Making direct-to-provider contracting work

Are recent announcements of direct-to-provider contracting arrangements a bellwether of the direction that value-based care will take in the United States? Direct-to-provider contracting is a strategy in which a self-insured entity negotiates a contract directly with a provider of healthcare services rather than through a third-party administrator (TPA), often with the goal of driving value-based care. As part of a value-based contract, the provider is held accountable for improving patient outcomes through achieving key quality, cost, and utilization metrics on a wide range of services. This provides the “value” in value-based care for the self-insured entity.

The interest that providers and employers have expressed for direct-to-provider solutions is complicated by the numerous ways these arrangements can be structured. The key challenge is implementing a model that is acceptable to both the employer and the provider. In this article, Milliman’s Andrew Timcheck, Cory Gusland, and Mike Gaal discuss what each stakeholder wants in a direct-to-provider arrangement and how they can make it work.

Pharmacy Briefing: August 2019

Pharmacy Briefing is a monthly summary of select U.S. Food and Drug Administration (FDA) approvals and launches, treatment guidelines and research updates, and other newsworthy events that have the potential to impact commercial drug utilization or costs.


  • HHS officially withdraws proposal to remove anti-kickback statute safe harbor protections for drug manufacturer rebates
  • Washington Post releases comprehensive report detailing the distribution of opioids between 2006-2012
  • Reckitt Benckiser Group settles for $1.4 billion with Department of Justice to resolve investigation into its role in marketing of opioid addiction treatment Suboxone (buprenorphine/naloxone)

FDA Approvals and Launches

  • FDA approves first generic formulations of Lyrica (pregabalin), a drug that produced $3.6 billion in US revenue in 2018
  • Amgen and Allergan launch biosimilar versions of Herceptin (trastuzumab) and Avastin (bevacizumab)
  • Sandoz announces retail launch of Symjepi (epinephrine) auto-injector
  • Accrufer (ferric maltol) is approved to treat iron deficiency
  • Baqsimi (glucagon) nasal spray is approved to treat episodes of severe hypoglycemia.
  • Nubeqa (darolutamide) is approved for the treatment of certain types of prostate cancer.


HHS officially withdraws proposal to remove safe harbor protections for drug manufacturer rebates

  • The Congressional Budget Office estimated that the proposed rule would increase federal spending by about $177 billion over the 2020 – 2029 period.

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Washington Post releases comprehensive report detailing the distribution of opioids between 2006-2012

  • The report sources data from a Drug Enforcement Administration (DEA) database that tracks the path of every controlled substance from manufacturer to point of sale/distribution.
  • The report found that “[t]he states that received the highest concentration of [opioid] pills per person per year were: West Virginia with 66.5, Kentucky with 63.3, South Carolina with 58…”
  • During this time period, “the companies distributed enough pills to supply every adult and child in the country with 36 [pills] each year.”

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Reckitt Benckiser Group settles for $1.4 billion with Department of Justice to resolve investigation into its role in marketing of opioid addiction treatment Suboxone (buprenorphine/naloxone)

  • The settlement addresses claims that the group improperly promoted the sale and use of the drug and falsely claimed that the product was less susceptible to diversion and abuse.

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Department of Health and Human Services publishes “Safe Importation Action Plan”

  • The plan outlines pathways for the importation of drugs originally intended for distribution in foreign markets with a goal of providing “safe, lower cost drugs to consumers.”

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Trump administration working on a “favored nations” approach to drug pricing

  • President Trump says the law will ensure Americans “pay whatever the lowest nation’s price is.”

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Court of Appeals for Federal Circuit upholds ruling allowing the sale of generic versions of Suboxone (buprenorphine/naloxone) film

  • Alvogen and Dr. Reddy’s launched “at-risk” generic versions of the drug in February 2019.

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Oregon institutes new pharmacy benefit manager (PBM) regulations, signs HB 2185 into law

  • Examples of items addressed in the bill include retroactive “clawback” fees, pharmacy “gag clauses,” mandatory use of mail-order pharmacies, and the definition of “specialty drug.”

