5 minute read 26 Nov 2018
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How outcomes-based contracts can transform health care

By

Aaron Bean

EY UK Life Sciences Commercial Lead, Ernst & Young LLP

Passionate about providing better health outcomes by crafting and providing new services, experiences and ways of contracting.

5 minute read 26 Nov 2018

Health stakeholders can fuel innovation that improves patient care by adopting outcomes-based contracts.

The Fourth Industrial Revolution and its accompanying technological advances make it possible to connect, combine and share data in new ways, creating new business opportunities in a range of industries. Health care is no exception.

Stakeholders across the health ecosystem – payers, health care providers, and drug and device developers – recognize the pressing need to move away from historic payment models based on product utilization to value-based models that reward improvements in health outcomes.

As health care costs have skyrocketed, governments, businesses and individuals are paying ever more to maintain the health of their populations, workers and families. Outcomes-based contracts (OBCs), which tie a product’s performance to emerging evidence of improved patient outcomes, are an important component in reducing health care spending trajectories to more sustainable levels while continuing to reward product makers for risky but important innovations. Without them, systematic pricing pressures will further commoditize life sciences products. That is not just bad for life sciences companies; it will also have a negative effect on the creation of new innovations that can improve patient care.

While there has been some recent experimentation with OBCs, there is still more talk than action. Stakeholders remain concerned that OBCs are too risky, too complex to design and measure, and too difficult to replicate across multiple parties, slowing their use in the real world. In the past, these concerns were warranted. Today, however, three things make the environment different:

  1. The exponential growth of health data, including from consumer devices and the expanding internet of medical things (IoMT)
  2. Readily available computational power and data storage, which make it possible to create the infrastructure necessary to manage and use health data in secure, scalable and low cost ways
  3. Stakeholders’ growing willingness to work together to create new outcomes-based models

It is now time to leverage new digital technologies that make it easier and safer to collect and share data to eliminate long-standing frictions associated with OBCs.

Health outcomes platforms: the missing piece?

In other industries, platforms have changed the way we shop, bank and travel through easy to use, secure interfaces that connect disparate stakeholders. That kind of flexible, user-centric interface has been lacking in health care. Platforms, however, could unlock outcomes-based contracting at scale by streamlining the creation, management and assessment of OBCs in the following ways:

  • Platforms provide a simple, transparent end-to-end solution that helps users evaluate an OBC business case and negotiate and create compliant contracts.
  • Platforms simplify data integration and management, eliminating costly overheads while maintaining strong data governance and security.
  • Platforms that incorporate predictive analytics algorithms can derisk OBCs by forecasting expected performance and creating consistent metrics for execution.
  • Platforms can accelerate the adoption of OBCs across multiple parties since there is little to no additional cost to add users.
health outcomes platform graphic

Three design principles

Creating a successful platform for OBCs isn’t trivial. The most robust platforms will eliminate both the hassle factor associated with current performance-based contracts and the commercial risks that have prevented their widespread adoption.

For maximum success, companies should embrace three essential design principles. These principles are:

  • Transparency: OBCs require stakeholders who don’t necessarily trust one another to work together. To have confidence that the outcomes have been correctly defined, measured, and reported, all parties must have transparency and access to up-to-the-minute data.
  • Security: Because sensitive patient data underpin OBCs, it is essential that this data is managed in ways that are fully compliant with evolving data privacy laws. Platforms must prioritize the use of anonymized and aggregated data whenever possible.
  • Scalability: A common platform that is company-, product- and market-agnostic reduces the complexity, management time – and thus, overall cost – of managing OBCs.

Not every product will merit an OBC, so building the business case is essential. Critical steps that can make the difference between success and failure include selecting the right stakeholder participants, defining the right outcomes and creating necessary support services to de-risk those outcomes. Equally important is the formation of a binding contract that distributes risk in easy to understand ways across all participants.

Another critical component is the management of the data that will be used to demonstrate an improved health outcome. Application program interfaces that limit administrative burden and allow aggregation of longitudinal data from a range of sources will be key. A structured process for data governance makes certain that the data is of highest quality and that data access and use meet the specific needs of local markets based on evolving legislation.

Transparency may be the most important of any outcomes-based platform. To have faith in the results, participants need access to near real-time analytics to monitor, evaluate and predict what health outcomes are being achieved and their financial implications. As insights about a contract’s performance become available, these data can be used to adjust an OBC to improve its success and replicate it nationally and globally.

From complexity to simplicity

Outcomes-focused platforms are new territory for health care and life sciences companies, which will have to share data across multiple parties to have transformative benefit. The goal is to take something very complicated and uncertain, the management and sharing of data, and simplify the process, so that health stakeholders can reduce the risks associated with OBCs and share in the rewards that also accelerate the delivery of new innovations to patients.

Finding the right path won’t be without effort or risk. As Henry Ford once said, “Whether you think you can, or think you can’t, you’re right.” When it comes to outcomes based contracts, the companies that choose to “think they can” will be able to deliver new services that outperform their competitors, thereby creating new growth opportunities for themselves, their shareholders – and most importantly, patients. That’s an outcome worth celebrating.

Summary

Outcomes-based contracts tie a product’s performance to emerging evidence of improved patient outcomes. It is time for health care sector to adopt such value-based models that reward improvements in health outcomes, while moving away from the historic payment models based on product utilization.
Download the full report (pdf).

About this article

By

Aaron Bean

EY UK Life Sciences Commercial Lead, Ernst & Young LLP

Passionate about providing better health outcomes by crafting and providing new services, experiences and ways of contracting.