Mark Lutes Featured in MCOL ThoughtLeaders: Outcomes-Based Pricing Arrangements

MCOL ThoughtLeaders

Mark E. Lutes, Chair of the firm’s Board of Directors and a Member of the Firm in the Health Care and Life Sciences practice, in the firm’s Washington, DC, office, was featured in an MCOL ThoughtLeaders newsletter, on the topic of “Will outcomes-based pricing arrangements between purchasers and pharmaceutical organizations become widespread, and will they have a material impact on prescription drug costs?”

Following is an excerpt:

Adoption of value based arrangements for pharmaceuticals will continue in special cases but their widespread adoption faces several practical hurdles. Given space constraints, here we identify two of the factors worth considering in selecting optimal cases where “the juice will be worth the squeeze” involved in conceptualizing, modeling and negotiating the arrangement.

First, the pharmaceutical can facilitate a care management plan but, in many instances, its presence or absence will not be the only or even primary variable in cost control and outcomes. The ability to attain quality and cost goals for the target population will commonly also depend on a range of care plan factors governing readmissions, recurrence, or relapse. Those factors will include the followup care, adherence protocols, and control of co-morbid conditions. Success in those realms will not be under the control of the manufacturer and that will temper the manufacturer’s ability to provide cost guarantees. Those complexities also suggest that the some manufacturers will consider developing full care management organizations around the condition being treated so that the promise of the pharmaceutical can be realized and the cost/quality metrics promised can be met.

Second, the “bargain” being negotiated will be dependent on the complexity of the patients being measured. There is much work to be done in defining the subject population and controlling for intervening variables. In some cases, sufficient data or experience will be lacking. For many other potential purchasers, the remaining “N” (subject patient cohort) may be too small to make it cost effective to continue the negotiation of the arrangement including such features as the, mode for risk assessment and adjustment, the trigger for the case rate or other guarantee, and the duration of the episode.

The manufacturer will often have the “will” to find the “way”. However, many purchasers, beset by a thousand operational and strategic challenges as well as splintered ordering patterns among network participants, will lack the incentive to devote the time and resources to the effort. Manufacturers may find that their proposals in this regard are best received by integrated delivery systems that have already picked the low hanging fruit for the applicable condition’s care path and have the care management structure in place to reasonably control the other variables impacting the outcomes and total cost of care for the condition at issue.