Stakeholders are increasingly interested in value-based health care (VBHC) strategies, and designing robust VBHC contracts requires input from actuaries and clinicians.

Unsurprisingly, as both a qualified actuary and a clinician, I’m delighted to know I am in the ideal position to provide unique advice to clients. But what is VBHC, what do actuaries do and how can they work with clinicians to optimise VBHC contract design?

What is value-based health care?

VBHC is an alternative reimbursement strategy that aims to align incentives around patient and population health across all stakeholders, including patients, pharmaceutical companies and clinicians. Outcome-based agreements are one such reimbursement approach, where a share of payments is linked to patient health outcomes.

The benefits of VBHC include the possibility of new drugs entering the market earlier. Medications for rare diseases would particularly benefit from this, since these medications typically have high initial costs and take years to come to market, if at all.

VBHC contracts are more complex than typical fee-for-service contracts and so they have not been widely implemented to date. The additional complexity and non-fixed payment element increases the risk exposure to stakeholders, and all stakeholders need to agree the benchmarks for such a contract, i.e. what the outcome should be to trigger a payment. Due to this complexity, a wide range of experts should be involved from the beginning of the contract discussions.

What do actuaries actually do?

To understand why actuaries are so essential to VBHC contracts, it is important to answer the commonly asked question (to actuaries at least): “What do actuaries actually do?”

Actuaries aim to mitigate and take advantage of additional risk, particularly financial risk. Actuarial analysis demonstrates and quantifies risk through modelling. Modelling might include projecting financials and demonstrating the sensitivity of such projections.

Actuaries are part of a professional body that adhere to strict professional and ethical standards. Work carried out is subjected to a high level of rigour, which allows stakeholders to rely on the work produced.

How can actuaries and clinicians work together with VBHC?

If actuaries and clinicians work closely together from the outset, this will increase the reliability and success of VBHC contracts. Actuaries should be involved in any process where there is an exposure to risk, and clinicians can provide context to better understand that risk. Once established, the outcomes and expected cashflows in VBHC contracts must be monitored to identify any changes in risk projections and plan financially. Analysing data, projecting trends and comparing risk levels and projected cashflows for alternative reimbursement strategies will be ongoing activities.

Two examples of where both actuaries and clinicians should be involved are given below.

When agreeing the structure of the reimbursement approach

• Actuaries have experience of analysing large real-world datasets to identify trends and assess the quality of the data. This will provide insight into what outcomes can be measured within a contract.
• Clinicians supply additional context to the data, providing insight on what information it is possible to collect. Clinicians will also be able to provide deeper insight into the trends noted and confirm if the trends are in line with what they would expect.
• Once the possible data is agreed, actuaries can model the different reimbursement options, which will help compare the financial cashflows expected over time.

When monitoring and negotiating an ongoing VBHC contract

• Actuaries can monitor if and how the data varies compared to expectation. They can provide insight into any unexpected movements. Risk projections can then be adjusted to allow for this if required.
• Clinicians can validate these variations. They can confirm if the movements are expected and provide context as to why they have happened. This allows actuaries to understand by how much to adjust any projections.

What should I do if implementing VBHC?

Although complex, there is a large appetite for VBHC. It is important that those hoping to implement such a contract work with a wide range of experts to do this, and actuaries and clinicians are especially important in this process. The ability to work together to best understand the data, risk and possible options means a contract designed with both parties should be more robust. 

Getting innovative medicines to patients in a timely and equitable manner require innovative approaches such as VBHC. This, along with the recently launched innovative medicine fund has the potential to result in patients accessing life changing medicines earlier.

LCP Health Analytics have actuaries and clinicians along with epidemiologists and statisticians who have experience in VBHC and market access, do get in touch if you would like to discuss further.