Managing the risks associated with value-based contracting

How Cell and Gene therapies represent a paradigm shift in healthcare

Cell and Gene Therapies (CGTs) hold the promise of significant therapeutic benefit for patients and thus have the potential to transform our healthcare systems: While CGTs claim to provide long-term value, they come with a high price tag resulting from complex, personalised manufacturing processes¹. Furthermore, small patient populations impede the collection of sufficient evidence on treatment efficacy during clinical trials, and therefore the demonstration of the value of the treatment. As such, both payers and pharma companies are searching for novel pricing and reimbursement mechanisms that enable patient access whilst simultaneously ensuring the financial sustainability of their healthcare systems.

In this blogpost, we will look at the status quo of value-based contracts (VBCs) as well as the challenges they pose for pharma companies with CGTs.

For Kymriah, a CAR-T cell therapy for B-cell acute lymphoblastic leukaemia and diffuse large B-cell lymphoma developed by Novartis and approved by the EMA in 2018, data from controlled clinical trials proved inadequate for reimbursement due to the small patient size as well as the lack of a standard of care as comparator. As such, the company had to provide additional, complementary evidence of its treatment’s efficacy to national Health Technology (HTA) agencies. One year after Kymriah’s EMA approval in 2018, Novartis had successfully negotiated reimbursement in a market-by-market approach (see Graph 1)^2,3

Graph 1: Different novel reimbursement plans for Kymriah. HTA= Health Technology Assessment, CED = Coverage with Evidence Development, a contract where coverage and/or price level are based on evidence development post launch.

In Germany, Novartis negotiated a pay-for-performance agreement with payers that linked conditional approval to ongoing evidence generation⁴.This contract became the country’s first outcomes-based agreement⁵. Similar contracts were signed in France and the United Kingdom. In Italy on the other hand, a staged payment scheme was introduced for Kymriah, where payments were only made for as long as agreed clinical outcomes were achieved six and twelve months after the first infusion⁶. Back in 2015, Italy had a relatively advanced approach to VBCs, as its national health authorities set up a web-based AIFA registry system (funded by pharma companies and governed by the healthcare system) to collect and monitor real world evidence⁷.

Kymriah serves as an early example for the reimbursement of CGTs through negotiated VBCs. Payers' increasing interest for and experience with VBCs offer novel market access pathways for pharma companies, but also entail new risks that must be managed.

The use cases for VBCs

For decades, contracting between pharma companies and payers has been dominated by traditional pay-per-pill agreements, where the costs to healthcare systems remained stable across different patients regardless of the benefit they would derive from the treatment and without special conditions for high-unmet-need populations. New innovative treatments such as CGTs have further accelerated the paradigm shift related to pricing and reimbursement strategies that already started with biologics and immunotherapies in the early 2010’s: The high upfront costs combined with scarce evidence on long-term clinical effectiveness grounded in small populations result in considerable financial risk to healthcare systems.

To mitigate such uncertainties and align the interests of stakeholders, VBC has emerged as a new tool to ensure access. Unlike traditional volume-based pay-per-pill agreements, the price — and thus costs to healthcare systems — is based on the measured real-world value provided to patients by the treatment, allowing for different price tags per patient, thus reflecting the true individual patient value. The majority of VBCs are either financial or outcomes based to mitigate economic and/ or clinical uncertainties. With the treatment results being linked to the pricing and reimbursement of an asset, payers may for example agree to only pay for those patients where pre-defined outcomes are met.

Both the use of financial- as well as outcomes-based agreements has increased significantly over the past years across Europe and the US⁸, predominantly driven by the need to manage the impact on budgets of novel therapies (especially within the field of oncology and rare diseases). Despite increased industry-wide attention towards value-based care, payers remain cautious about opting for outcomes-based agreements and tend to prefer purely financial-based contracts. In fact, close to 80% of all such risk-sharing agreements are reported to be financial-based agreements⁹. The difficulty in aligning on predefined metrics that define efficacy, technical challenges to accurately measure and collect relevant outcomes, as well as the associated administrative burden are key reasons for payers’ aversion towards outcomes-based agreements¹⁰.

