Second Opinion: Intelligent contracting – choosing value over volume

2022-11-29 |  Shrinivas Anikhindi, Monique Biryiana, Shaan Patel

Welcome back to Second Opinion. This month, we’re taking a look at the world of pharmaceutical access, and specifically the rising use of intelligent contracts which allow for more transparent and flexible arrangements benefiting everyone from pharma to payer to patient.

We’ll cover what intelligent contracts are, why they’re needed, and the critical steps required to build them and get buy-in from payers. We’ll also explore examples of what these contracts look like in the light of day, and how they create innovative value.

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The way that the pharmaceutical industry interfaces with healthcare is rapidly changing. Treatment regimens are lasting longer, burden of care is increasing, and the definition of successful treatment is becoming more nuanced.

Given these trends, the way we interface with payers must also evolve. As the quality and complexity of care increases, there is a need to move to models which better enable healthcare systems to get the right treatments to the right people at the right time, and in doing so unchain pharma from the restraints of the traditional volume model.

We’ll cover the reasons this is so greatly needed further down, but first consider the following: when value is defined by more than just revenue and cost, what if we could work smarter? Perhaps, in a world of abundantly accessible health data, complex health outcomes, and products that no longer fit in little white bags, we can work in a way that will deliver mutual value by giving healthcare more reliability in value per dollar spent, while giving pharma more agency in their revenue streams.

A new type of contract

Enter intelligent contracts. A broad bucket term for agreements that consider value and cost with more flexibility than traditional pay-per-pill style contracts. We’ve seen a number of attempts and early forays with these, from volume-capped and value-sharing agreements, but they never truly took flight.

This is partially because these previous attempts were all about capping remuneration in an attempt to control healthcare spending and support austerity efforts, which is an admirable cause, but one-sided in its benefits. Now, however, we see companies experimenting with contracts which allow them to share and obtain value from mutually beneficial objectives, for example, health outcomes.

When remuneration is tied to the outcomes of specific services or interventions, all parties are working toward the same goal: by improving the care they deliver, pharma improves the outcomes of patients, reduces burden on healthcare, and improves the realised revenue as a result. Now that the latest generation of health tech allows for easy monitoring, collection, and anonymous collation of data describing these outcomes, we have everything we need.

What should a good intelligent contract contain?

Payers are only now starting to come around to new kinds of contracts, and so a large part of being able to access the value delivered by these arrangements lies in engaging payers to sell them on the value of working differently.

Start by identifying the payer challenge, and the offering you seek to hinge the contract around which will solve this challenge. Is it a patient support programme to reduce the cost of GP visits and hospitalisations? Is it a remote self-diagnosis tool to increase early detection of burdensome conditions? These may not be new solutions, but ensure they are clearly positioned to payers as providing new value which is closely linked to their stated priorities.

This value needs to be clearly articulated and expressed in terms of all stakeholders: payers, patients, healthcare providers, and pharma. Having done this, you can start to think about the contractual terms, and how delivered value will be recognised by payers – whether that is financial or otherwise, for example, expanded access to outcome-supporting services which deliver you important real-world data & evidence.

Things to keep in mind to ensure success

🚪 Start from an external perspective – and do so with a cross-functional team. Pull insights from Medical and Commercial teams to take a payer-centric perspective to healthcare needs & priorities from which you can then ideate and build the value proposition required.

🤝🏾 Get in front of your audience early – these contracts are new, but if payers are consulted early and involved to co-create the agreement, they will be more trusting and willing to buy into what your teams eventually create.

🏛 Consider infrastructure requirements from the get go – make sure you take into account how you will deliver, measure, and improve the delivery of services and solutions on which your contract depends. Make sure you prepare ahead of time to identify the relevant levers to manage delivery against KPIs where required.


The term “volume-to-value” has become a popular term in the healthcare industry and describes the paradigm shift being experienced by healthcare systems/the industry towards a system that encompasses value-based healthcare (fee for value). The global rise in healthcare costs have been mainly attributed to increased life expectancy and the prevalence of chronic diseases in our society and the share of total GDP spent on healthcare services is expected to double by 2060. Consequently, the established volume-based care system (fee for service) may be unable to withstand these rising costs without patient outcomes being compromised. Implementation of a value-based framework, and specifically the use of value-based contracts, whereby clinical outcomes are factored into drug prices and remuneration agreements, are therefore expected to enhance patient outcomes and facilitate the delivery of quality of care at a better value.

