The Bridge

What the Amgen-Harvard Pilgrim risk contract means for health care

by Marissa Schwartz and Matt Pesesky

As discount negotiations between pharmaceutical companies and insurers proliferate, Amgen and Harvard Pilgrim Health Care recently added a new twist: their new deal includes not only a discount for Repatha, Amgen’s new cholesterol-lowering drug, but also a pay-for-performance component.

Negotiations between pharmaceutical companies and insurers or pharmacy benefit managers have largely focused on price discounts. This makes sense, given CMS’s July statement attributing a sharp rise in health care spending to a combination of prescription drug spending and millions of newly insured Americans, and the popular sentiment among 73% of Americans that prescription drug prices are “unreasonable.”

But Amgen and Harvard Pilgrim’s recent deal introduces another factor, relatively new to pharmaceutical negotiations but highly familiar to those of us in the health care industry at large: value-based contracting.

Despite the proliferation of ACOs and bundled payments, in the words of Harvard Pilgrim’s CMO Dr. Michael Sherman, “the pharmaceutical segment has remained primarily in a traditional ‘pay for pill’ model.” The deal challenges the status quo, introducing an element of risk: if Repatha doesn’t lower patients’ low-density lipoprotein levels to “what was observed during clinical trials,” Amgen will provide Harvard Pilgrim with larger rebates.

Repatha and its competitor Praluent are part of a new class of cholesterol drug, called PCSK9 inhibitors. A year’s supply of either drug retails for over $14,000 and some industry watchdogs have voiced concerns that PCSK9 drugs may be overpriced. Despite their new deal, it is likely Harvard Pilgrim will continue encouraging patients to use lower-cost statins when possible.

The Repatha deal could be part of a growing trend of at-risk contracting for products and services. New market entrants, with high quality goals and corresponding prices, make sense as risk sharing opportunities, if only because their long-term results are yet unproven. At-risk contracts can be bold but sensible moves for companies willing to stand behind quality claims, insurers looking for ways to offer low-cost coverage, and providers seeking to source the best value products for their patients.

While Harvard’s Dr. Sherman hopes that “pharma companies will finally start to realize this is the right way to align with the health care delivery and financing system,” only time will tell if the Amgen-Harvard Pilgrim deal meaningfully affects high drug pricing, or encourages other pharma companies to offer risk-based contracts for high-ticket items. If they do, we’ll be watching out for a significant impact.

5 ways to strengthen your risk-based payment contracts

Value-based contracts often lack essential elements that make the difference between provider success and failure to realize ROI. Check out our infographic to see five strategies you should remember when sitting down with payers at the negotiating table.