Oklahoma’s Medicaid program experiments with outcomes-based contracts

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Pharmaceuticals on the one hand can greatly improve patients health and quality of life.  At the same time, some of these treatments are expensive and–despite clinical trial results–evidence from the real-world is lacking at the time of a drug launch.

To address these issues, Oklahoma’s Medicaid program is taking the lead by adopting two different outcomes-based contracts (OBCs).  As reported by the National Academy for State Health Policy, Oklahoma’s first OBC was with Alkermes for the long-acting injectable, anti-psychotic drug aripiprazole lauroxil (Aristada).

The contract is designed to reward increased patient adherence. Under the contract’s terms, as adherence targets are met – which result in greater drug usage, sales, and improved outcomes — the price the state pays for the drug decreases.

Now, Oklahoma’s Medicaid program has adopted an OBC with the drug company Melinta for treatment for bacterial skin infections called oritavancin (Orbativ).

Because oritavancin costs more than other treatments, the state Medicaid program had required prior authorization before paying for the drug. However, under the new value-based contract, prior authorization will no longer be required.

In return for having the drug listed as a first-line treatment, Melinta ensures that oritavancin will not result in a net increase in costs. While other drugs used to treat bacterial skin infections may require hospitalization for administration, oritavancin does not. While its purchase price is higher, oritavancin is not expected to cost the state Medicaid program more because it is expected to eliminate costly hospitalizations required by other drug options.

However, under the terms of the value-based contract, if the state does incur higher costs from oritavancin – despite the avoided hospitalizations — Melinta will be on the hook to cover those costs through additional rebates to the state.

OBCs are not perfect.  It costs states extra money to monitor outcomes and control for any differences between the patients who receive the new treatment and the old treatment.  However, if OBCs allow for patients to have access to better treatments while decreasing payer risk that treatments will significantly increase costs, they are an option worth exploring.