The traditional volume-based model has underlined healthcare systems for years and has operated on the basis that healthcare providers within the system are reimbursed for the quantity of procedures performed. However, this model does not take into account whether these services are necessary or result in a positive outcome for the patient. Use of intelligent contracting options, such as value-based contracts, may provide the much-needed flexibility and benefits that volume-based care cannot provide:

  • Improved patient outcomes: Increased ownership and responsibility of outcomes by pharma companies may result in broader access to innovative medicines provided by payers and provision of additional support for patients whilst on therapy. An analysis reported that an improvement in patient outcomes was seen by 58% of payers of whom engaged with value-based contracts. Pharma companies are also able to generate and collect real-world data to further improve outcomes through this “pay for performance” mechanism.

  • Reduced medical costs: Intelligent contracts can also support the optimal use of medicines when outcomes are considered and may lower medical costs for healthcare systems due to reduced hospitalisations, ER visits, and other procedures that may have been deemed unnecessary for the patient to receive in the first instance. Results-based contracts were reported to potentially lower the burden of diabetes by 5% in the United States, allowing for an annual cost saving of $12 billion.
  • Increased affordability and access for patients: If pharma companies agree to accept increased financial risk via the use of intelligent contracting options (e.g., value-based contracts), insurers may offer lower insurance options (e.g., copay or coinsurance) and this may lead to increased access to healthcare services for patients. An article estimated that patients with cardiovascular disease who were prescribed cholesterol-lowering medications in 2019 saved approximately $800,000 in out-of-pocket costs in the US when an intelligent contract option was used.

Value-based contracts are just one type, among several, of intelligent contracting options that can be explored, and these novel arrangements require a collaborative relationship between the ecosystem stakeholders involved (e.g., pharma, payers, physicians, providers, and patients). Despite the potential benefits they may bring, uptake has largely been static and efforts to accelerate successful implementation have been encouraged. 


So far, we’ve spoken about what intelligent contracts are and their benefits, but what exactly might an intelligent contract look like and how would it be used? To paint that picture, here are some examples that offer ‘win-win’ scenarios for both parties that either help to manage risk for the payer, increase the treatment’s value perceived by the payer, or both.

📊 Health-outcomes-based contracts. With the demand for real-world evidence on the rise, health outcomes of a given treatment in real-life settings will form the basis of many payers’ decisions.

  • Health-outcomes-based treatment coverage – In these agreements, post-launch, real-world evidence generation or endpoints are leveraged to evaluate the continuation, expansion or withdrawal of treatment coverage. For example, a hypothetical risk-sharing agreement was launched in 2015 between UCB and the Finland Pharmaceutical Pricing Board for UCB’s Cimzia medication, which involved a treatment switch and refund of the costs associated with Cimzia acquisition if patients failed to achieve ACR20 response at week 12. The scheme showed reduced costs of €7866 per patient which could fund treatment for 6% more Finnish RA patients.
  • Health-outcomes-based reimbursement – Depending on the terms of these agreements, reimbursement may be offered by the payer at a higher or lower amount, or from the manufacturer in the form of discounts, rebates or refunds if the treatment does not reach its desired real-world outcomes. An example of this being put into practice, are the 2015 and 2017 Amgen-Harvard Pilgrim agreements for Amgen’s hyperlipidemia drug, Evolocumab. Amgen stated that upfront discounts and future rebates would be given based on meeting specific cholesterol targets, total spending threshold, and adherence, or a full refund offered if a patient had a heart attack or stroke, in exchange for preferred formulary placement.

💊📈 ‘Beyond the pill’ contracts. Under these agreements, manufacturers offer value beyond health outcomes in the form of additional service offerings or improved economic outcomes. With this increased patient value delivered through system interventions (re-designed care pathways, improved patient adherence or seamless disease monitoring, to name a few), payers can have more confidence in their reimbursement decisions and in turn manufacturers gain a source of competitive advantage. In one example of this, AstraZeneca India utilized a service-based innovative contract in 2019 related to their ovarian cancer drug, Lynparza, which offered a patient support program and a BRCA testing coupon scheme, providing increased value for patients and in turn the payer.

Another example is the first-of-its-kind population-level commercial deal between Novartis and the NHS which accelerated uptake of Novartis’ Inclisiran among UK atherosclerotic cardiovascular patients through Novartis offering Inclisiran at an affordable and cost-effective price, alongside Novartis working with the NHS Accelerated Access Collaborative and the Academic Health Science Networks to drive uptake through clinician education, formulary position optimisation and national incentives to support adoption. Such an agreement enabled the NHS to secure maximum value from its budget while increasing Novartis’ market share.

Have you ever looked at a map but had no clue where you were? For so long this has been the way with outcomes-based contracts – we could draw maps but had no way to locate ourselves on them. Finally, however, evolutions in health technology have given us GPS, so it’s time to invest in the vehicle: intelligent contracts.

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