Value-Based Contract BarriersThe shift under way in payment in US health care – from volume to value – has sparked interest in new contracting arrangements to pay for prescription drugs. The objective of these new arrangements is to reward successful outcomes of medication use in patients, rather than pay based on the volume of drugs sold. Unfortunately, value-based contract barriers stand in the way of one approach to managing drug costs and obtaining better value for money spent. However, achieving the full potential of these contracts will necessitate regulatory and other changes.

NEHI’s white paper outlines the opportunities for, and obstacles to, value-based contracting, and provides recommendations for moving forward.

Stakeholders convened by NEHI point to a series of obstacles that impede negotiation and execution of value-based contracts. Some of the obstacles are internal to payer and manufacturer organizations, since value-based contracting requires both types of organizations to adopt new ways of doing business. Other impediments to these contracts stem from existing laws and regulations put in place for other reasons, such as to guarantee that government programs get the best prices for drugs.

Value-Based Contract Barriers


Payers and manufacturers may have to undertake internal changes or overcome structural challenges to executing value-based contracts. These include the following:

  1. Defining appropriate goals, objectives, and performance benchmarks: Moving beyond simple contract parameters, such as the volume of drugs sold, to more complex ones such as improving patients’ outcomes, may require more costly development of new types of measures.
  2. Data collection and analysis: Results of a drug’s use among patients is proven through data collection and analysis. These activities create administrative complexity and cost not present in conventional contracts that link payment solely to the volume of drugs sold.
  3. Shorter versus longer time horizons: Biopharmaceutical manufacturers may not be able to demonstrate the full value of their products over the typical year-at-a-time period during which patients are covered by insurers. Insurers lack a clear financial incentive to cover drugs that may benefit patients who may switch their coverage periodically to new insurance providers.


At present, federal regulations that guide enforcement of laws around drug purchases – both purchasing through Federal programs and those made by private, commercial payers – do not explicitly incorporate guidance regarding value-based contracts. This lack of explicit guidance creates a degree of uncertainty that inhibits negotiation and execution of value-based contracts. Challenges with current regulation include the following:

  1. Federal Health Program Drug Price Regulations: Current regulations generally guarantee that government health programs (Medicaid, the 340B Drug Discount Program, and the Medicare Part B program) are entitled to the single lowest price a manufacturer charges any purchaser at any point in time. This policy creates a disincentive for contracts such as money-back guarantee, in which a payer would pay nothing when a drug proves ineffective as used in individual patients.
  2. The Anti-Kickback Statute: Under current statute, some “pay for results” discounts negotiated under a value-based contract might be construed as an unlawful inducement to use a manufacturer’s drug.
  3. U.S. Food and Drug Administration Regulation of Manufacturers’ Communications with Payers: It is unclear whether some communications that may need to take place to execute certain value-based contracts would be allowed under current regulations. The FDA has proposed new regulatory guidance regarding exchange of health care economic information and on communication between manufacturers and payers before a drug is approved. Both are viewed as essential to negotiation of value-based contracting, but further FDA guidance will probably be needed.