Customer Landscape

Current Customer Landscape

Competing stakeholder priorities (Fully-insured / Self-insured business, Individual,

Small and Large Group business (employer clients))

Adjusting to ACA related changes

Risk adjustment on exchange population

(health plans)

PBM profit shift from generics rebates ancillary programs, taking risk for medical

costs

Pressure from employer customers to

control costs

Competitive pressures to embrace VBC,

engage in innovative strategies

Specialty pharmacy channel management

Health Plan Both PBM

May have internal or external PBM

Profits driven from script volume / rebates or distribution channel (specialty pharmacies,

narrow networks)

Competitive pressure for

innovation and value

Contracting with Commercial Health Plans & PBMs

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Value Opportunities Presence of ChallengesCost of Care Health Plans: Total cost of

carePBMs: No cost of care

Levers of Control Typically strong control of formulary and utilization management strategies – may vary within

Profit Drivers Health Plans: Increase in membership & rebates, control of claims costsPBMs: Increase in scripts, control of distribution channel

Data Typically strong access, PBMs may not have access to medical data

PBMs may have higher population turnover

Quality Metrics Subject to HIX ratings and other quality scores (Health plans)

Reimbursement Risk

Typically none with a few exceptions

Commitment to Value

High priority for both health plans and PBMs

Time Horizon Plans may have a longer time horizon (1 – 3 years), particularly employers

Contracting with Commercial Health Plans & PBMs

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Opportunity Value CreatedContract

ConsiderationsPotential Challenge

Rebate paid if hospitalizations due to heart failure does not decrease

Health Plan: reduce spend from avoidance of hospitalizations. Payer is protected from lack of product efficacy.

Manufacturer: preferable formulary placement

Consider a tiered structure where rebate varies by change in hospitalization rate

Product must have been proven to reduce hospitalizations (i.e., the metric contracted must be “on label”)

Will need access to medical and pharmacy data (for hospitalizations and prescriptions)

Manufacturer must ensure the target population is taking medication as prescribed.

Population must be relatively stable between comparison periods

Contracting with Commercial Health Plans

Defining Value

Support the process with an effecting contracting strategy by:

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1

2

3

Evaluating Capabilities


Value Based Contracting has the potential to transform the pharmaceutical industry.

Thank you!

Anna Bunger, ASA, [email protected] 499 5606

Value Based Contracting-A Manufacturer Perspective

Society of Actuaries Health MeetingSession 8 June 12, 2017Hollywood, Florida

Naomi ReitzSenior Director, Managed Markets [email protected]

mailto:[email protected]

Key Drivers for Sharing Risk with a 3rd Party Payer

1. Desire to have favorable patient access conditions for a medicine

2. Willingness to provide customers with financial and/ or performance guarantees where valid areas of uncertainty exist, such as:– Efficacy– Dosing variability– Appropriate use– Compliance– Cost-effectiveness

Potential Uncertainties With New Medicines

Efficacy• Real world efficacy• Potential for relapse

and retreatment

Dosing variability• Induction dose• Weight based dosing• Indication driven

Appropriate Use• Correct patient

population

Compliance• Increased adherence?• Does better adherence

equal better patient outcomes?

Cost-effectiveness• Costs vs benefits in the

real world setting• Cost offsets

Addressable Uncertainties

Higher failure/ relapse or retreatment rates

Pay for failure and/or

Pay for retreatment

Significant variation in daily dosing or

duration of therapyStop-loss/ Cap at a per patient level

Patient population is not well defined Stop-loss/ Cap at population level

Increased compliance leading to better patient outcomes

Guarantee better outcomes or rebate is increased

Agreements between payers and manufacturers can be grouped into traditional and risk-sharing agreements

