BCBS Tries New Drug Contracting Model

Some Blue Cross Blue Shield health plans are trying to achieve medication cost savings in the form of discounts and rebates through outcomes-based contracting. While the effort is showing significant value-based potential, tracking cost savings has so far been elusive.

Health plans seeking to rein in runaway drug costs should consider the sage words of the Chinese philosopher Lao Tzu: "The journey of a thousand miles begins with a single step."

Efforts to established value-based pricing for drugs are in their infancy, but a consortium of 13 Blue Cross Blue Shield health plans owns a company that is making impressive baby steps.

Eagan, MN-based Prime Therapeutics LLC manages pharmacy benefits for health plans, employers, and government agencies including Medicare. The company began as little more than a twinkle in the eyes of executives at Blue Cross Blue Shield of Minnesota more than 25 years ago. Now Prime provides pharmacy benefit manager (PBM) services for more than 25 million people.

Four years ago, Prime started negotiating outcomes-based contracting for drugs with pharmaceutical manufacturers, according to Steve Johnson, the PBM's senior director of health outcomes. "It is an approach to contracting that is not linked to formulary," he told me last week.

The business side of outcomes-based contracting, which Prime calls 'care-centered contracting,' is relatively easy. Prime cuts an outcomes-based deal with a pharmaceutical manufacturer, "then brings that care-centered contracting opportunity to the Blues plans for their and dissemination," Johnson told me.

But negotiating an outcomes-based contract deal is "very challenging," he says.

Prime has developed several forms of outcomes-based contracting. The most popular model is medication-adherence improvement incentives, Johnson says. "It's easier to set up, to measure, and to report on," he says.

Medication Adherence
In terms of alignment, which has become the Holy Grail of many healthcare industry reform initiatives, medication adherence is a win-win-win. Patients feel better if they can be faithful to their prescribed medication regimen. Pharmaceutical manufacturers feel better because they can maximize drug sales. And payers feel better because medication adherence helps avoid costly trips to the hospital. "Adherence to therapy has been shown to have a benefit," Johnson says.

Compared to other forms of value-based drug pricing, the mechanism for medication adherence-improvement incentive contracting is relatively straightforward.

For many drugs, Johnson says the gold standard for adherence is 80%. In other words, if patients are taking their medications as prescribed by their doctors at least 80% of the time, then they have cleared the medication-adherence threshold.

This is where Prime puts the incentive in medication-adherence improvement incentive contracting: If a health plan can boost medication adherence over the 80% threshold, then the insurer can reap a discount or rebate from the pharmaceutical manufacturer.

Johnson describes two forms of medication-adherence improvement incentive contracting. One rewards health plans for members reaching an established medication-adherence rate such as the 80% threshold. "If we can get some percentage of our members over 80%, then we can negotiate a discount."

The other rewards health plans for demonstrating year-to-year increases in adherence rates.

Adherence 'Simple' to Measure; Costs Elusive
Tracking medication adherence is relatively simple, Johnson says. "Adherence is pretty easy to measure. You use the prescription claim history as a 'surrogate.' You have to assume based on the prescription claims that they are using their medications."

Drug price discounts in medication-adherence improvement incentive contracts range as high as 3%, but have the potential to be significantly higher, according to Johnson.

Prime's other models of outcomes-based contracting are more complicated. Johnson says the most ambitious model is medical-event avoidance protection.

"Medical event-avoidance protection care-centered contracting provides an incremental payment from the manufacturer when the medication is in the formulary preferred tier status, the member is adherent to the medication, and a medical event occurs that the medication was intended to prevent," he says.

Real-life challenges such as varying rates of patient adherence to medication regimens have made medical event-avoidance protection contracting difficult to negotiate and operationalize, he says. "We've been working on it for a few years," Johnson says. Prime has established one contract under this model so far, but has yet to gather a full year of data to assess the deal's performance. "We're getting a lot of interest, but it's challenging."

But Johnson says tracking the cost savings from outcomes-based contracting for health plans and their members also has been elusive. "We've been asked that number forever. It takes years to get that data," he says. "There is agreement that the drugs are effective. The question of cost savings goes back to the data showing the drugs are effective."

The absence of cost-saving data may be disappointing, but if health plans want to control the soaring costs of medications, they have to start somewhere.