Boomerang Effect Of Gene Therapy on Oncology Contracting


Managed care is undergoing a sea change in provider reimbursement. Historically rooted in fee-for-service, a movement is underway to shift payment to various value-based forms. Focusing just on pharma and health insurance where contracts had been shaped by rebates for formulary access, managed care strategy is beginning to incorporate access contracts with rebates if products fail to deliver some level of value.
Value-based contracts cover a variety of arrangements.
These include:
  1. indication-specific coverage
  2. patient outcomes
  3. patient adherence
  4. preventing hospital readmissions
  5. total cost of care 
The last four can all be considered “outcomes” arrangements.
There are two sides to the value-based movement in pharma contracting. On the one hand, competitive forces push manufacturers to be proactive in offering value-based contracts. On the other hand, these contracts can be difficult to implement.
The most frequently cited difficulties involve:
  1. agreement on outcomes definition
  2. monitoring systems
  3. administration
  4. savings from aggressive, traditional arrangements exceeding savings from value-based arrangements 
Consequently, value-based contracting tends to occur where:
  1. There are multiple competitors with the same indication.
  2. Products are relatively interchangeable.
  3. Outcomes can be clearly defined.
  4. Brands strategically commit to building their differentiation in value-based terms. 


Oncology is one area in which the trend to value-based contracting has not occurred. Multiple factors stand out:

  • Where there is only one agent for an indication, as is often the case in oncology, the manufacturer has no reason to contract.
  • Where there is more than one agent for an indication, it’s easier and more profitable for payers to obtain steep discounts in exchange for preferring one.
  • Oncology is not a natural environment for value-based contracting.
  • National plans benefit more by simply leveraging their size for steeper rebates.
  • Regional plans don’t have the size for an adequate number of patients with a particular diagnosis to justify manufacturer risk, let alone the size to command meaningful rebate for failure. (First mover plans work around these factors.)
  • Outcomes risk requires a labor-intensive element with case-by-case reviews, introducing complexity and cost that contradict payer priorities for simplification and efficiency.

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