Value-Based Oncology Management and Outcomes-Based Contracting

Wayne Kuznar

December 2016, Vol 7, No 11 - Value in Oncology


Washington, DC—An innovative, value-based approach to managing the cost of oncology care moves away from drug-spending volume toward the appropriate use and quality of drug therapy, said Alan Lotvin, MD, Executive Vice President, Specialty Pharmacy, CVS Health, Woonsocket, RI, at the Sixth Annual Conference of the Association for Value-Based Cancer Care.

“My very first principle is whenever you lower cost for any given outcome, you’re going to improve value,” said Dr Lotvin. “That’s why I’m not so quick to throw out some of the traditional managed care approaches in our quest to better associate value and cost,” he added.

A variety of innovative approaches have been tried to better connect cost and patient outcomes. For example, Cardinal Health, Anthem, and Via Oncology established guideline or pathway programs, with the understanding that nonadherence to cancer treatment guidelines decreases patient survival (Table 1). Although anecdotal evidence indicates that pathway programs are associated with drug savings and a positive impact on quality of care, published outcomes data are scarce.

Table 1

Outcomes-Based Contracting

Outcomes-based contracting is another value-based approach that Medicare uses. Medicare reduces reimbursement for hospital readmission rates that are above a certain norm, and does not pay for any increased costs associated with “never events” (ie, operating on the wrong body site, complications associated with the use of the wrong drug).

Prospectively, outcomes-based contracting would mean tying reimbursement for a drug to the outcome of an individual patient or a group of patients, in the form of a higher payment or avoidance of paying an incremental discount for favorable outcomes. The obstacles to this type of contract include defining a successful outcome and operating in a fragmented US healthcare system, making it difficult to determine payment for patients who switch health insurers or who move on to Medicare (Table 2).

Table 2

Retrospective outcomes-based contracting uses clinical trial data to assess the willingness to pay for a drug. “Retrospectively, there isn’t often enough comparative effectiveness data between drugs, so you’re often looking at comparative effectiveness for a given drug across multiple indications, which is good in cancer, because there are a lot of drugs that are used for multiple indications.”

For example, erlotinib (Tarceva) has demonstrated a 10-month improvement in survival compared with the previous standard therapy in patients with metastatic non–small-cell lung cancer, but only a 2-week improvement in survival among patients with pancreatic cancer.

“Why should we pay the same amount per unit when the efficacy or the value created is so much less? You can think of a hundred examples in the consumer world where you would never do that,” he said. “I would love to pay the price of an Audi A4 and get a Bentley.”

Although outcomes-based contracting is established in several countries, others remain skeptical, he said. One of the key principles of outcomes-based contracting is that the value (discount) should be incremental to what can be done in a standard contract.

“Some recent launches of large products have included performance-based features of their contracts on top of their base contracts. None of the results have been published, nor are the arrangements particularly commonplace,” said Dr Lotvin.

Another principle is that the outcomes are clearly defined and easily measurable, and “you know what happens to the entire patient cohort, irrespective of whether they drop off the insurance company or not,” he said.

Evolving Formularies

Formulary approaches to cost management continue to evolve. Adding new indications to existing specialty drugs is common. Supplemental indications present significant potential for increased competition in selected drug classes.

An indication-based formulary would create a stronger position to negotiate discounts for drugs that are used for an indication for which there are multiple competitors, said Dr Lotvin.

“We’re going to see more and more of this type of contracting as we go forward…because of the immediate reduction in costs, which translates into an immediate increase in value,” predicted Dr Lotvin.

Prior authorization is a quality enhancement tool to help ensure adherence to guidelines and eliminate unneeded costs. “We looked at patients who were being referred for trastuzumab [Herceptin]. Just under 15% of the people had no documented HER2 test done despite a request for trastuzumab. It’s pretty straightforward,” he said.

In oncology, savings from prior authorizations are typically 3.5% on the pharmacy side and 2.5% on the medical side, he said. When combined with all of the medical spending, the total savings from prior authorizations approaches $10 million per 1 million members.

Bundled Pricing

Bundled payments may be the next major wave in value-based care, as provider groups assume more risk, said Dr Lotvin. In this system, a guaranteed episode rate that includes all drug-related care and ancillary support is paid for a newly diagnosed member.

A network of high-quality, community oncologists maintains current reimbursement levels and autonomy. The provider reimbursement and incentives result in the most clinically appropriate and effective therapy, he said. The provider reimbursement is based on the drug acquisition cost, the drug margin, and a performance-based bonus. This type of value-based on­cology management should reduce costs and enhance outcomes, concluded Dr Lotvin.