Over the last 15 years, there has been a shift in the healthcare industry from the traditional fee-for-service model to value-based contracts. Rather than paying for healthcare services based only on the number of services provided, a value-based contract is influenced by the quality of the service provided to the patient.
This type of contract is connected to patient outcomes and drug efficacy. However, the adoption of value-based contracts has been slower than expected, and some payers, providers, and pharmaceutical manufacturers are still slow to adopt this model. Let’s look at the pros and cons of this type of contract and how artificial intelligence (AI) can position healthcare companies to succeed with value-based contracts:
Pros of Value-Based Contracts
Value-based contracts put the quality of patient outcomes first. Tying cost to the quality of service automatically prioritizes patients, in addition to the pros listed here:
Reduces Cost
Most value-based contracts aim to reduce costs by eliminating unnecessary services and sharing savings gained through lowering care costs. The transition to value-based contracts involves rethinking how payments are reimbursed. Generally, payers want to avoid paying for medications that don’t work.
However, in a value-based contract, the payer only pays if the medication produces the desired effects. In turn, pharma receives cost benefits from this arrangement.
Improves Adherence and Support
Value-based pharmaceutical contracts are arranged to reimburse payers for drug failures. This generally comes with medication adherence requirements, which translates to patient support programs. As a result, there may be better patient outcomes and reduced medical costs.
For example, Aetna Specialty Pharmacy supports patients through a payer-based care management program that assists with therapy adherence, resulting in a 96 percent treatment adherence rate for drugs that treat HIV, pulmonary arterial hypertension, and hepatitis C.
Patient-Centric Model
According to recent research, more than 50 percent of physicians stated they were more likely to prescribe medications from a pharma company they considered more patient-centric. A patient-centered approach allows pharma to reach out to patients who need the most support by delivering educational content tailored to them.
Cons of Value-Based Contracts
Although value-based contracts focus on the quality of care, there is still hesitation to fully adopt this model. This is in part because of the complexity of this type of contract, in addition to some other cons:
Complex Contract Models
Value-based contracts are often complex, and who benefits and how they benefit can be unclear. Additionally, without transparency in price calculation, pharma companies and payers are not reaching common ground, resulting in payers not wanting to enter a value-based agreement. For this type of contract to become more widespread, all parties involved must be comfortable with shared risk.
Revenue Inconsistency
Revenue can be inconsistent in the early stages of a transition to a value-based contract. As a result, resources are often stretched thin to cover for other departments that cannot easily transition to value-based care. Additionally, there has been inconsistency in aligning physicians with the health system, resulting in limited value-based care arrangements.
Uncertain Efficacy and Timing
When a contract is tied to quality of care and medication efficacy, the path forward can be unclear for pharmacies. For example, pharmacies don’t know the intricacies of a patient’s condition and how long they should wait until medications start to work.
Best Price Model
The Medicaid “best price” model requires manufacturers to provide Medicaid programs with the lowest available price for medications. As a result, this model has the unintended impact of preventing some value-based agreements. For example, in a value-based care model, a payer is refunded if the therapy fails, which could reset the best price and result in the manufacturer offering a new lower price to the program.
However, Pfizer has created a structure to work around the “best price” model by contracting with an insurance company. In this structure, the payer pays Pfizer for the drug while Pfizer pays the insurance company. If the patient needs to discontinue use of the drug for clinical reasons, then the insurance partner provides the refund.
Inflation Reduction Act
While not a value-based care arrangement, the Inflation Reduction Act also affects healthcare organizations’ contracts. The new drug law specifically applies to patients with Medicare and lowers prescription drug costs for them. For example, there’s a yearly cap ($2,000 in 2025) on out-of-pocket prescription drug costs. In addition, according to CMS, “Medicare will be able to negotiate directly with drug manufacturers to lower the price of some of the costliest single-source brand-name Medicare Part B and Part D drugs.” Keeping in mind the different and emerging contract structures in healthcare is necessary to anticipate its impact on the business and serving patients.
Using AI for Value-Based Contracts
For value-based contracts to be successful, they need to be paired with a patient-centered approach. Healthcare organizations can implement a value-based contract while delivering patient-centered support with AI.
How? AI technology can pull data from various sources and make predictions, such as which patients are at the highest risk of not adhering to their medications and what outreaches would best support them. It then goes a step further, providing recommendations for the ideal outreach channel, messaging, and timing, thus improving patient engagement, initiation, adherence, and outcomes. See how AI can deliver patient-centered support in a value-based contract, contact us for a demo today.
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