What is payer contracting?
Payer contracting refers to the agreements between healthcare providers, manufacturers, or suppliers and health insurance companies (payers) that define coverage, reimbursement rates, formulary placement, utilization requirements, and other terms.
What is the focus of manufacturer/payer contracting?
Given that manufacturers are already contracting with GPOs, many actively avoid contracting with payers and PBMs for their medical benefit products. Ten years ago, payer/PBM contracting in the medical benefit space was quite rare, as payers were not practicing utilization management for these products; as a result, patient access was not an issue for manufacturers.
In the past few years, treatment options have grown significantly. In some therapeutic areas, especially oncology and rare disease, a host of pharmacy benefit drugs have been introduced to what was previously a medical benefit-only space. When treatment options include oral and self-injectable drugs on the pharmacy benefit side, the restrictions commonly used to manage formulary drugs tend to bleed over to an indication’s medical benefit counterparts.
While in-office GPO contracting is still much more prevalent than payer contracting, MMIT data reveals that payer contracting for agents under the medical benefit is already robust. In an MMIT Index survey of large national and regional MCOs and PBMs, payers representing 51% of commercial lives reported contracting is in place for at least some medical benefit products, while payers representing 28% of lives said that most of their covered medical benefit products have contracting.
In the next few years, increased payer/PBM consolidation will likely drive additional contracting, as we’ve seen with the mergers of Aetna/CVS and Cigna/Express Scripts. As PBMs’ utilization management practices have proven quite effective at reducing costs, we’re likely to see them spread into the medical benefit space.
Who are the main stakeholders in payer contracting?
- Payers: Commercial insurers, Medicare Advantage plans, Medicaid managed care organizations, and PBMs
- Providers: Hospitals, clinics, physicians, and health systems
- Pharmaceutical manufacturers: Negotiate coverage, pricing, and rebates for their therapies
- GPOs and IDNs: May negotiate contracts on behalf of multiple providers
What types of payer contracts exist?
- Formulary contracts: Determine coverage and tier placement for drugs
- Value-based contracts: Tie payment to clinical outcomes or cost-effectiveness
- Fee-for-service contracts: Standard reimbursement for services rendered
- Bundled or capitated contracts: Set fixed payments for defined patient populations or episodes of care
- GPO/IDN agreements: Collective contracts for multiple providers
