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The Pulse of the Pharmaceutical Industry

Managed Markets 2013

Written by: | | Dated: Sunday, December 1st, 2013

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Shifting Sands

Faced with the appearance of new financial decisionmakers, increasing pricing pressure, and the growing demand for outcomes data, marketers attempting to communicate with payers of all shapes and sizes must adjust their thinking or fall behind.

To say our healthcare system is evolving is an understatement. How our healthcare is delivered and consumed is rapidly transforming – and the driving force is the quest to achieve greater value through reducing costs while improving quality of care. These shifts will impact how various stakeholders view pharmaceuticals in the overall value equation. The process for determining product access, what information is used to inform decisions, and which entity within the healthcare system makes the final decisions are all expected to alter as a result.

The traditional decision-makers – health plans and pharmacy benefit managers (PBMs) – remain the top infuencers of product access. These entities are also on the front lines of driving value on behalf of their customers, the purchasers of healthcare, including employers and government programs. However, health plans and PBMs are not alone in feeling this pressure. Providers, who have traditionally operated on an individual patient-based service reimbursement model that encouraged higher volume, are being pushed to manage populations of patients and take some accountability of risk for outcomes, both clinical and financial.

We at Hobart expect and are starting to see that providers who have organized themselves around these factors exhibit some of the traits of traditional payers – assessing treatments based on clinical and financial impact across their population and managing toward quality metrics for specific subsets of patients. Given the relative inexperience of most providers in managing populations and risk, health plans and PBMs are in some cases becoming the data and analytics engines supporting these provider entities. For each of these stakeholders, quality performance is approaching the same significance as cost of care due to financial incentives, particularly in Medicare, where participants have the opportunity to make up or exceed reimbursement cuts with high-quality performance.

Pricing Pressures Continue To Increase

While the relevance of quality has risen drastically, there remains a tremendous amount of pressure on pricing. With continued growth in healthcare costs, broad pricing pressures remain strong.

An example of this is the tremendous growth of generics. Today, around eighty percent of prescriptions covered by payers are generic drugs. Many see this trend to be the end of the small molecule heyday inthe industry – new entrants in these mature and crowdedcategories will have to clearly demonstrate value to justifyhigher unit costs.

To combat this, the pharmaceutical industry is increasingits focus on specialty pharmaceuticals and branded biotechproducts that treat smaller patient populations. The average monthly cost of specialty therapeutics is nearly 10 timesthat of small molecule drugs– and much like traditionaldrugs 10 years ago, specialtypharmaceuticals are most always covered. However, given­payers’ experiences in managing small molecule therapiesand the addition of multiple­therapies with similar efficacythey have begun to apply thesame techniques to specialtytherapies as well. As new specialty products are approvedand introduced into existingclasses, payers will leveragepreferred positioning for costsavings. This is becoming evident in the multiple sclerosiscategory with the entry of the orals and, potentially, a newgeneric. Reviewing the major PBMs’ annual trend reports,each touts both the growth of specialty pharmaceuticals aswell as their skills in managing the costs of these products.Clearly they see this area as an opportunity to demonstratetheir ability to generate value, which will position healthplans and PBMs as critical influencers of product access.

An Evolution In Industry Strategies

Another result of the pricing pressures has been to raise thecost-sharing component of pharmaceuticals for patients.The explosion in copay card or cost-share offset programsunderlies the latest strategy manufacturers have taken tocounter these escalating out-of-pocket payments patientshave for medications. As Hobart analysts have previouslyprojected, payers are expanding their actions to counter thismechanism out of concern that cost share offsets blunt theirutilization management efforts.

To prevent this, payers are in some cases fatly denyingany coverage for products where they see little value. Twoyears ago, CVS Caremark’s implementation of formularyexclusions made national headlines and caused significantangst among their clients as well as pharmaceutical compa­nies. Not to be outdone, Express Scripts recently announcedsimilar formulary exclusions for the upcoming commercialplan year, including specialty-class drugs for multiple sclero­sis. While each PBM primarily noted their responsibility toidentify ways to help their clients with managing costs, theactions were also at least partially attributable to the exten­sive cost offsetting initiatives by the manufacturers. Whilecost-share offset programs continue to be important inmany cases, continued aggressiveness by formulary decision-makers will thwart the impact for some patients.