Key challenges associated with VBCs

Value-based contracts — especially outcomes-based ones — are complex to negotiate, monitor and report on. Broadly speaking, the main risks faced can be placed into the three categories:

Legal and compliance
With VBCs, pharma companies are set to be involved with the collection, storage and analysis of clinical data. This may put them at risk of non-compliant interactions with stakeholders. For example, the former will be expected to responsibly access and manage patient data relevant to VBCs, resulting in additional requirements regarding consent and data security. Commercial and compliance roles therefore require a clear definition as well as reinforcement of responsibilities and appropriate medical leadership to decide on treatment protocols. Furthermore, pharma companies will need to pay close attention to additional obligations and risks they are expected to assume in place of third parties.
Financial
Once stakeholders managed to agree on specific conditions and measurable outcomes, payment terms must be aligned on. The shift away from upfront, singular payments with one-off discounts towards multiple smaller (and outcomes-bound) payments poses novel risks to payers as well as pharma companies. For the latter, conditional payments not only present a significant income risk¹¹ but also conflict with traditional 12-month financial cycles¹² and respective accounting methods. Having to track individual payments over the course of several years will not only make it more difficult to predict revenue streams, but may also entail additional administrative effort that companies will need to account for in their budgeting activities. Moreover, financial risks are increasing in parallel with the time horizon of the agreements. Whilst the majority of currently implemented VBCs are limited to a pre-defined time horizon (e.g. between two to three years in the US)¹³, calls are being made to spread payments over the course of a patient’s entire lifetime to account for the life-altering (or in some cases even curative) effects of CGTs¹⁴. Engaging in such potentially long-term agreements will not only require companies to consider fiscal and accrual complexities, but also to be aware of the consequences should their asset lose exclusivity rights during such contracts.
Operational
According to pharma companies, the most challenging part of VBC are operational risks. Companies launching their assets in multiple markets will see themselves being confronted with varying IT infrastructures and accompanying data security regulations¹⁵. Currently, many struggle with poor data quality over longer time periods, unclear and fragmented data ownership, as well as missing interoperability when leveraging multiple data sources. Thus, collecting patient data for outcomes monitoring will require setting up national patient registries — an investment that although governed by local agencies, is expected to be funded by pharma companies¹⁶ and presents a significant financial and administrative burden. Especially for treatments where the underlying indication is rare and complex in its progression, operational hurdles can effectively hinder the successful implementation of VBCs: A case in point, bluebird bio has recently announced that it will not offer outcomes-based payment for its second gene therapy Skysona (for rare cerebral adrenoleukodystrophy), as the arrangement would be ‘extremely challenging to implement for both bluebird and payers’ due to the complexity of the treated disease and limited diversity and inclusion mechanisms.¹⁷

Looking ahead

Whilst there are significant challenges to the successful implementation of VBCs, the latest data suggests that pharma companies are increasingly adopting them¹⁸. Payers too are gaining experience on how to work around performance-bound agreements, and the financial pressures facing healthcare systems serve as incentive to keep striving for value-oriented solutions. For example, both Sanofi and Pfizer have launched new types of warranty-programmes for their drugs Cablivi and Xalkori in the US, where a thirdparty is monitoring and evaluating patient outcomes, thus lowering the administrative burden associated with VBCs for payers and pharma companies.^19,20

In addition, increased willingness from stakeholders and technological advances in the pharma industry accelerate the feasibility and thus implementation of VBCs: Digitalised healthcare systems offer opportunities to capture volumes of real-world data which in turn is registered in patients’ electronic health records. Artificial Intelligence applications will structure and analyse collected medical information, offering the support needed to monitor treatment performance as outlined in outcomes-based agreements²¹.

With ground-breaking innovation happening at a scientific level, the time is ripe for both payers as well as pharma companies to embrace more innovative contracting agreements. We identified four action points for a successful implementation of VBCs:

Align on value

For outcomes-based agreements, a clear definition of measurable, easy-to-define endpoints is crucial for reaching such agreements. Pharma companies should prepare to define their value strategy early in the development cycle. Thus, the (RWE) evidence generation plan is focused on the collection of clinical data that clearly demonstrates outcomes to multiple stakeholders. Such early alignments maximise the value (and price) potential of an asset and the likelihood of success for a VBC.

Understand payer archetypes

The feasibility of different types of VBCs will depend on the willingness and experience of different stakeholders in each market. Pharma companies require visibility on national differences and specific market conditions, especially in multi-payer markets where managing contracting across diverse insurance providers/ regional payers is an operational challenge. By leveraging transferable best-practice examples from analogue cases and success stories, companies can save time and overcome operational hurdles.

Ensure data quality

Due to national and regional regulations, data access varies considerably across markets and therapeutic areas. While pharma companies may be able to access structured and unstructured data sources, quality and transparency often depend on the local hospital infrastructure. As a result, companies should develop an integrated RWE strategy leveraging healthcare-systems partnerships to ensure continuous access to the data along the patient journey.

Build new capabilities

As a first step, pharma companies should assess their current capabilities to identify potential gaps in their functions. Once identified, they can focus on transforming their business by building and maintaining collaborative partnerships with novel stakeholders, integrating medical leadership into commercial practices as well as setting up Centres of Excellence across functions. Case studies from market pioneers will offer valuable guidance for companies investing in advancing their VBC capabilities.

Cell and gene therapies