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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
SOA Antitrust Disclaimer SOA Presentation Disclaimer
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
2June 12, 2017
Not a New Concept for Health Economists. What Can Actuaries Bring to the Table?
3June 12, 2017
Defining “Value”: Possible Outcomes
4June 12, 2017
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
5June 12, 2017
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.
3
Agenda
1 Understanding the Stakeholders of Value Based Contracting
2
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
Navigating Challenges
5
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
5
“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
10
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
Contracting with Medicare Plans
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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
Contracting with Medicare Plans
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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:
25
1
2
3
Evaluating Capabilities
Navigating Challenges
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]
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)
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]
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
xxxxxxxxxxxxx
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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
5
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
4
Beneficial
Meaningful
ClinicallyAppropriate
Easy
Easy
ClinicallyAppropriate
Beneficial
6Propriety 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
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
Proprietary and Confidential. Do not distribute.
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)
Proprietary and Confidential. Do not distribute.
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
10Propriety 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
Proprietary and Confidential. Do not distribute.
Example #2: Value Proposition Targeting
• 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
Problematic Situation
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
Actuarial Solution & Deliverables
12Propriety 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
Proprietary and Confidential. Do not distribute.
Example #2: Value Based Contract Administration
• 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
Problematic Situation
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)
Actuarial Solution & Deliverables
14Propriety and Confidential. Do not distribute.
Agenda
Example #2: Value Proposition Quantification
Example #3: Value Based Contract Administration
Goals and Barriers
Example #1: Negotiation Support and Model Creation
Example #4: Value Based Contract Experimentation
15Propriety and Confidential. Do not distribute.
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)
16Propriety and Confidential. Do not distribute.
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
Step 2Analytics, Design and Modeling
Example 4: Value Based Contracting Experimentation – Analytics Detail
17Propriety and Confidential. Do not distribute.
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 2Analytics, Design and Modeling
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]