If the Drug Doesn't Work, You Don't Pay: The Reality of Outcomes-Based Contracting

Latest idea to reduce drug costs is a wolf in sheep's clothing.

What should the price of a medication be? If your answer is "what the market will bear" then congratulations, you are qualified to be CEO of a pharmaceutical company.

Drug prices continue to skyrocket

But it turns out that "what the market will bear" gets really expensive, particularly when the people who need the medications are not, directly at least, the ones paying for them.

The cost of drugs is a problem, with increases in prices drastically outpacing inflation.

And we have heard some talk from politicians on both sides of the aisle that something needs to be done.

But don't worry folks. Big Pharma has the solution. It's called outcomes-based contracting. The basic idea – pay for this drug, and if it doesn't work, you get your money back.

If you think this is a good deal, I have a bridge to sell you. But don't take my word for it.

A new study, appearing in the Annals of Internal Medicine, looks at the PCSK-9 inhibitor evolocumab.

This is a novel lipid-lowering agent that comes in at a whopping $14,500 per year – the price the market will bear. Clinical trials show that this drug does save lives, at a cost of around $324,000 per quality-adjusted life year saved. Most health economists "value" a life-year at $100,000, so one could argue this drug costs more than 3-fold what it is worth.

But Amgen, the maker of evolocumab, has a deal for you. If you have a heart attack or stroke within 5-years of starting the drug, you get your money back.

Sound good?

It's not.

The Annals paper quantifies what you should feel in your gut. Strokes and heart attacks are rare – only about 3% per year in the high-risk group that would be receiving evolocumab. That means that 97% of people are paying full price.

Mmm... 97% of a pie.

This drug, which is 3 times more expensive than it should be based on a value-model, is now "price-reduced" to 97% of its original value.

According to the Annals study, even if Amgen offered to pay for all the inpatient costs of the stroke or MI AND refund the money spent on the drug, the cost per life-year saved would drop from $324,000 per year to $314,000 per year.

The main problem is their definition of the drug working for you. They are assuming that, if you don't have a Stroke or MI, the drug worked. This is a major fallacy. Most people don't have a stroke or MI with or without this drug.  You know, what? The Simpsons said it best:

Don't buy this rock.

What baffles me here, is why would a payer ever accept this? It's so obviously a bad deal. Is it just a PR stunt?

Some researchers believe that outcomes-based contracting is not actually designed to ever be implemented. Rather, they are designed to change the law. See, the pharmaceutical companies argue that outcomes-based contracting would be so great, but they just can't do it because the law gets in the way.

What laws? Well, the one forbidding them from marketing for off-label usages.  And the Medicaid best price rule. And the anti-kickback statute.

If that's the game it's pretty clever. Argue you need these consumer protections rolled back to offer a novel pricing model, then no one takes you up on your novel pricing model (because it's useless) and enjoy your new regulation-free world.