A New Deal with Managed Care

A PE Roundtable
Sep 01, 2003

To hear industry leaders talk, a new model for marketing pharmaceuticals to managed care is just around the corner. In the new paradigm, value will be key. Pharma will provide information about their products' superiority-and prove it through pharmacoeconomic data. And managed care will make simple, transparent calculations about which products will be included on the formulary and the level at which they are reimbursed. Contracts, rebates, and guesswork will be a thing of the past. Evidence will rule the process of formulary review.

It is, in many ways, an appealing picture. But it raises a host of questions: How does pharma transform a marketing process currently dominated by an army of traditional sales reps? Who will provide pharmacoeconomic data, and how will the industry move toward a reasonably standard way of interpreting it? How will value be defined? And most important, how will stakeholders with very different needs and goals manage the process of moving from the present system to the future one?

To help answer those questions, this July, Pharmaceutical Executive convened a roundtable of leaders from the pharma industry, public and private payer organizations, and public interest groups. In the course of a vigorous three-hour discussion, the group analyzed the new value paradigm, pointed out obstacles to change, and suggested strategies for aligning the interests of patients, healthcare providers, and industry.

The session was marked by a diversity of opinion, but some major themes emerged:

  • Though value may seem to be a simple concept, it is difficult to define or to apply. One major problem is that quality-of-life issues don't translate into value for payers.
  • Pharmacoeconomic data are an essential element of the new marketing model. But neither pharma nor managed care is quite ready for evidence-based decision making.
  • Some of the most important changes to the reimbursement system will be ignited from payers' management of new large-molecule injectable drugs.

What follows is a summary of the roundtable discussion. For additional information about the issue, see "Show Us the Value," page 80, which is based on the same survey results David Balekdjian presented to the roundtable group.

What is Value? The keynote address challenged pharma and managed care organizations to fully embrace a system in which products'

reimbursement is based on their value. The executives around the table agreed that value should play a lead role in determining whether and how a particular therapy will be covered. They even decided that the notion of value would define the next era of reimbursement. Yet, although they could settle on the general principals of value, they could not agree on how to apply the concept. After all, pharma's customers each have their own set of needs and concerns which they seek to have prescription pharmaceuticals answer.

"The range of players and their particular interests makes me realize we are on the front end of a relatively non-elegant journey," says Jack Bailey, vice-president of Lilly's business-to-business division. "But until we define value, we can't align the incentives, which is really when the healthcare system will transform."

Pharma companies' journey to defining value for its customers will likely affect their marketing practices. Richard Reece, MD, pathologist, editor of Physician Practice Options, Quality Indicator, and author of A Managed Care Memoir: A Physician's Whistle-Stop Journey, notes that industry "has historically defined its value proposition through consumer advertising and by 90,000 drug reps visiting doctors' offices."

But today, payers take the lead in defining value. John Seman, PharmD, and CEO of the reimbursement agency HealthBridge, says "The payer's power base is increasing by virtue of new drugs coming to the market, increasing healthcare costs, buyers or employers pushing back on those costs, and payers answering that by pushing more generics and other low-cost drugs and employing more cost-containment strategies."

But payers are a diverse group and use different endpoints for determining value. Joan Henneberry, director of health policy studies at the National Governors Association, analyzes state management of pharmaceutical programs and benefits. She says, "Private purchasers such as employers have additional incentives for quality and outcomes-like more productivity and better attendance at work-than a public purchaser like Medicaid might have."

That's in stark contrast to non-US models built around one payer. "The European Union and the United Kingdom's NICE [National Institute for Clinical Excellence] model have decided what value means to them," says Suzanne McDonald, division vice-president, general manager of Abbott's managed care franchise. "They clearly establish 'Is this therapy worth the number of life years that I might get from this particular product?' And that is not a position that payers in this country, up to this point, have been willing to take."

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