By Jeff Morgan, managing director, Deloitte Consulting LLP

“Star Trek medicine in the age of a Flintstones reimbursement system,” was a quote I heard during this year’s JP Morgan Healthcare conference back in January…and it has stuck with me. The comment drove home the point that our health care reimbursement system needs to evolve to keep pace with the innovation that we are seeing in drug development. The emergence of value-based contracts (VBC) is one of these evolutions.

Such contracts—between biopharmaceutical companies, health plans, and health systems—are beginning to gain some traction. There has certainly been an uptick in the number of publicly announced VBCs in recent years. Earlier this year, several CEOs of major pharmaceutical companies testified before the Senate Finance Committee during a hearing on drug pricing. Many of them suggested that value-based agreements will likely be a key part of the future system. Wide-spread adoption, however, remains elusive. It can be difficult to structure these agreements and align incentives. In addition, there are no industry standards, and it can be difficult to measure patient outcomes during routine clinical care. There might also be some apprehension among stakeholders when it comes to the idea of working collaboratively.

I was recently in New York City hosting a summit with about 25 senior executives—representing hospitals and health systems, health plans, biopharmaceutical companies, and patients—discussing some of the barriers that limit expansion of value-based contracts. This summit builds on a similar one that we held about a year ago. Our goal in facilitating these sessions is to help stakeholders move beyond talking and encourage them to work collaboratively.

In today’s environment, negotiating, implementing, and monitoring VBCs can take a tremendous amount of time and effort. There should be a more systematic approach to all aspects of these arrangements, which will likely require organizations to come together and establish a common framework and set of standards that can be used across the industry. Here’s a look at some of the areas last year’s summit participants said need to be modernized to realize the full potential of value-based contracts:

• Data: Participants all agreed that data will be the foundation of VBCs. However, they acknowledged that they need to be more efficient in accessing, aggregating and analyzing these data in a way that is secure, trusted and transparent. One concept that was discussed throughout the day was the notion of a common shared data platform. With advances in digital technologies and health information technology (HIT) standards, we are at an inflection point in our ability to collect patient data from new sources such as wearables, sensors, patient records, etc. This will likely become increasingly important as care models evolve.
• Standardized design: Negotiating these arrangements can be time consuming and every organization takes a different approach even within the same disease or therapeutic area. Many agreements never make it past this stage because of fatigue. Participants highlighted the need to come together and develop a financial model that allows stakeholders to identify the best scenarios and highlight true risk-sharing opportunities. This could help stakeholders compress the time it takes to align on the model, which could dramatically reduce the protracted negotiations that tend to happen today.
• The payment model: Participants agreed that the cost of some medicines should have the ability to travel with the patient when they move between health plans. Although this could be a bold and complex move, it could ultimately help solve a major hurdle regarding the time it takes for the value of some treatments to be realized. For many VBCs today, value is measured over just one-year. For curative therapies, this short time horizon can be challenging. The health plan that bears the cost of the cure might not see the value if the member switches health plans. We are seeing some experimentation with this model today, but systematic changes across policies, distribution systems and business models will likely be needed for it to succeed.

There was great energy, excitement, and commitment among last year’s summit participants as we charted a path to break through some of the barriers that are keeping VBCs from reaching their potential. I’m optimistic that these meetings will continue to help drive change and encourage stakeholders to work collaboratively to bring VBC into the mainstream.

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