There’s a new trend shaping up in the drug pricing landscape.  Health insurers and pharmacy benefit managers (PBMs) are pursuing value-based or “pay-for-performance” (P4P) contracts with drug makers to better connect patient outcomes to drugs for costly diseases including cancer, cardiovascular disease, and diabetes.  Unlike traditional volume-based drug pricing models, paying for “performance” means drug companies agree to a fixed price that can later be discounted if the drug does not bring measurable benefits.  In other words, under P4P,  payers are eligible to receive performance rebates, or discounts, for drugs that fail to meet agreed upon clinical outcomes.

What does this mean for pharma manufacturers, healthcare insurers and patients?


Structurally, pay-for-performance deals should incentivize drug manufacturers to focus on value and ultimately deliver pharmaceuticals worthy of their price tags. The more effective their products, the fewer backend discounts they would have to pay, netting them more overall revenue.  For drugs with proven performance, manufacturers will be able to justify higher fixed prices with claims such as “proven efficacy for combating problem X.”

In addition, due to the rebates, P4P contracts might encourage new drugs to be prescribed sooner after approval, therefore getting them into the market faster.  Earlier this year, for instance, Eli Lilly endorsed a pay-for-performance deal for their GLP-1 diabetes treatment, Trulicity, with Harvard Pilgrim Health Care.   Michael Sherman, Harvard Pilgrim’s Chief Medical Officer, commented, “Executing these types of agreements can make it easier for payers to provide access to newer therapies since they tie payment for the drugs to meaningful endpoints.”

And just last month, Aetna announced they had entered an agreement with Merck for their DPP-4 diabetes drugs, Januvia and Janumet, requiring Merck to pay rebates if patient treatment goals are not achieved.  CMO and EVP of Aetna, Dr. Harold L. Paz, explained, “At Aetna, we believe that focusing on how physicians prescribe medications in real world settings is a key element in determining the value of the treatment.  It is in everyone’s interest to ensure that patients receive appropriate medicines to help patients achieve their treatment goals.”

Healthcare Insurance Providers and Patients

With built-in requirement for results, P4P contracts might allow physicians and patients to choose drugs with more confidence, less risk, and more overall data.  Because performance must be documented,  P4P contracts will generate more real–world and comparative data focused on proving clinical results, which ultimately benefits clinicians recommending drugs and patients  seeking medications with better–than–expected efficacy.  Because the purchasers– payers and PBMs– are guaranteed discounts for “underperformance,”  P4P contracts might mitigate risk and could, as previously mentioned, accelerate patients’ access to new drugs.

Challenges of Pay-for-Performance

While value-based agreements are getting more attention, there are several challenges to their broad adoption.  Health professionals, for instance,  may be conflicted about switching their patients to a more expensive “pay-for-performance” drug if they already use and trust a cheaper, generic medication.  Similarly, insurers may find it hard to embrace a new P4P deal if there is a limited history of the product’s effectiveness.  Perhaps the biggest challenge to rapid P4P adoption, however,  is the complexity of patient health factors that come into play when demonstrating real–world medication performance.

For example: in diabetes, A1c is one of the primary lab tests.  To agree to A1c reductions as a performance measure for its products, drug manufacturers need a way to account for and understand the numerous factors outside the drug itself that contribute to A1c results. For instance, patients who exercise everyday and adopt a balanced meal plan may have different A1c outcomes than patients on the same drug who consume excessively starchy, processed meals and only exercise twice a week.  In this case, there could be dramatically different results across patient groups, making it challenging to measure results and therefore difficult to pay-for-performance.

Diet and exercise are not the only complicating real–world influences.  Other external elements that impact drug performance and have historically been out of the manufacturer’s control include important treatment factors such as appropriate initial drug dosing and titration, as well as patient care plan compliance.

Could Glooko’s Integrated Data Platform impact P4P?

In a word, yes.  Glooko’s unified diabetes population management system is unique in its ability to gain widespread access to “verified” patient data, which can act as a way to measure outcomes in the real world.

Glooko can also help users remain compliant with their diabetes medications and overall care plan, reducing the potentially negative “outside” impacts that can alter the outcomes of a person on a P4P medication.  On top of that, Glooko’s remote patient monitoring solution can even go a step further and be used to actively promote behaviors that drive positive performance outcomes.  This includes using the system to help manage behavioral issues such as diet and exercise, as well as key drug-specific treatment factors such as dosing and adherence.

So, Pay or Nay?

Pay-for-performance deals remain limited in the U.S. today , as drug companies are reluctant to take risks without the ability to see or control how a drug is prescribed and used in real–world settings.  However, with a unique real-world focused solution like Glooko, key stakeholders could be better equipped to monitor and manage diverse risk-based patient populations and “pay-for-performance” deals could become a far more attractive option in the future.

Steven Denys

Steven leads business development efforts at Glooko. He's a huge proponent of the remote patient monitoring movement as well as empowering people with diabetes to take control of their condition with Glooko. He also loves to travel internationally and experience new cultures.