Posted: 22 Oct. 2019 5 min. read

If value-based contracts succeed…we might not need them anymore

By Mike DeLone, US life sciences leader, Deloitte LLP

Many of my colleagues are in Washington, D.C. this week attending the Value-Based Health Care Congress. My friend Jeff Morgan, who heads the value-based contracting division within Deloitte’s ConvergeHEALTH unit, will be leading a session on value-based contracting and the role real-world data and evidence can play in developing cross-stakeholder partnerships, improving health outcomes, and differentiating products and brands.

Deloitte is working closely with life sciences companies, health systems, purchasers, and even federal regulators to move the ball forward on value-based contracting (VBC). The success of these contracts can hinge on interoperable and sharable data as well as agreed-upon standards and definitions of value. If we succeed in bringing these types of contracts into the mainstream, we could reach a point where we no longer need them.

Here’s what I mean: In the fee-for-service environment, each stakeholder typically makes decisions based solely on its own data. A health plan, for example, might rely on claims data when setting reimbursement rates, while a biopharmaceutical manufacturer might use clinical data to determine prices or to prove the efficacy of a drug. Once interoperability and open data sources make it possible to share and evaluate massive sets of information, we should have real-world evidence (RWE) about which drugs are most effective for each subpopulation—rather than using a one-size-fits-all approach. Once we understand which therapies are most effective for each patient or patient group, we might no longer need contracts that reward value. Drug effectiveness would be known and agreed upon. This is still several steps away from our current reality.

The real value is in the data
Our health care system has historically rewarded competition, not cooperation, and the fee-for-service model is deeply engrained. But this outdated payment model is no longer effective, particularly when it comes to financing highly personalized, but often expensive therapies. Health care purchasers and consumers are demanding lower costs and greater transparency around price and outcomes. VBC could help on this front while also improving outcomes. But such contracts can only succeed if purchasers and drug companies cooperate and trust each other. Before that can happen, all parties will need to trust the data.

The real value of VBCs is the data that demonstrates the effectiveness of a drug or device for a specific population. These contracts should be driven by data rather than risk or reward. Real-world data can also help explain variability among various patient populations. Insights gleaned from artificial intelligence and data analytics, for example, could help stakeholders understand the effectiveness of various treatment approaches, costs, and outcomes with the goal of refining evidence-based protocols.

How do we accelerate value-based contracting?
In a My Take last month, I suggested that VBC growth won’t accelerate until biopharma companies, purchasers, patients, and clinicians agree on (and trust) what constitutes value, and how the value of a therapy is demonstrated. Organizations that are most effective at VBC today could be best positioned for the future once existing barriers have been reduced or removed.

Drug pricing has been a top priority for the administration and Congress over the past year. Impending regulations could help open the door for more VBCs. Organizations that experiment now and master the components of these contracts will be better positioned to scale their pilot projects. Stakeholders that move too slowly could have the most to lose. Continued investments in platforms and solutions around RWE as a discipline could help organizations position themselves as VBC moves beyond the experimental stage into the next level of maturity.

What’s holding back value-based contracts?
Despite a growing interest in VBC among stakeholders, adoption has been slow for a variety of reasons including misaligned incentives, difficulty tracking patient outcomes, and lack of consensus on a definition of value and data standards. Deloitte recently brought together thought leaders from across the health care ecosystem to discuss the current state of value-based contracting, identify obstacles that need to be overcome, and determine the best strategies for accelerating the use of VBCs in a way that improves value across stakeholders (i.e., better patient outcomes and lower costs).

Most participants at our Value Exchange Summit said value-based contracting was among their top priorities, and some said they have already implemented 10 or more such contracts. While about half of our participants have not yet launched a VBC, most of them have internal incentive structures in place that should help them get started. Most participants also agreed that their organizational capabilities have not yet reached the level of maturity needed to support the scaling of VBCs efficiently and sustainably.

Summit participants pointed to several challenges that might be stalling uniform and widespread VBC adoption. Obstacles include limited access to information and unavailable data. Our participants also agreed that the lack of technology—particularly the absence of a shared platform through which patient data can be collected, managed, and analyzed so outcomes can be tracked—is a top barrier. Some participants suggested that involving a neutral third-party to manage the data could make contracts more palatable to all participants.

Where should we start with value-based contracts?
Choosing the most appropriate products to include in a VBC is essential. Therapies used to treat common chronic diseases might be a good place to start because there tends to be more real-world data available for those conditions. However, the timeline needed to measure the impact of a therapy within a VBC should be short, which can be challenging when managing chronic illnesses. Cell and gene therapies tend to have smaller patient populations and could require a multi-year timeline to determine effectiveness. Such drugs, however, can make good candidates because they typically have higher costs, which can lead to limited patient access.

Rather than moving multiple products into VBCs, biopharmaceutical companies should use pilots to determine which products are best suited. Pilots that focus on improving outcomes, rather than financial risk or reward, could help stakeholders develop an early VBC roadmap. Once a quality-focused model has been developed, the shared-savings and risk-sharing components can be added.

Value-based contracting is an important step along the journey toward the future of health. It is also a step that we might be able to leave behind once we harness data that tells us which treatments are the best fit for each patient.


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Mike DeLone

Mike DeLone

US Life Sciences Sector Leader

Mike, a principal in Deloitte Consulting LLP, is the national sector leader for Deloitte’s Life Sciences practice. In this role, he leads a multi-disciplinary team who serves clients in the pharmaceutical, biotechnology, medical technology, and consumer health care segments through consulting, advisory, audit, and tax services. Mike is responsible for the overall strategic direction of the life sciences practice as well as its go-to-market strategies and resources. He also serves in the role as life sciences consulting leader. With 20 years of experience dedicated to the life sciences sector, Mike has demonstrated exceptional leadership and practice development. He has led tech and information management teams as well as services at some of our largest biopharmaceutical and medical technology clients, helping them with the definition and implementation of technology and business strategies, related organizational and business alignment. His client work has been presented as examples of leading practices at prominent industry conferences.