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Value-based care: four questions for life sciences companies to consider

As the healthcare industry shifts from volume to value, value and risk management strategies are converging, creating opportunities for payers, providers and life sciences companies to collaborate and integrate capabilities. Although each party has a unique role and perspective in the healthcare ecosystem, the importance of collaboration to decrease costs, improve patient outcomes and increase access to beneficial treatments is becoming the new normal. [1]

The emergence of value-based contracts (VBC) ― a system where reimbursement for a medical product or technology is based on its value provided ― offers the ideal stage on which to test this new way of doing business. Through the provision of real world evidence (RWE), life sciences companies are being asked by payers and providers to demonstrate with data that their product is contributing a documented clinical benefit without increasing healthcare utilization or risks from a cost and/or patient safety perspective. As the shift to a pay for value paradigm becomes more prevalent, payers, providers and life sciences companies will be required to think and behave differently and should proactively implement strategies that foster collaboration through mutually beneficial relationships across the healthcare ecosystem.

In the evolving healthcare market, payers, providers and life sciences organizations are now cautiously embracing VBC arrangements as a means to ensure the most desirable patient and financial outcomes are achieved. While the original aim of VBCs is to redistribute risks among all parties, life sciences companies typically have the most to lose and consequently carry most of risk in these agreements. Given payers and providers can control access to a product or technology, life sciences companies face the burden of having to demonstrate the value of their product in order to obtain favorable coverage decisions. In this new way of doing business, if the product does not have the data to support a strong value story, the life sciences company runs the risk of losing access to a significant number of patients in a plan or hospital system. Despite this imbalance in risk, the upward potential for all parties taking part in VBC, especially life sciences companies, remains.

As more payers, providers and life sciences organizations embark on the VBC journey, it’s essential for organizations to understand the individual levers of success for each entity in order to put their organization in the strongest position possible. Organizations can bolster their chances for VBC success by addressing the following fundamental questions when first considering whether to enter into a VBC agreement:

Is a value-based contract a feasible strategy for my business?

Before considering entrance into a VBC, an organization should conduct a feasibility study. The mistake many companies make is to assume all VBCs are the same, when in actuality, what is defined as value for one product may not extend to other products in the same class. 

At issue is whether a sponsor has the data to support a value story based on RWE that a payer and/or provider system will view in a meaningful way. For this reason, it’s important for life sciences companies to conduct in-depth analyses of available RWE to determine whether existing data demonstrates meaningful value to payers and/or providers. Through this analysis, life sciences companies can assess which cohorts of patients experience the most effectiveness, as well as identify which, if any, of the outcomes align with the interest for payers/and or providers, such as improved adherence and safety. These analyses can serve as the basis for determining whether engaging in a VBC makes business sense. More importantly, these analyses also provide life sciences companies with a signal about which outcomes can potentially anchor a VBC.

Is my internal infrastructure prepared to effectively implement and execute a value-based contract?

Organizations should also examine whether they can withstand the reallocation of resources and potential additional expense to create a comprehensive value-based program that may result in downstream savings of improved patient outcomes.[2] This involves evaluating existing infrastructure and its responsiveness to the specific demands of a value-based contract. At the forefront of infrastructure issues is the ability to identify and define a pathway to track product usage and patient outcome metrics and provide financial support for providers/patients utilizing the life sciences product (as applicable).[3]

The last and potentially most important factor to consider prior to engaging in a value-based contract is whether the necessary “buy-in” from all parties involved is well established from the outset. Leaders should have a clear vision of the necessity, urgency of action, overall readiness and resources needed to execute the proposed agreement. With this structure of internal organizational alignment, leaders and all potential collaborators should demonstrate their dedication to allocating the necessary resources, based on their role in the agreement, to contribute to the contract’s execution and success.[4]

Can I structure a value-based contract that minimizes my own risks in a way that is fair to the other parties and is clear of any legal or regulatory issues?

Another aspect of a VBC that requires significant effort is a clear understanding of how the contract is structured. This process is likely to result in multiple rounds of negotiations before reaching an agreed upon risk/benefit structure, but is the essence of the contract and can make or break the VBC.

From regulatory and ethical considerations to the legal jargon used within, VBCs should be carefully designed to ensure compliance with federal regulations and Medicare and Medicaid-driven guidelines about the purchase and sale of pharmaceutical drugs. Pharmaceutical drug prices paid by commercial payers are tightly monitored such that any significant reduction in payment for drugs can lead to potential reduction in Medicare and Medicaid drug costs. Therefore, it is important for participating parties to not only clearly define the terms and length of the price reduction within the contract, but to do so in all required federal disclosure paperwork.[5] Furthermore, value-based contracts should be structured so it’s clear the agreement is not centered on excessive utilization of a product in order to prove effectiveness or achieve any incentives, as outlined in the Anti-Kickback Statute and the Stark Law. There have been calls to expand current laws and regulations to create more of a protected space for VBCs, but until this language is introduced into the laws, it is up to the parties involved to clearly and carefully outline their relationship and ensure compliance with all applicable ethical and legal requirements.[6] 

What resources are needed to monitor and expeditiously reconcile the contract?