SIMPLE IMPLEMENTATION FEASBILITY DIFFICULT

Financial-based agreements

Financial cost/volume

cap - pop levelClinical Outcome/

Behavioural

Biomarker/ Surrogate/

Clinical endpoint

Performance-based / Coverage

with evidenceDiscount Price-

volume

TRADITIONAL CONTRACTING RISK SHIFTING / CONDITIONAL MARKET ACCESS

Rebate

Portfolio agrement

Risk sharing(PBRSA)

Financial cost/volume cap – patient

level

RISK SHARING / NEW APPROACHES

Risk sharing: • Adjustment of price -

up and down - based on product performance

• Sharing of risk based on sub-group (e.g. indication, risk factors, treatment history, cost-effectiveness)

Additional Services / Uptake

contracting*

Appropriate use

Compliance services / ad-herence based

Disease management

Patient assistant programs

Satisfaction (US and Canada)

THANK YOU

Naomi ReitzSenior Director, Managed Markets [email protected]


Emerging Examples of Value Based Contracting in Pharmacy

Society of Actuaries Health MeetingSession 8 June 12, 2017Hollywood, Florida

Gregory Warren, FSA, MAAA, FCAVice President, Actuarial ConsultingRx Advisory Practice [email protected]

http://www.wkrb13.com/markets/495872/vertex-pharmaceuticals-sees-significant-decrease-in-short-interest-vrtx/

http://www.wkrb13.com/markets/495872/vertex-pharmaceuticals-sees-significant-decrease-in-short-interest-vrtx/


2Propriety and Confidential. Do not distribute.

Agenda

Example #2: Value Proposition Targeting

Example #3: Value Based Contract Administration

Goals and Barriers

Example #1: Negotiation Support and Model Creation

Example #4: Value Based Contract Experimentation

Propriety and Confidential. Do not distribute.

Typical Goals for Value Based Contracting in Pharmacy

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1 Clinically Appropriate — needs to provide access to necessary health care for covered members with best possible patient outcomes

2 Beneficial — should be beneficial for all stakeholders, providing patient access while enhancing patient outcomes at optimal patient cost share levels, with sufficient reimbursement for providers and manufacturers, while minimizing total cost of care for payers

3 Meaningful — the order of magnitude of beneficial results should be meaningful enough tor each stakeholder to warrant the effort and cost of implementing and administering the value based contract

4 Easy — the design of outcomes (financial and/or clinical) and measurement methodology should emphasize simplicity as much as possible to maximize implementation and administration (reconciliation) efficiency

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1. Significant additional effort required to establish / execute RSAs (e.g. compared to traditional rebates / discounts)

2. Challenges in identifying / defining meaningful outcomes3. Challenges in measuring relevant real-world outcomes4. Data infrastructure inadequate for measuring / monitoring relevant outcomes5. Difficulty in reaching contractual agreement (e.g. on the selection of outcomes,

patients, data collection methods)6. Implications for federal best price (Medicaid)7. Payer concerns about adverse patient selection8. Fragmented multi-payer insurance market with significant switching among plans9. Challenges in assessing risk upfront due to uncertainties in real-world performance10. Lack of control over product use11. Significant resource and / or costs associated with ongoing adjudication

Potential Barriers to Risk Share Agreements in the United States

There are relatively few risk share agreements between life sciences manufacturers and payers in the US for a variety of complex reasons

Source: “Private Sector RSAs in the United States”, September 2015 issue of American Journal of Managed Care, Vols. 21, No. 9

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Components of a “GOOD” value-based contract

1 Creates value for all stakeholders

2 Balances short-and long-term opportunities and risks — ideally want more than a one-year deal

3 Employs a patient/physician engagement program to drive outcomes and compliance

4 Leverages a predefined adjudication criterion that is simple to execute

5 Leverages claims and select clinical data to ensure understanding of outcomes and patient segments

6 Leverages a “pilot” to test uncertainties if there are significant unknowns

7 Results reported quarterly, but reconciles annually

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Beneficial

Meaningful

ClinicallyAppropriate

Easy

Easy

ClinicallyAppropriate

Beneficial


Agenda



Goals and Barriers



Proprietary and Confidential. Do not distribute.

