Perspectives

Critical issues for pharmaceutical executives

Creating performance-based contracts you won’t regret

Only a few companies "jumped the chasm" to make pay-for-performance a part of their value proposition. Positive publicity, favored formulary access to drugs, and good pricing associated with these deals is prompting pharmaceutical marketing and access teams to reconsider how they too might use more innovative contracting options, including performance-based rebates and guarantees, to win more sales without deep discounts. ​

The right performance-based contract structure can overcome some barriers to quick and unencumbered access at a lower life-time cost to the manufacturer. But a mismatch between the barrier and the contract structure can expose a company to unnecessary risks. Before offering a performance-based contract, one should understand the payer access barrier one is trying to overcome, and then define contract parameters that mitigate the associated risks.

There are three contracting challenges for which some form of performance based pricing is potentially a cost-effective way to drive better market access and improve sales.

  1. Unproven “real-world” effectiveness
  2. Unsubstantiated economic benefits
  3. Performance differences across patients and indications

For pharmaceutical executives, the need for prices that cover the rising cost of drug development is colliding with payers’ need to spend health care budgets more cost-effectively. A viable resolution to this dilemma is to align prices more closely with value, enabling innovative drugs to gain more market share sooner at prices commensurate with their promised benefits. Both payers and branded pharmaceutical companies are recognizing that pay-for-performance is sometimes the best way for both to achieve their goals.

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