In order for a VBC to be properly executed, systems are needed to reconcile the contract. These systems should aid in reconciling previously established outcome measures and financial terms. When assessing data reconciliation systems, software solutions that provide transparent mechanisms for each party to collect and manage all necessary data related to the selected outcomes and improve efficiency in ancillary processes related to contract fulfillment are preferred.[7] The following are key value driving traits to look for when selecting a software platform for use during a VBC:

  • Bi-directional sharing of data between different types of electronic health record systems and platforms
  • Identification and matching of patients and members across all contributing data sources
  • Integration of data from various sources, including lab, drug, claim and administrative data
  • Performance measurement and projection to provide real-time updates on clinical performance and forecast its estimated impact on metrics such as cost, utilization and Hierarchical Condition Category (HCCs).[8][9]

Although these implementations come at a cost, their necessity cannot be overlooked. By carefully vetting software functionality against prioritized organizational needs, the most important and core needs can be undertaken without falling victim to the “more is better” mentality when attempting value-based contract technology solutions.[10]

Whether it’s a payer, provider or life sciences company considering an outcomes-based contract, it’s vital for each to be able to assess their current state, as well as that of their counterparts, in order to evaluate if a value-based contract provides value as a strategic step. 

For more information on this topic, or to learn how Baker Tilly specialists can help assist your organization with a transition to value-based contracting, contact our team.

Value-based contract marketplace examples

The success of value-based contracts is dependent on several factors, including the ability for each party to have enough risk leveraged against the potential benefits if the desired patient outcomes are achieved. The following value-based contracts were able to make this balance.

Development and adherence to oncology patient pathways[11][12]

Parties involved: Blue Cross Blue Shield (BCBS) of Michigan, Physician Resource Management (PRM) and Cardinal Health Specialty Solutions

Goal: Create innovative oncology patient health plans that increase patient adherence and reduce oncology costs 


  • BCBS: Paying providers to participate in the program, relying on providers to be proactive, savings in chemotherapy and supportive care were shared with the provider and development of the appropriate patient work plan in order to see intended results 
  • PRM : Required to develop an oncology patient work plan that could garner high participation and long term adherences


  • BCBS: Mobilize the field’s top oncologists to create a customized work plan for their patients based on their real world experience and patient population
  • PRM: Each provider received $5,000 payment for their participation in the program, reimbursement rates for generic products was increased to remove ‘name  brand’ incentives and savings in chemotherapy and supportive care were shared with payer and provider


  • 44 percent reduction in name branded chemotherapy payments
  • 95 percent participation of all providers by the end of year one
  • Increased use of generic and less expensive band name treatments
  • Reduction in hospital readmissions and emergency room visits

Diabetes support program for patient adherence[13][14]

Parties involved: CIGNA and Merck

Goal: Lower diabetic blood sugar levels of payer enrollees over a 12-month period through the use of two diabetic drugs by a pharmaceutical company


  • CIGNA: Pay for compliance programs to assist its enrollees with compliance when taking the diabetic drugs from the selected pharmaceutical company
  • Merck: Must sell their drugs to the national payer at a discount if more of the payer’s enrollees reach diabetic blood sugar goals, regardless of who produces the drugs assisting the enrollees


  • CIGNA: Receive the diabetic pharmaceutical company’s drugs at a discount if more enrollees reach diabetic blood sugar goals, regardless of who produces the drugs helping the enrollee reach their blood sugar goals; Receive additional discounts if enrollees show better blood sugar outcomes while using the diabetic pharmaceutical company’s drugs versus competitors
  • Merck: The payer grants their drugs preferred status on drug coverage lists and enacts several programs to assist patients with compliance of the medicines


  • 87 percent  patient adherence to pharmaceutical diabetic drugs being tested
  • 5 percent improvement in blood sugar levels for patients continuously enrolled in program and 3 percent  more likely to have blood sugar levels under control

[1] https://catalyst.nejm.org/what-is-value-based-healthcare/

[2] https://www.nehi.net/writable/publication_files/file/rewarding_results_moving_forward_on_value_based_contracting_for_biopharmaceuticals_copy1.pdf

[3] https://www.journalofclinicalpathways.com/article/factors-influencing-implementation-value-based-contracting-between-pharmaceutical

[4] Population health platforms to enable value-based care programs: A practical approach for health plan and provider collaboration by Baker Tilly

[5] https://www.nehi.net/writable/publication_files/file/rewarding_results_moving_forward_on_value_based_contracting_for_biopharmaceuticals_copy1.pdf

[6] https://www.thirdway.org/report/clearing-a-regulatory-path-for-value-based-health-care

[7] https://www.burgessgroup.com/news/burgess-mentioned-in-gartner-report-on-value-based-payment-reconciliation-systems/

[8] Population health platforms to enable value-based care programs: A practical approach for health plan and provider collaboration by Baker Tilly

[9] https://revcycleintelligence.com/news/docs-payer-execs-agree-providers-lack-tools-for-value-based-care

[10] Population health platforms to enable value-based care programs: A practical approach for health plan and provider collaboration by Baker Tilly

[11] https://healthpolicy.duke.edu/sites/default/files/atoms/files/oncology_backgrounder_09_28_17.pdf


[13] https://www.fiercehealthcare.com/healthcare/cigna-and-merck-help-customers-better-manage-diabetes


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