Merck and Aetna pair population health with risk-sharing, in two deals

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Robert McMahon (left), president of the U.S. market for global human health for Merck, and Dr. Harold Paz, EVP and chief medical officer at Aetna Photos credit: HollenderX2

A decade-long study of value-based drug pricing in the U.K. demonstrated the concept was ahead of its time. In America, pay-for-performance pricing deals involving pharmaceutical brands and insurers have historically come up short. So why do Merck and Aetna — one of the latest such pairs to enter a deal using value as the basis for payment — believe their agreement will fare any better?

In October, Merck and Aetna announced two agreements, each of which aims to address the gaps in a health system that often allow chronically ill patients with type 2 diabetes to get sicker.

The agreements between the healthcare giants underscore the move toward value, even as the industry grapples with how best to implement complex contracts that often require drugmakers to take on financial risk in a climate where their business models are in question.

See also: PBMs unveil 2017 formularies, retain focus on exclusions

As part of one contract, Merck assumes some financial risk for its type 2 diabetes medications Januvia and Janumet. If Aetna members with type 2 diabetes taking those drugs don't meet certain goals — such as hitting their A1C or blood-sugar targets — Merck will pay a rebate to Aetna that increases depending on the number of patients who miss the targets.

But if patients hit those goals, which are measured by analyzing data from Aetna's claims database, Merck will not make any extra payments to Aetna.

The other agreement involves AetnaCare, a new program that uses predictive analytics to identify about 500 at-risk patients diagnosed with hypertension or diabetes. The data will be used to create care maps designed to help those patients by giving them social support through phone calls and in-person visits from four Aetna nurses on a regular basis.

“So many of the challenges in America's healthcare system are the result of poor communication, a lack of follow-through, a lack of information, or information that an individual often does not find actionable,” explains Dr. Harold Paz, EVP and chief medical officer at Aetna. “We're trying to change all that, and we believe if we can, it really hits at eliminating some of the waste in the healthcare dollar.”

 


These types of agreements between pharma companies and health insurers are becoming increasingly popular. In 2016, Novartis, Amgen, and Sanofi publicized risk-sharing, value-based, outcomes-based, or pay-for-performance deals, all of which vary slightly in definition.

Novartis CEO Joe Jimenez told investors he expected to see more of these deals going forward. “We're not seeing an inflection point,” he notes.

However, the separate AetnaCare agreement makes the Merck-Aetna relationship unique. As part of that program, which launched in January, Aetna will identify at-risk members who have commercial insurance coverage and who are participating in two accountable care organizations (ACOs) created by the insurer in northern New Jersey. Merck has provided adherence tools and educational resources.

See also: Novartis says slow Entresto sales due to limited access

“More manufacturers will make similar arrangements that drive more toward population health and go beyond the contracting element,” predicts Rujul Desai, VP of Avalere Health.

Healthcare experts see promise in outcomes-based agreements, which can help drugmakers create market share by ensuring volume or preferred formulary status. At the same time, these agreements also force pharma companies to stand by the value of products they market to insurers, which often foot the bill for costly and sometimes unproven new drugs.

“It is an economically rational thing to do,” says Robert McMahon, president, U.S. market for global human health at Merck. “In this case, the consequences are so enormous and the population is so enormous, it's a very rational place for us to go together.”

But the jury is out as to whether the contracts improve patient care and cut costs for insurers. There are also a number of lingering questions about the design and implementation of the agreements — for instance, to what degree an insurer and drugmaker can trust each other when it comes to sharing proprietary information — and whether current regulations, such as Medicaid's best-price rules, the FDA's off-label communications policies, and the anti-kickback statute, limit the reach of the agreements.



THE FIRST CONTRACT

Merck and Novartis are widely considered to be the earliest adopters of value-based agreements.

Merck signed its first agreement of this kind in 2009 — with Cigna for Januvia and Janumet, which were approved in 2006 and 2007, respectively. As part of that agreement, Merck paid a higher rebate to Cigna when members taking the drugs reported certain blood-glucose levels. Drugmakers usually pay rebates to insurers as part of the reimbursement process. Those rebates, which are tallied on a quarterly basis, are on average between 20% and 30% of the drug's wholesale list price, explains Pratap Khedkar, principal at ZS Associates.

By 2010, Cigna noted blood-glucose levels across all of its members with diabetes had improved by 5% regardless of what drug they used, according to a 2011 study published in Health Affairs.