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Internal Revenue Service (IRS) issues notice expanding list of preventive care benefits provided by high deductible health plans

  • Expands list of preventive benefits to include low-cost care that maintains health status for patients with chronic conditions. Examples include:
    • Angiotensin converting enzyme (ACE) inhibitors for congestive heart failure, diabetes, and/or coronary artery disease
    • Inhaled corticosteroids for asthma
    • Insulin and other glucose-lowering agents for diabetes

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FDA limits approved uses of 10mg Xeljanz (tofacitinib), adds Black Box Warning about increased risk of blood clots and mortality

  • 10mg Xeljanz (tofacitinib) is indicated for the treatment of ulcerative colitis.
  • Across all strengths, the drug produced $1.4 billion in U.S. revenue in 2018.

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Mylan and Upjohn, a division of Pfizer, merge to create a new company

  • The combined portfolio of the two businesses will include EpiPen (epinephrine) and several off-patent brand drugs such as Lipitor (atorvastatin) and Lyrica (pregabalin).

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How to finance LTC coverage in retirement

Long-term care (LTC) may not be the first thing individuals or couples think about as they approach retirement, but the costs for those who needs it can disrupt and derail retirement security. A good plan for long-term care requires many decisions over an extended period of time, and well before retirement. In this article, Milliman consultant Robert Eaton discusses the major considerations and options for financing LTC needs in retirement.

Using generalised linear modelling to price India’s health products

Traditionally, health actuaries in the Indian insurance market used to consider generalised linear modelling (GLM) to be a “black box” for pricing of health products. However, this perception has changed significantly over time and health actuaries are now willing to employ this technique for pricing of health products.

What are the current and potential uses of GLM in the Indian health market? How is a GLM exercise performed? What are the advantages and disadvantages associated with GLM?

Milliman’s Joanne Buckle, Ankush Aggarwal, and Pravin Harodia conducted a survey to gather some perspective. Their paper “Use of generalised linear modelling in Indian insurance market for pricing health products” attempts to answer the above questions in conjunction with the results of the survey.

Managing the risk of antibiotic resistance

Bacterial resistance to antibiotics and resulting difficulties in treating and controlling infectious diseases can lead to longer hospital stays and increased mortality rates. In the long term, an increase in antibiotic resistance could result in more people becoming seriously ill or dying from routine illnesses and the ability to perform routine medical procedures could be compromised.

To date, drug innovation and development have not kept pace with antibiotic resistance. The need to conduct large trials involving acutely ill patients who are difficult to identify can make antibiotic development prohibitively costly and complex. Antibiotics also offer limited opportunities to generate returns as they are relatively cheap and the newest and most powerful antibiotics are reserved for patients who do not respond to first-line treatment. As a result, there are only a handful of companies currently in the market and the development pipeline is very thin.

In the context of antibiotic resistance, de-linkage of profit and volume through the use of an “insurance model” has been proposed as a potential strategy to stimulate innovation and curb antibiotic resistance through the availability of novel products. In this paper, Milliman’s Tanya Hayward and Emma Hutchinson discuss how actuarial risk management and insurance principles can be applied when considering the de-linkage of price and volume.

Is a death spiral likely in the ACA marketplace?

Starting in 2017, there has been talk of the possibility of a death spiral in the individual Patient Protection and Affordable Care Act (ACA) marketplace. Talk of an ACA death spiral occurred because two of the death spiral symptoms—high rate increases and falling enrollment—were observed in 2017 and 2018.

In health insurance, death spirals occur when premium rates rise enough to drive out the healthiest enrollees, leaving the risk pool sicker and more expensive. This, in turn, necessitates that insurers increase premium rates, which then drives out the next-healthiest enrollees and reduces new enrollment. This cycle continues until the risk pool contains only the sickest and most expensive enrollees, with premiums unaffordable for most. Death spirals start slowly and then accelerate, with the primary symptoms being higher than usual rate increases, falling enrollment, and increasing morbidity. In this paper, Milliman’s Erik Huth and Peter Fielek reviewed ACA rate changes, enrollment, and morbidity to determine the likelihood of a death spiral occurring in the ACA marketplace.