Health Plans See Opportunity In Outcomes-Based Contracts, Finds New Survey

By Caroline Pearson, Senior Vice President of Policy and Strategy, Avalere Health

Escalating drug costs are compelling many states, including New York, to develop and implement policy solutions to stem its rise. In fact, earlier this year, New York became the first state to place a cap on drug spending growth in its Medicaid program. Drug costs are also putting pressure on private health plans, which are looking to outcomes-based contracts as a possible solution, according to a survey by strategic advisory company, Avalere Health.

Outcomes-based contracts are agreements between health plans and drug manufacturers that tie product reimbursement to patient outcomes. They are becoming more common in the U.S. as plans and drug manufacturers seek to manage costs while preserving patient access to new therapies.

According to the Avalere survey, 70 percent of health plans report they have favorable attitudes toward outcomes-based contracts. One-quarter of the health plans surveyed say they have at least one outcome-based contract in place. Another 30 percent report they are negotiating an outcomes-based contract today. Plans with experience in outcomes-based contracts indicate they plan to pursue more.

“Through outcomes-based contracts, plans and manufacturers can combine its data, analytics, and interventions to deliver on the health system’s goals to reduce costs and improve patient outcomes,” said Dan Mendelson, president at Avalere.

While growing, the adoption of outcomes-based contracts is relatively limited in the U.S. One reason is because plans and manufacturers can have trouble coming to agreement on the contract terms, specifically on the data sources that will be used and how patient outcomes will be measured.

To help bridge this gap, new data platforms and solutions are coming online. Avalere and its parent company, Inovalon, Inc. are already partnering with drug manufacturers to deploy its data analytics capabilities and subject matter expertise to support the development of outcomes-based contracts. According to Kathy Hughes, a vice president at Avalere, “Coming to agreement on all of aspects of a contract — design, management, payment, implementation, and data collection — can be a difficult process.” The good news is that solutions for plans and manufacturers now exist, she adds.

With drug costs in focus, health plans will continue to look for ways to improve outcomes and manage costs, with outcomes-based contracts being one data-based solution, Mendelson said. Avalere’s recent survey clearly supports this.

About The Author
Caroline oversees the firm’s content generation across consulting services, research products, and public visibility. She previously led Avalere’s Health Reform & Policy Practice.  In her twelve years at the firm, she has focused on implementation of the Affordable Care Act (ACA), prescription drug pricing, and public and private insurance benefit design. She is regularly quoted in national and trade press and is a frequent presenter to audiences seeking to understand the health policy landscape. In 2009, Caroline contributed to a report, led by Senators Tom Daschle and Bob Dole at the Bipartisan Policy Center, which advanced a comprehensive, bipartisan health reform proposal.