 

 



While groundbreaking in nature, the Merck-Cigna deal is often described by industry experts in a lessons-learned type of way, most likely due to the fact these kinds of contracts were such a nascent concept eight years ago. But the contract still stands, and it continues to assess adherence and HbA1C control, notes a Merck spokesman.

Since then, Merck has signed more than a dozen value-based contracts in several therapeutic areas, McMahon says, although he declined to provide details about the agreements.

“We've learned a lot since 2009,” he notes. “We've entered into a range of value-based approaches with customers across other therapeutic areas that has accumulated our ability to do this.”

This required an investment from Merck, which has installed new systems and hired people with actuarial expertise to better negotiate these contracts.

“We've been tooling up for the last several years to do exactly the kind of thing we're talking about now,” McMahon adds.

See also: Drugmakers explore response to pricing debate

Here's how the risk-sharing works. It only applies to Aetna's members with commercial health insurance; Januvia and Janumet have preferred, branded tier access on the Aetna formularies; and higher rebates from Merck to Aetna are triggered when patients do not achieve treatment goals and require further therapy, which often means different drugs.

There are two challenges when developing this kind of contract. First, both parties have to agree to the same endpoints. Second, insurers and drugmakers may differ as to what constitutes a successful bout with a therapeutic agent. Does a reduction in hospital stays count? What about clinical markers?

“You have to have aligned interests,” McMahon responds. “You have to trust each other, and it has to be simple and clear when the contract is working and then how well it's working.”

Both drugmakers and insurers are trying to create more certainty in the way they handle contracting for medicines, especially given the steady climb of prescription drug spending and the now-constant furor over how companies price their products. For pharma companies, value-based contracts may raise one major concern: If a product overperforms, such as by delivering more benefits than they anticipated or modeled against, their budgets would be impacted.

“Uncertainty creates a degree of uneasiness,” says Michael Zilligen, president of Ogilvy CommonHealth Payer Marketing.

See also: Express Scripts' Steve Miller takes on drug industry in pricing battle

Another challenge is making sure both parties have internal data systems in place that can evaluate and track this kind of information.

“The appetite to implement a value-based contract, on the manufacturer or payer side, is far more complex than people appreciate,” explains Roshawn Blunt, managing director at 1798 Consultants, a pharmaceutical reimbursement consultancy. Even so, she adds, “Every payer asks for one.”

Aetna, Cigna, and Harvard Pilgrim Health Care each announced several outcomes-based agreements in 2016. Express Scripts, the nation's largest PBM, launched an indication-based pricing model for cancer medicines last year. And experts say the number of agreements is most likely much larger than what has been announced, but not every participant publicly shares news about the contracts.

The majority of the agreements publicly shared in 2016 were for new drugs, including Novartis' heart-failure drug Entresto, Amgen's PCSK9 inhibitor Repatha, and Sanofi and Regeneron's PCSK9 inhibitor Praluent, all of which received FDA approval in mid-2015. A few other contracts are for established products, such as Januvia and Janumet.



THE VALUE GAME

The term value-based care has been tossed around frequently in healthcare circles. Hospitals have focused on it, as have insurers. And, until President Donald Trump's inauguration, the government, when implementing the Affordable Care Act, has had a vested interest in promoting a value-based health system rather than a volume-based one, and it has said 50% of all Medicare payments will come from alternative payment models by 2018. Even medical-device makers have started to pursue risk-sharing contracts with hospitals.

The topic gained even more prominence in recent months after Trump announced Rep. Tom Price (R-GA), an orthopedic surgeon by trade, as his nominee for Secretary of Health and Human Services. Price has questioned how value-based healthcare can impact the delivery of care.

Nevertheless, as far as pharma is concerned, that ship appears to have sailed. “It's been a gradual, ongoing progression for the market to move from volume to value,” McMahon says. “Almost everybody in the market, whether it's the integrated delivery networks or the insurers, is moving to be on more value-based footing.”

Until recently, though, the value game hasn't been played aggressively by drugmakers. Only a few signed value-based contracts with insurers and PBMs even as commercial payers, physician groups, and hospitals increasingly began to engage in risk-sharing as part of the nation's shift away from volume-based care. But if this new wave of value-based contracts is any indication, the level of involvement from drugmakers in value-based care is likely to increase.

See also: Power to the payers: PBMs leave behind a trail of tiers

“There's shared risk,” Aetna's Paz notes. “It seemed logical to try to expand that beyond hospitals and physicians. If you consider the role of pharmaceuticals, the pharma industry, and the opportunities that exist, it seems there's a natural place to go in the next step.”