Example #1: Negotiation Support and Model Creation - Overview

• Reached agreement in principle for the Value Based Contract within about two months by:• Aligning the points of view for both the

manufacturer and the health plan• Gaining alignment on the spirit and

intent of the value based arrangement• Identifying key value drivers that

correlated to the therapy• Developing various population

adjustment methods and provided the pros and cons of each method

• Created a flexible value based model that quantifies and communicates the therapy’s financial value for future value based deals

Resulting Value

• Negotiations between the payer and client were unable to agree on definition, measurement methodology, and timing of a risk share agreement after ten months of negotiations

Problematic Situation

Provided both negotiation support and actuarial modeling to drive the execution of a value based contract

• Defined and gained alignment on the spirit and intent of the value-based arrangement

• Tested multiple contracting scenarios and match populations• Identified and measured therapy cost and determined what cost

offsets fairly represented the product’s long term value• Compared population characteristics and impact of risk

adjustment in measuring outcomes• Determined the effect of health plan coverage “Churn”• Determined the impact of members that enter a plan with the

therapy vs those who start a therapy after coverage begins• Provided tools generalizable across payers and risk-bearing

provider systems that quantify therapy’s financial value

Actuarial Solution & Deliverables

• Negotiations: 2 Months• Model: About 6 Months

Timeline


Example #1: Model Creation – ROI Model Summary

The interactive ROI model is an Excel workbook designed with four (4) user-friendly sections for scenario planning

Assumptions

Inputs & Results

Paste Data

References

Assumption definitions, methods of developing assumptions, and codes used to determine applicable data/experience Outlining that Commercial vs Medicare book of business are being analyzed How demographic, severity, retrospective risk scores are applied How different therapeutic population cohorts were identified and labeled

All scenario planning inputs to be adjusted in this section: Population subsets (i.e., insurance type, age, etc.) Financial factors (i.e., cost trend, interest rates, churn rates, etc.) Cost adjustment factors (i.e., utilization, risk factors, allowed vs paid metrics) Summarized net present value of outputs

If applicable, payer specific claims data to be inserted for modelingCurrent model provides proxy claims data pulled from proprietary Optum claims database – this section allows for structured payer-specific claims data to overlay default inputs

All background data and references to assumptions will be listed: Overview of Optum claims set used Sources for age, gender, diagnosis type prevalence Financial formulas (i.e., NPV calculation examples)


Example #1: Model Creation – Scenario AnalysisAnnual savings per patient per year (PPPY) in different therapeutic populations when compared to treatment alternative. This therapy’s patients have higher annual savings on a per patient basis.

All Commercial Populations

Commercial Diagnosis Population #1

Commercial Diagnosis Population #2


Agenda



Goals and Barriers





• Found key areas of cost reduction noticeable enough to support a reassessment in coverage

• Identified that there was a meaningful population that if treated would provide noticeable plan savings

• Determined churn rate of the target population was noticeably longer than expected

• Ultimately identified that development of an ROI model and value based contract design would be beneficial to improve coverage policies

Resulting Value• Due to the churn of members in a health plan payers were

reluctant to invest in the higher cost therapy


Identified meaningful areas of cost deflection as well as target population for therapy:

• Approximately 4 Months

Timeline

• Identify any pharmaceutical cost offsets that may exist• Measure the impact of reduced ER visits and hospitalizations• Identify comorbid/concomitant conditions that may be

impacted using Payer Addressable Burden (PAB) analysis• Subset the population by severity levels to identify ideal

target populations that have enough deflectable cost • Determine target population “churn” rates in order to support

a longer time horizon with payers• Measure the opportunity for cost deflection or avoidance by

severity level for both the primary condition and correlated comorbidities

• Develop an ROI model that quantifies value proposition and aligns with the needs of Payers and Risk-Bearing Providers



