Payer and Manufacturer Perspectives for Agreeing on Value-Based Contracts in Medicaid

The need for value-based contracts for Medicaid plans has grown as a response to increasing prescription drug spending, more costly specialty medications, and finite Medicaid budgets. Value-based contracts may provide some cost predictability for a state.

Terry Cothran, DPh, director of Pharmacy Management Consultants in Edmond, Oklahoma, and Russell L. Knoth, PhD, director of health economics and outcomes research at Eisai, Inc., discussed the payer and manufacturer perspectives associated with these contracts.

First, Dr. Cothran discussed Oklahoma’s 100% fee-for-service model that allows for direct and easier negotiations between payers and manufacturers. The annual enrollment in the plan is around one million. His organization, Pharmacy Management Consultants, manages a majority of the pharmacy benefits. Oklahoma wanted to negotiate a mutually beneficial alternative payment model contract that would pave the way for future contracts between Medicaid programs and manufacturers. They used Pharmacy Management Consultants to conduct research and worked with the Centers for Medicare & Medicaid Services to get approval of a state plan amendment. They had conversations with 29 manufacturers and executed contracts with four companies.

Dr. Cothran reported on some of the challenges they encountered, including that larger companies seem to take longer to implement the changes, there were some limitations in data sharing, measures are subjective, stakeholder involvement, and state contract limitations.

Dr. Knoth then discussed the infrastructure behind value-based agreements. The contracting process involves internal assessment and information gathering, early dialogue, formal negotiations, and contract signing and implementation. Once implemented, the process requires patient enrollment, treatment, and outcomes data, which will lead to reimbursement assessments.

He said the most common outcome measures for payers are drug utilization, laboratory measures, and financial measures, while the most common payment incentives for manufacturers are larger rebates, a full refund, and bonus payment/supportive care product cost.

These agreements often succeed when outcome measures are tied to product use, the target drug has the potential for a high budget impact, the patient population is easily identified in claims data, and data collection and analysis timelines are reasonable. Agreements are likely to fail when there are incentive mechanisms, issues with data/evidence, implementation costs, and Medicaid best prices.

The speakers concluded by providing lessons learned in value-based contracting, including:

  • Value-based agreements can expand beyond rare disease states
  • Trust is an important currency when working on these agreements
  • Data and the infrastructure to process information are important for both parties
  • Negotiating the contract is the likeliest place for good intentions to fail
  • Value-based contracts can be a “win-win” for both payers and manufacturers