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Why Companies Should Prepare for Value-Based Contract Negotiations

To combat the increasing cost of healthcare, the US Department of Health and Human Services in 2015 announced that it would begin taking steps to shift Medicare drug reimbursement from a system based on the volume of care provided to the value of care. Payers in Europe are already rewarding manufacturers for the value of their product, and though the US market still largely operates through a fee-for-service system, many life science companies are preparing for value-based contract negotiations.

For the most part, European payers have implemented performance-based requirements for teams to secure reimbursement for their products. In contrast, US teams are much slower to enter into value-based contract negotiations, though this will likely change in future years. Cutting Edge Information’s Value-Based Pricing report examines the percentage of surveyed teams in each region that enter into value-based contracts each year.

• Almost three times as many surveyed European and Canadian pricing teams entered into value-based contracts in 2014 as did US teams. In 2014 through 2016, 71% of surveyed European and Canadian teams participated in performance-based arrangements. Seventy-one percent of EU and Canada teams also predict that they will enter into value-based contracts in 2018, 2020 and 2022.

• Only one quarter of surveyed US teams reported entering into a value-based contract in 2014. However, by 2016 42% did. In addition, an increasing number of surveyed US teams estimate that they will enter into pay-for-performance arrangements over time. Eighty-three percent of US teams believe that they will enter into a value-based contract by 2020. These data show that the shift from volume to value has already started within the US market. Additionally, the finding that over half of surveyed US teams believe that they will enter into a value-based contract by 2018 highlights the perception that performance-based arrangements are becoming increasingly common in the US.

• Global teams are also becoming more likely to enter into value-based contracts. From 2014 to 2016, the percentage of surveyed global teams participating in performance-based arrangements increased from 33% to 50%. Much like US teams, global pricing groups predict a sharp increase in pay-for-performance participation until 2020.

It is clear that value-based contract negotiations will become more crucial for life science teams in the coming years. To better prepare for this, teams will likely seek to collect more health economic and other data to successfully secure reimbursement and meet these new standards.


Figure 1: Percentage of Teams Entering into Value-Based Contracts, by Year and Team Region


For more information about Value-Based Pricing, download the brochure here.







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