Rethinking Healthcare Contracting: Why It’s Time to Contract for Outcomes, Alongside Volumes
In today’s healthcare landscape, contracts are not merely legal formalities. They shape the financial health of the pharma companies, influence care delivery, and impact patient outcomes. With rising healthcare costs and evolving care models, a paradigm shift is underway - one that moves us from volume-based contracts to outcome-oriented agreements.
Why Volume-Based Contracting Should Not Be the Only Approach
Volume-based contracting has long been the go-to strategy in pharma and healthcare, where discounts are tied to how much a product is purchased. While it can help control costs and encourage loyalty, relying solely on this approach has serious drawbacks, especially in today’s evolving healthcare landscape.
1. It’s not always realistic or sustainable: Volume-based contracts often require buyers to keep increasing their purchases every year, sometimes by 20% or more. Over time, this can become impossible to maintain, especially when patient volumes don’t grow at the same pace. If buyers fall short, they lose their discounts or face penalties, creating more pressure and risk.
2. It benefits suppliers more than buyers: These contracts are often structured to lock in revenue for suppliers, not to serve the buyer’s long-term interests. Even if the buyer is already purchasing most of their products from one supplier, they still need to commit more to maintain their current pricing, without any added value.
3. It doesn’t reflect actual outcomes or value: Volume-based deals reward higher utilization, not better patient outcomes. In today’s world, we need contracts that focus on whether treatment is effective. That’s where outcome-based and performance-based contracts offer a smarter alternative, tying payments to real-world results like improved health or reduced hospitalizations.
4. It encourages waste and misaligned priorities: Pushing for more volume just to meet a contract threshold can lead to overuse or unnecessary spending. This goes against the broader goals of outcome-based care, which aim to improve quality and efficiency, not just quantity.
5. It ignores market and clinical realities: Not all products are suited for volume growth. Rare disease drugs, niche therapies, or newer products might have limited eligible patients. Forcing volume targets in these cases doesn’t work and can set the contract up for failure.
6. Today’s data makes better contracting possible: With better access to real-world data, claims information, and patient outcomes, we can now design contracts that go beyond volume. For example, some agreements link payments to a drug’s ability to reduce hospitalizations or improve patient adherence, making them more aligned with what really matters.
7. The future should be a mix of models: Volume-based contracting still has a place, especially for generic or high-use therapies, but it shouldn’t be the only tool in our kit. A hybrid model that combines volume incentives with value-based outcomes can deliver better results for both pharma companies and the healthcare system as a whole.
The Emergence of Outcomes-Based Contracting and Its Evolving Approach
Outcome-based contracting (OBC) is gaining attention across healthcare, especially in biopharma and medical technology, as a more meaningful way to evaluate the success of treatments. Instead of being paid based on quantity, providers and manufacturers are increasingly rewarded for delivering better patient outcomes.
A good early example comes from 2016, when Novartis partnered with Cigna and Aetna on a value-based agreement for Entresto. Payments were tied to reduced hospitalizations—a clear, meaningful patient outcome. Then-CEO Joseph Jimenez summed it up: “We want to be rewarded for the tangible outcomes our products provide patients, not for simply selling pills.” (Source link: Why The Approach To Drug Pricing Has To Change Now)
This mindset reflects a much larger shift happening across the industry. Just as car companies have moved from selling vehicles to offering mobility services, or tech firms now sell platforms instead of just products, pharma is starting to move from “selling pills” to delivering health solutions. Imagine not just a drug, but a complete hypertension care package - medication, a digital monitoring app, integration with wearables - all bundled as a service. The company gets paid not for the number of pills sold, but for lowering blood pressure. That’s the bigger transformation outcome-based models make possible.
So what makes outcome-based contracting such a compelling model?
1. Shifts the focus from volume to real results: Instead of measuring success by how many units are sold, OBCs tie reimbursement to whether the treatment actually works. This leads to a more patient-centered approach, ensuring healthcare dollars are spent on therapies that deliver real impact.
