Despite the looming ACA repeal and replace that is now on an extended timeline, there are a few managed market contracting trends spurred on by the ACA that are likely to continue trending upwards regardless of federal policy. Chiefly among them are the trend toward value-based contracts between payers, providers, (and, increasingly drug manufacturers), and the popular flat access rebates commonly included in manufacturer contracts with payers.
Value-based contracting is a catchall term meaning any contract that shares risk with the service or product provider. From episodic bundled payments to pay-for-performance or even capitation, value-based contracts tie reimbursement to outcomes or quality, rather than simply the quantity of services or products (review our Risk blog to go deeper into the different models of value-based care).
United Healthcare, Aetna, and Anthem each recently reported that nearly half of their payments to providers are tied to metrics such as reducing hospital readmission rates, and they each intend to increase the provider participation significantly in the near future.
Up until last year, the push toward value was primarily driven by the Centers for Medicare and Medicaid (CMS) and other payers. As a result of implementing the Affordable Care Act, CMS is considered the major catalyst moving the industry toward value and after the first years of innovation and demonstration models, recent research shows improvements in survival and reductions in cost for Medicare Advantage members as a result of value-based care models that incentivize providers to manage care and prevent hospitalizations. This type of outcome is exactly what CMS was hoping to achieve, and reports like this are likely to spur other payers to encourage providers to take on risk.
One of the earliest commercial value-based contracts between providers and payers was the 2009 Alternative Quality Contract (AQC) by Blue Cross Blue Shield of Massachusetts, which recently reported improvement in outcomes and quality measures, especially for lower socioeconomic members.
The AQC was the lone horse in 2009 when it launched, but now BCBS Massachusetts is joined by national payers in the push toward value. United Healthcare awards providers for quality performance in its Medicare Advantage program with over 1 million members, and says it has seen improvement in outcomes related to the effort.
However it’s not just providers that payers are getting on the road to value: Cigna negotiated a value-based contract last year with PCSK9 inhibitor manufacturers Sanofi and Amgen. The new class of cholesterol drugs is far more expensive than traditional LDL reducing medications, and the payer wanted a guarantee it would be a good investment.
Also in the new era of bipartisan drug price hike scrutiny, what could tip the scale on the push to value is not so much payer led, as manufacturer led. Although manufacturers hesitated to offer discounts if outcomes were not achieved in years past, now manufacturers see outcomes-based contracting as a way around public scrutiny and possibly a way to avoid some of Trump’s campaign policy threats such as allowing the government to negotiate drug prices.
Most recently, Novo Nordisk announced it would not only cap its drug prices, but also tie them to outcomes.
Last year’s public outcry over EpiPen price hikes could soon be overshadowed by a new demand to know what payers and pharmacy benefit management companies pay for drugs in contract. If that happens, contracts are even more likely to be value-based since rates based on access could become less profitable once payer competitors start demanding similar rates across the industry.
There remains considerable resistance to value-based contracts from stakeholders, however, and some question as to how impactful on health and healthcare costs these arrangements actually are. (Oddly enough, providers are not reporting their payments as tied to value at nearly the same level as payers.)
Hospitals for instance have not been eager to take on risk, citing high operational costs.