Agenda



Goals and Barriers





• Executable agreement due to actuarial ability to administer VBC design

• Potential for additional access for treatment and increased market share in competitive area

• Opportunity for mitigated total cost of care or additional rebates for payer

• Data collection and risk management learnings for both payer and manufacturer

• PBM flexibility to administer innovative contracts is extended

Resulting Value• Though VBC design was agreed-upon by payer and

manufacturer, PBM did not have access to medical claim data or expertise to administer VBC


Provided solution to administer value based contract (VBC) providing quarterly reporting and annual reconciliation for total cost of care guarantee

• Ongoing for term of VBC

Timeline

• Actuarial familiarity working with medical claim data• Ability to measure total cost of care for defined patient

cohorts for this therapy and cohort of therapy’s competitors• Quarterly reporting of interim results to enable risk

management and financial planning• Annual reconciliation and calculation of any additional

rebates that may result• Delivery of quarterly utilization reports• All reporting provided to PBM in manner that flows

seamlessly into traditional rebate reporting that PBM can use to benefit its downstream clients (payer and its ASO clients)



Agenda

Example #2: Value Proposition Quantification


Goals and Barriers




Example 4: Value Based Contracting Experimentation - Outline

Step 3Retrospective Piloting

Step 5Publication Strategy

Provides the forum for senior leaders to align on key strategic and technical topics and provide oversight to the project teams

Provides the data-driven platform for development, testing, and refinement of models predictive of clinical and financial outcomes

Provides an approach using real-world data to discretely test and refine the “what if” scenarios that emerge

Provides insights to how evolving health care culture, policies, and regulations will shape the value-based contracting environment and impact the design of subsequent prospective pilots

Provides a strategic structure for the planning and public dissemination of findings from the Experimentation (as aligned with the Governance Committee)

Step 1Governance

Step 2Analytics, Design and Modeling

Step 4Policies and Implications

Step 6Recommendations

Provides a comprehensive summary of analyses and modeling, and provides recommendations for a prospective pilot(s)


Provides the data-driven platform for development, testing, and refinement of models predictive of clinical and financial outcomes

Recommendations for Step 3

ActuarialAnalytics

HEOR Analytics

• Both actuarial and HEOR methods and models are applied to identify characteristics for optimal Value Based Contract (VBC) design

• Based on contract methodology analysis, a financially viable VBC framework will be designed with levers to adjust and maximize return for payer and manufacturer

• After this initial period of data-driven testing and refinement, a retrospective pilot will be designed that innovatively integrates HEOR and actuarial methods set forth in the steps below for the following areas:

Value Based Contracting Framework


Example 4: Value Based Contracting Experimentation – Analytics Detail


Example 4: Value Based Contracting Experimentation - Deliverables*

Step 3Retrospective Simulations

Step 5Publication Strategy

• Draft and final guidance on the variety of topics

• Comprehensive reports for actuarial analyses• Comprehensive reports for HEOR analyses and modeling• HEOR/Actuary Analysis VBC evaluation and VBC framework• Summary report and recommendations for retrospective piloting

• Reports for retrospective pilot• Summary report and recommendations for prospective piloting

• Draft/final info. sources, search protocols, reporting template, expert interviewees • Monthly updates and ad hoc high-impact alerts to inform experimentation• Input memoranda on shaping external policy environment

• Publication Planning Strategy (updated quarterly)

Step 1Governance


Step 4Policies and Implications

Step 6Recommendations

• Provide overall recommendations for VBC design, prospective pilot planning, and strategies across payer archetypes and therapeutic areas

* The analyses and modeling will be delivered in an “unlocked” fashion throughout the project, but deliverables will not include any individual patient/member or provider/physician level data..

Given the iterative nature of the Experimentation approach, deliverables will include a combination of work-in-progress (WIP), draft, and final plans, project management details, analyses, reports, and meeting proceedings.

Gregory Warren, FSA, MAAA, FCAVice President, Actuarial ConsultingRx Advisory Practice [email protected]


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