Medicare: D Day

The Medicare drug benefit may still be almost a year away, but the crucial deadline for pharma companies is just around the corner.
Feb 01, 2005

Part D Timeline
Although The Medicare Prescription Drug Benefit will not go into effect until January 1 of next year, pharma companies face pressing deadlines right now that could significantly affect their share of the business from the 40 million Americans currently eligible for Medicare. During the first three months of 2005, companies must decide how they will contract for their products under the new Part D drug benefit of the Medicare Modernization Act (MMA). As this article goes to press, strategic analyses and discussions should be well under way. The decisions companies make over the coming weeks will directly affect their brands' access, reimbursement, utilization, and profitability under the new benefit.

This article discusses the key factors pharma marketers must consider when making such critical decisions. It also serves as high-level strategic checklist for strategic planning and will help readers look ahead by providing an overview of some of the sales and marketing changes pharma companies face. For executives who have not yet considered these issues, it is most definitely crunch time.

Tight Timelines Pharma companies that wish to compete in Medicare Part D must develop contracting strategies for their products during the next month or so. Because the focus has been on January 1, 2006—the benefit's official start—it may come as a surprise to many that the timeline for making these strategic decisions is so tight.

There are several reasons for this time crunch. The Centers for Medicare and Medicaid Services (CMS) requires that managed care organizations (MCOs) and pharmacy benefits managers (PBMs) that wish to become plan sponsors under Part D submit bids to CMS by June 6, 2005. These bids can be developed only with an understanding of the specific contracting terms for the products involved. Therefore, between now and June, MCOs and PBMs must discuss formulary positioning and product-specific contracting terms with pharmaceutical manufacturers. A CMS guidance issued on December 3, 2004 tightened the timeline even further by requiring MCOs and PBMs to submit their proposed formularies and approved drug lists by April 18, 2005. (See "Part D Timeline.")

All of this leaves a very narrow window during which pharma companies must make some crucial decisions. For companies that are prepared, the potentially expanded market created by Part D represents a great opportunity. For others, failing to react quickly enough or making a wrong decision could be very costly mistakes. The challenge for manufacturers is to conduct the requisite research and analysis to support informed decisions—all within the constraints of a very tight timeline set by CMS. For companies that have not yet developed product-specific contracting strategies for Medicare Part D, now is the time to act.

Five Factors To develop an effective product-specific Medicare strategy, pharmaceutical marketers must gain a solid understanding of how Part D affects their products. This process may require significant primary and secondary research as well as financial modeling and scenario planning. Five key factors must be carefully evaluated:

  • age distribution of the patient population receiving the drug
  • current management of the indicated disease in the Medicare population and how it could change
  • geographic distribution of the patient population
  • Medicare formulary management for the therapeutic categories
  • effect on products' managed care and Medicaid business

Age Distribution. By looking at the age distribution of a product's patient population, marketers can answer some critical questions: How important is Part D to our overall business? What portion of our business is currently represented in the age 65 and older population? How well are we currently doing in the market segments most likely to be affected by Part D? What is our market share and how does it compare with our competitors in this population?

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