Naughty or Nice? Performance-based Payment Extends (Slowly but Steadily) Across the Healthcare Ecosystem

The nationwide push toward value-based payment for health systems received a jolt of energy with the passage of the Affordable Care Act in 2009. The new tax law, just recently passed by Congress, will not slow the focus on getting spending under control using risk-based arrangments. Modern Healthcare’s 2017 Hospital System Survey revealed that while only 15% of health systems derive 10% or more of their revenue from risk-based contracts, most systems expect their share of risk-based contracts to continue to increase.[1]

While health system value-based payment arrangements like ACOs and bundled payment with insurers dominate headlines, payers and providers are using their burgeoning experience in this space to demand that other players in the health care ecosystem share risk. Every stakeholder is increasingly on the hook to demonstrate outcomes and savings; even pressuring medical device and pharmaceutical firms to align their incentives around proven impact and results. The fact that life science companies are willing to share in the risk to gain an edge in an already competitive market or face the possibility of getting cut out of contracts or formularies, shows the pervasiveness of value-baesd forces even in the midst of the political cacophony.

There are a number of factors in the healthcare environment that are driving this shift in how life science companies get paid. These include the availability of performance data, comparative cost data, and an accelerating shift to comparative effectiveness. Below are a few examples of performance-based partnerships that device and pharma companies have entered into illustrating how these pressures are playing out in new and creative contracts…


Medical Device

Device manufactures were among the first to start going at-risk for patient outcomes with hospitals. In 2014, St. Jude’s Do More, Re-do Less program began offering to pay hospitals a 45% rebate on the net price of cardiac resynchronization therapies if a lead revision was needed within the first year of implantation[2]. This was put together in direct response to the financial risk hospitals are increasingly exposed to in bundled payments, where they receive a fixed payment for a set of services and must cover the cost of any unplanned procedures. For a health system executive choosing a preferred Cardiac Resynchronization Therapy (CRT) device partner, the opportunity to receive a rebate in the case of a lead revision can be compelling, especially if the hospital is not going to realize additional revenue from the revision..

Device companies are also partnering with payers. Recently Medtronic and Aetna announced an agreement in which Medtronic goes at-risk for type I and II diabetes patients who switch from multiple daily insulin injections to Medtronic's self-adjusting insulin pump. The pump is more expensive than self-injection, but full payment for the pump is tied to meeting mutually agreed upon clinical improvement thresholds, such as A1C levels (likely the ADA-recommended 7.0%)[3]. We expect to see chronic care management, such as diabetes, as an area ripe for performance-based contracts tied to clinical utility as this is a significant area of focus for payers as they target high-risk, high-cost patients.  

Other partnerships have been based not only on a failure of product performance, but also on a failure of the episode of care to produce a certain outcome, such as reduction in the incidence of re-hospitalization[4][5].


Drug companies are entering into performance-based contracts, too, in interesting new ways. Pulling another example from the diabetes space, Merck and Cigna collaborated on a unqiue arranagment for the Januvia and Janumet diabetes drugs where there is a  performance-based incentive tied to a patient’s health status. Merck offers discounts, in the form of rebates, to Cigna that are tied to demonstrated reductions in blood sugar levels. In addition, Cigna lowered its co-pay levels to patients to encourage adherence. These changes have led to a 5% improvement in blood surgar levels and increased adherence to 87%[6].

Merck has expanded these arrangements for their diabetes drugs, signing a similar agreement with Aetna to go at-risk if there is no clinical response. If Aetna members with type 2 diabetes taking Januvia and Janumet don't meet the patient metrics set by both parties (for example, hitting A1C or blood-sugar targets), Merck will pay a rebate to Aetna that is proportionate to the number of patients who miss the targets[7].  

Securing the data to track performance and prove value remains a challenge for both health system and life science risk-based contracts. For example, one of the first at-risk pharma deals back in 2007 was set up between J&J and NICE in the UK for the multiple myeloma drug, Velcade. In this “money-back guarantee”, J&J maintained their high pricing for the drug but offered to refund the cost for patients who didn’t experience clinical benefit defined as a 25%+ reduction in serum M protein, a validated biomarker of treatment response. Data analysis from the project was indefinitely delayed as J&J found it difficult to track treatment response as proposed[8]. This serves a good reminder that any risk-based contract must be based upon on high-quality, mutually agreed upon performance measures.

Experiment with At-Risk Payment Now

While fee-for-service is still the most common way to pay for health care serrvices, the steady increase in value-based reimbursement across the healthcare ecosystem means these payment models are here to stay. These at-risk payment models are neither easy to set up nor are they easy to administer.

At QURE we are uniquely focused on how care decisions made at the bedside or in the clinic impact success in these payment arrangements. For health system, engaging clinicians to reduce unwanted variation is critical when an organization is at-risk. Our Clinical Performance and Value (CPV) engagement solution is a proven answer to do to achieve physician-led decreases in that unwanted variation. For life science companies, measuring how your product impacts care decisions and delivers clinical utility is becoming more and more essential in conversations with payers and with health systems. QURE’s CPV-driven randomized-controlled trials rapidly generate publishable data to inform these conversations. To learn more about how QURE can help your organization deliver outcomes, and get paid for that value, reach out to us today.





[1] Kacik, Alex, Health systems see returns on risk-based reimbursement, Modern Healthcare, July 15, 2017,

[2] St. Jude Medical 2014 Disease Management Prospectus Chronic and Acute Decompensated Heart Failure,

[3] Medtronic Announces Outcomes-Based Agreement with Aetna for Type 1 and Type 2 Diabetes Patients

June, 26, 2017, Medtronic Newsroom,

[4] Lee, Jaimy, Selling hospitals, not doctors Devicemakers look to meet providers, Modern Healthcare, October 19, 2013,

[5] Garfield et al., Risk Sharing for Medical Devices: Has the Time Come? June 2014,

[6] CIGNA-Merck Outcomes Contract Hailed as ‘First Step,’ but Some Want More Data, AIS Health, December 17, 2010, Volume 11Issue 24,

[7] Connole, Patrick, Aetna Puts New Stamp on Diabetes With Merck Outcomes-Based Deal. AIS Health, Nov 7, 2016,  

[8] Faden RR, Chalkidou K. Determining the value of medications—the evolving British experience. N Engl J Med. 2011;364:1289-1291.


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