2. Helps payers reduce risk: High-cost drugs can be a tough call for payers, especially without clear data on how they will perform. OBCs reduce that risk by sharing accountability. If a treatment isn’t delivered, the manufacturer shares the cost burden.
3. Supports early access for patients: For newer or rare disease treatments that lack long-term data, OBCs help patients get access sooner by offering payers a safety net through performance-based pricing.
4. Gives manufacturers a competitive edge: OBCs let drugmakers prove their treatment works better than others, especially in crowded markets. This can help secure a spot on payer formularies.
5. Drives real-world data collection: Because outcomes are tracked, OBCs encourage the collection of real-world evidence, which is useful for refining treatments, measuring adherence, and improving care.
6. Fits into the future of healthcare: As healthcare moves toward outcome-based care models (like ACOs and population health), OBCs align well with broader goals of improving quality while managing costs.
Why Outcome-Based Contracts Aren’t Common Yet
Regulatory barriers hold them back
Medicaid Best Price Rule: If a drug is discounted too heavily in an OBC, that price may need to apply to all Medicaid programs, which discourages manufacturers from offering deals.
Anti-Kickback Statute (AKS): Services tied to OBCs (like nurse support) can raise compliance concerns under AKS, limiting what’s allowed in a contract.
FDA label restrictions: Outcomes used in contracts must align with what’s approved on the label - even if there’s strong data on other outcomes, they can't be used in pricing discussions.
Operational difficulties
Many payers don’t have strong systems to track outcomes and drug use.
It’s hard to agree on the right outcome measures - they must be meaningful, measurable, and achievable in a reasonable time.
Manufacturers worry about paying for poor outcomes if the drug wasn’t used properly or consistently.
Data Limitations and Measurement Challenges
Data challenges are a major barrier. Most contracts rely on claims data, which don’t tell the full story, such as why a patient stopped taking a drug (e.g., cost or side effects).
Clinical or lab data (like cholesterol levels or tumor size) can be hard and expensive to gather and standardize. For example, structured EHR data typically costs around $1–3 million per therapeutic area per year, while unstructured data (like doctor notes) requiring extensive cleaning can run $3–5 million. (Source link: Use of Real‐World Evidence to Drive Drug Development Strategy and Inform Clinical Trial Design - PMC)
Many outcome metrics are just short-term or surrogate measures, such as lab results, which don’t always reflect true long-term patient health (e.g., survival, fewer complications).
Communication gaps between payers and manufacturers
Payers often care about reducing hospital visits or costs, while manufacturers focus on clinical trial results.
Differences in goals make it tough to agree on terms and incentives.
Lack of transparency and scalability
Most OBCs are kept confidential, so learnings can’t be widely shared.
Many are small pilot programs that haven’t been rolled out on scale.
Looking Ahead: The Future of Outcome-Based Agreements
The shift toward outcome-based care continues to gain momentum, especially in the post-COVID landscape, where there’s growing demand for flexible, outcome-driven contracts. A great example is the outcome-based agreement between Harvard Pilgrim and Spark Therapeutics for LUXTURNA, a gene therapy for a rare eye disease. (Source link: Payment Models for Pricey Transformative Pharmaceuticals)
Outcome-based contracting is a step in the right direction, promoting better accountability in pharma pricing.
It’s not a silver bullet, but it can be a useful tool when combined with other approaches like formulary management, pricing reform, and patient access programs.
For outcome-based contracts to truly succeed:
Data systems must improve (especially electronic health records and lab data integration).
Patients should start sharing in the savings, possibly through lower upfront costs.
Public programs like Medicare and Medicaid could help test these contracts to better evaluate their real impact.
Right now, these contracts are often more about gaining market access and good PR than creating system-wide savings.
That said, holding drugmakers accountable for results is a concept worth building on, especially as healthcare shifts from volume to outcome.
At ProcDNA, we support a variety of emerging oncology therapies that have allowed us to observe firsthand how these developing contracting models can produce tangible benefits. We would love to connect if you are exploring similar strategies or simply want to have a conversation.