As the landscape of those taking on risk for managingpatient populations changes, pharma must also evolve howit both engages with customers and delivers value. Marketers must invest in the development of a value proposition and customize how they ap­ply it for specific payer types. It is not good enough to differentiate Medicare versus commercial benefits; it is critical to demon­strate how their target Medicare population breaks down into MA-PD and Part D-only plans and what portion of their population receives subsidies based on low-income sta­tus. This requires a precise value proposition based on payer sub-segmentation. We still see a number of brand teams rely on the pre­scriber field sales aid for payer interactions. This really undermines the payer relation­ships as they generally have the pivotal trial information already and it illustrates a lack of understanding or priority of the payer’s needs.

In addition to accounting for payer nu­ances, successful manufacturers will be lever­aging outcome endpoints relevant to specific payer types. Tat means, in the case of inte­grated health systems, bringing forward data elements such as hospital readmission and patient satisfaction metrics, while focusing on net pharmacy cost and drug utilization impact for Part D plans. Time with deci­sion-makers is limited so if marketers don’t bring forward relevant messaging from the start, the opportunity to positively influence access considerations may be missed.

With the reimbursement system evolv­ing to value-based purchasing (VBP), payer decision-makers will further scrutinize the value of pharmaceuticals based on their im­pact on costs and quality measures. Health economics and outcomes activities have ex­perienced tremendous growth over the last several years that is expected to further ac­celerate. The government is fueling the focus on outcomes with the launch of several VBP initiatives, including penalties for hospital readmissions within thirty days, accountable care organizations and bundled payments.

In addition, the creation of the Patient-Centered Outcomes Research Institute (PCORI) as part of the healthcare reform law is specifically charged with creating and executing the research agenda designed to inform the marketplace of the most effective therapies. Funding for outcomes research jumped significantly in the first year of PCORI. In addition to funding more actual outcomes studies, a significant proportion of the funding went to the development of out­comes research methodologies and training programs designed to create a whole new set of outcomes researchers.

Pharma must be wary that these shifts will not have an overnight impact, nor be con­sistently applicable across varied customers. Each payer will evolve their own direction and momentum toward change depending on their business drivers, whether geograph­ic, client-specifc, population-based, or any number of other factors. Unit cost and total cost of therapy will remain major drivers for payer decisions on product access. Ultimate­ly, focusing on these expected shifts cannot come at the cost of today’s reality. Market­ers cannot lose sight of unit and net cost as remaining the primary focus for nearly all organizations managing patient populations today. Yet, they must prepare for where these customers will be in two to five years, and include important relevant endpoints into studies now to be best positioned. In addi­tion, planning on how to engage potential new product access decision-makers, such as accountable care organizations, should not come at the expense of neglecting the cur­rent dominance of health plans and PBMs in this role.

The approach to these shifts by pharma­ceuticalpharma­ceutical payer marketing and brand teams requires greater depth of knowledge about different payer lines of business and what specific value their products bring to each. For the field teams, resources should iden­tify the most relevant populations for the product. They should include specific value messages that apply to each payer type, and tools that support the value proposition in that situation.

Marketers additionally cannot underesti­mate the need for training the field on all available resources. In addition to routinely having multiple products to address with payers, account teams are often pressed of their agenda by the payer’s needs or their initial lack of interest. Simply sending an e-mail or noting on a conference call the avail­ability of a new resource is not enough to achieve the consistency of message delivery necessary.

Since payers often make coverage de­cisions within a few months of product launch, it is critical to have your payer value messages prepared in parallel with the clini­cal story and available at launch. A best prac­tice Hobart recommends to clients is having payer resources ready to go with the first weeks of product availability. This allows the account teams to deliver payer-specifc prod­uct value propositions to their customers that complement the information they will seek separately through their own searches or from a product dossier

The healthcare industry evolution will certainly cause changes in who influences product access and how they will make their decisions. The good news is that value is at a premium and evaluation across total healthcare costs provides the opportunity for pharmaceuticals to break away from a product price focus they have so desperately sought to overturn. Ultimately, focusing on generating evidence that demonstrates value should best position pharma, regardless of who makes the final product access deci­sions.

Larry Blandford, PharmD, is a Manag­ing Partner at Hobart Innovation, a Hobart Group Holdings company.

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