What's driving these traditionally siloed stakeholders to come to the bargaining table more often, you ask? One reason may be that it's getting harder for drugmakers to market new drugs. The launches of Entresto, Repatha, and Praluent — drugs with big-time blockbuster expectations — were underwhelming. Insurers balked at their prices and warned against inappropriate utilization of PCSK9 inhibitors.

In fact, the agreement between Harvard Pilgrim Health Care and Amgen has a focus on making sure the right patients are prescribed the right drug, whether it's the PCSK9 inhibitor or a statin, per “appropriate use” requirements cited in the contract, notes a Harvard Pilgrim spokeswoman.

“Agreeing to pricing models that align payment with appropriate outcomes is critical if we are to better manage increasing drug costs,” says Michael Sherman, Harvard Pilgrim chief medical officer, in a news release.

Insurers had worried PCSK9 inhibitors would be prescribed for unapproved indications — particularly to statin-intolerant patients, a significantly larger population than the one of patients with conditions cited on the drugs' current FDA label.



POTENTIAL FOR CHANGE

Even as some drugmakers tiptoe into the world of value-based agreements, others have not. Experts say the reason may be a trio of longstanding regulations the industry believes hamper innovation in contracting.

The current off-label communications rules may be one such example. Regulations say drugmakers can only agree to outcomes that are consistent with a therapy's FDA-approved label. “It's up to the payer to decide what is medically appropriate,” says Khedkar.

On the other hand, drugmakers are limited to discussing what is on the label. For example, the Januvia and Janumet labels state the drugs lower A1C levels.

“But [Paz] is worried about things such as ER visits and longer-term neuropathies, which are costly to the healthcare system,” McMahon explains. “One would hope treating them effectively with an oral diabetic agent would help to avoid those. But we can't necessarily go there because this would be prohibited based on the current regulatory structure.”



These rules may be changing. Following a series of lawsuits decided in favor of drugmakers, the FDA is gathering comments about two new draft guidances on off-label communications. Moreover, the 21st Century Cures Act requires the agency to issue draft guidance on the use of real-world evidence in supplementary indications of already-approved drugs, as well as to clarify what kinds of information beyond the FDA-approved label that drugmakers can share with payers.

“Truthful, competent, and reliable evidence should be a part of the dialogue with healthcare decision-makers,” said Dr. Sandra Milligan, SVP of global regulatory affairs and clinical safety at Merck, during an FDA hearing in November.

But that's not all drugmakers are asking for. A year ago, Eli Lilly and Anthem issued a series of policy proposals aimed at promoting value-based contracts. The companies called for the expansion or creation of safe harbors that would protect them from violating the Anti-Kickback Statute, and new regulations that would exclude payments made through value-based contracts from the Medicaid best-price rules. Those rules say that if a drug fails in a patient as part of a value-based arrangement, then that low price has to be applied to the drug's use in all Medicaid patients.

“By creating an environment in which value-based contracts are permitted, increased collaboration between health plans and manufacturers to enter into such contracts presents a significant opportunity to drive quality and access, create savings, and slow cost growth,” the companies explain in a statement.



ADDRESSING BARRIERS

Aetna and Merck have also considered collaborating on a proposal that would address what they believe are barriers to more detailed value-based agreements.

“We need to find ways to have larger safe harbors in order to do that, or these kinds of relationships are going to have their limitations,” McMahon says.

Some experts believe the anti-kickback and best-price rules will be changed. If that happens, pharma marketers will be tasked with proving their medicines improve outcomes, a shift that may require drugmakers to develop new support services and technologies to bolster their marketing strategies, explains Paul Darling, a managing principal of ZS Associates.

See also: Pharma pushes to share off-label info with payers at FDA hearing

Either way, expect to see more of these contracts, as well as value-based agreements between drugmakers and IDNs, and with health systems.

“The number of agreements is a function of value-based contracting as it shakes out across the spectrum,” 1798's Blunt says. “Manufacturers are also acutely aware of value-based contracting with a provider, an ACO, or a patient-centered medical home.”

The contracts will likely be greater in scope and increasingly complex. More of them will take into account population health, similar to Merck's involvement in AetnaCare.

“This model of saying, ‘We'll have an outcomes contract in diabetes' takes partnership to another level, in a different way than manufacturers and payers have worked,” Avalere's Desai says. “They are charting some exciting new ground in that area.”

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