Application 1: Performance-based agreements
Performance-based agreements are contracts created between manufacturers and purchasers to create a rebate structure around clinical milestones, which are typically spread over a period of one to five years. Contracts of this type ensure that purchasers (usually payers, but potentially providers as well), who seek to bring these potentially curative therapies to their members, protect themselves from the financial risk associated with clinical underperformance. Also, by spreading out the payment of the drug over time, these contracts prevent purchasers from facing liquidity issues as new, high-impact drugs enter the market.
Generally, PBAs take two forms: short- and long-term contracts. Both typically involve a rebate structure around patient outcomes (clinical or otherwise) and begin with an up-front payment from the payer. Afterwards, payers are responsible for annual payments based on that predetermined set of criteria.
- Shorter, year-long contracts measure patient data for a year. If the patient has reached the “milestone” set in the criteria, the manufacturer will receive payment in full. These milestones could be more than just a single marker of success.
- Longer-term contracts also measure patient data, but payers pay year after year, sometimes in an arrangement half a decade long. Instead of finalizing the contract after only one year of patient analysis, long-term PBAs pay depending on how well the drug does over a long stretch of time. This payment structure is built around the fact that ultra-high-cost drugs are designed to have long-lasting, durable effects.
Case in brief: Aetna and Novartis
Entresto is a high-cost drug which, when administered in the course of treatment, can significantly reduce the risk of heart failure. Novartis’s pay-for-performance deal with insurers links the financial terms of the contract to a reduction in the portion of its customers who are hospitalized for heart failure.
Application 2: Orphan Reinsurance Benefit Managers
Orphan Reinsurer Benefit Managers (ORBM) innovate by integrating health care delivery and the financing of ultra-high-cost drugs into a single entity. These entities bring three services together: reinsurance/risk pooling, drug contracting/purchasing, and care coordination. ORBMs act as an ultra-high-cost drug carve-out for payers who subscribe, which allows the ORBM to pool the actuarial risk of multiple therapies hitting the market across multiple payers.
ORBMs then offer a per member per month (PMPM) subscription service to payers, which allows for greater actuarial predictability among subscribers. Included in this PMPM subscription is holistic disease care (medical and pharmacy)—from provider network management to patient care coordination services—which shields payers from operational challenges as well as financial risk. ORBMs act as a pharmacy benefit managers (PBMs) as well, engaging in performance-based agreements with manufacturers as needed, while ensuring maximum manufacturer rebates through high-volume purchasing. Because of their position as both the contracting agent for performance-based agreements and manager of the provider network, ORBMs can coordinate the flow of patient outcomes data essential to the performance-based agreement. Even if a patient subsequently switches plans, an ORBM can still gather their diagnostic data to fulfill the terms of the performance-based agreement.
Case in Brief: Embarc
Introduced by Cigna in September of 2019, Embarc is designed to coordinate the drug procurement and care management required for two specific drugs: Zolgensma and Luxterna. Organizations that subscribe to the service pay a PMPM fee for the gene therapy network, and all out-of-pocket expenses for patients are waived as part of the agreement. Pharmacies and other sites of care are paid for the drugs through Embarc as well.