Are outcomes-based drug contracts effective? 5 thoughts

Outcomes-based drug pricing, which sets drug prices based on how much they improve patients' health, is gaining steam in the U.S. healthcare system. However, many industry stakeholders are skeptical of the methodology, which has few proven benefits, according to a collaborative article from The New York Times and ProPublica.

Here are five thoughts on outcomes-based contracts.

  1. The pricing system is growing more popular. Novartis, Novo Nordisk, Merck, Amgen, Sanofi and Eli Lilly have all signed outcomes-based contracts with various insurers in the past year. A draft of President Trump's executive order on drug pricing released last month also included a proposal eliminating the hurdles for outcomes-based drug pricing.

  1. Drugmakers favor the pricing method. Some experts believe drugmakers are pushing the contracts to avoid more major drug pricing changes — such as allowing Medicare to negotiate prices — that could hurt their bottom line. Wells Fargo analyst David Maris called the pricing method a "carnival game" on a recent note to investors, adding he did not know of any outcomes-based arrangement "where a drug company did not consider it a win for them," according to the report.

  1. There is little proof of real-cost savings. The cost savings associated with these outcomes-based contracts don't always trickle down to patients. Peter B. Bach, MD, director of the Center for Health Policy and Outcomes at Memorial Sloan Kettering Cancer Center in New York City, said the deals are full of "bells and whistles" that make them look appealing on the surface. "But as long as [drug companies] control all the contract terms, it can be a lot of optics but no substance," he said.

  1. The system falls in line with value-based care. Robert Zirkelbach, a spokeswoman for the major drug lobby group Pharmaceutical Research and Manufacturers of America, said outcomes-based contracts fall in line with the shift from fee-for-service to value-based care. "We recognize that as science is moving forward, the way we pay for medicines needs to evolve as well," he said.

  1. Italy tried this before, and it failed. Italy implemented a similar outcomes-based drug pricing system more than a decade ago. In 2015, researchers assessing the situation in Italy found the pricing system performed very poorly, and the amount of money refunded to patients when a drug did not work was minimal. They cited the administrative burden of tracking patients' reaction to the treatments as a major source for the system's failure, and said drugmakers often fought efforts to provide reimbursements for poor patient outcomes, according to the report.

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