Health insurer Cigna Corp. and New Jersey-based drug maker Merck & Co. have inked a unique pay-for-performance contract that ties the price of drugs to medical outcomes.
Under the terms of the deal, which is being called the first of its kind in the United States, Merck & Co. will give discounts on its anti-diabetes medications — Januvia and Janumet — to Cigna if patients take the drugs as prescribed by their doctor. Merck will extend further discounts and rebates to Cigna if patients are able to lower their blood sugar levels.
The twist, however, is that customers can improve their glucose levels using any drug, not just the anti-diabetes drugs Merck is providing to Cigna customers as part of the contract.
Eric Elliott, president of Cigna Pharmacy Management in Bloomfield, said the company designed the contract’s incentives to achieve better health results for its customers and reduce future medical costs.
It also supports the company’s medicine adherence program, which has reduced hospitalization and emergency room expenses for diabetes patients by 24 percent, Elliott said.
“This is a major effort to try to make sure that there are companies working together to drive down the cost of health care,” said Elliott, who noted that the contract was negotiated for nearly a year. “We hope this agreement will become a model in the industry.”
Traditionally, discounts that drug companies offer insurers are based on how much a drug is used, not how well it performs, Elliott said.
The health insurance industry for years, however, has been pushing for a pay-for-performance model as a way to control or reduce health care costs, but much of the movement has been centered on physicians, not drug makers.
While the Merck contract is not a prototypical pay-for-performance deal, it is one of the first attempts at it in the United States. Cigna will benefit by paying less for the drugs and hopefully having healthier customers.
Merck will benefit by selling more pills and by being placed on Cigna’s preferred status list, which means the company can sell its diabetes pills at lower co-pays to customers.
Drugs sold as a preferred brand name provide an average $25 co-payment savings over equivalent non-preferred drugs.
Elliott said Cigna will review available lab results for people taking any anti-diabetes drugs, and, if at the end of the year, their blood sugar levels have improved, the discounts Merck offers on Januvia and Janumet will increase.
Cigna will also track if its members are taking Januvia and Janumet as prescribed by their physicians. If they are, Merck will increase the discounts even more, Elliott said.
Cyndy Nayer, president and CEO of the Center for Health Value Innovation, a Missouri-based nonprofit that has been pushing for outcome-based contracts for the past two years, likes the deal and said it could be an important step in driving down health care costs. A Merck doctor is on the group’s board of advisors.
“It’s very significant for the industry,” said Nayer, a former chair on the Missouri Governor’s Council On Health and Fitness. “There is a commitment on both sides to improve the health of the population.”
In the United States, few if any pay-for-performance contracts exist between insurance companies and drug makers, Nayer said. She said the industry has been slow to develop them because they are complicated and represent a new way of doing business for all the industries involved.
Aetna and UnitedHealthcare, two of the country’s largest health insurance companies, do not have similar contracts in place, company spokesmen said.
“You can’t turn a business model completely upside down overnight,” Nayer said. “I don’t think Wall Street would be too happy with that.”
Jeff Casberg, director of pharmacy services at ConnectiCare, a Farmington-based health management organization, agreed that such deals aren’t easy to maneuver.
“Medical outcome-based pharmaceutical proposals generally have not materialized due to the level of complexity in administration,” Casberg said. “Unless the defined medical outcomes are simple to interpret and the data is easily accessible, for most of the health plan membership, these agreements fall apart.”
Casberg said making the pharmaceutical industry stand behind its products is an excellent concept, and he hopes that it becomes more mainstream in the future.
But Matthew Katz, executive vice president of the Connecticut State Medical Society, expressed some concern about the deal.
“We need to be careful with insurance companies trying to highlight a certain drug,” Katz said. “What we are concerned about is retribution against physicians who choose not to use the drug or select a different brand. We believe physicians should decide which drugs to prescribe to the patient, not the insurance company.”
Elliott said that Cigna doesn’t “force people to use specific drugs,” and that they “try to create plans that offer as many options as possible.”
