New Horizons in Pharmaceutical Managed-Care Marketing

Oct 01, 2004

The marketing challenge for every business is to sell products against a backdrop of competitive forces, technological developments, and established industry rules. While change is a constant, the natural tendency within each of these zones is to operate in some kind of normalcy, and for the relationships among them to interact in equilibrium. There are times, of course, when profound change occurs. These might be called "tipping points," where the weightof something new overwhelms the established logic. The emergence of Microsoft vis-à is IBM illustrates a tipping point in the zone of competitive forces. The same could be said for the internet in the zone of technological developments and for managed care in the zone of established healthcare industry rules. These developments were transformative. While there are always notable exceptions, IBM and Xerox for example, transformative developments are generally recognized by top management—sometimes a little earlier, sometimes a little later—and their marketing implications eventually absorbed. This article does not address transformative developments.

Using a baseball analogy, if transformations are scored as "home run developments," lesser change can be equated with "singles," "doubles," and "triples." The proposition set forth in this article is that there are at least three changes under way in the pharmaceutical marketplace—call them doubles and triples—that are significant enough to represent new marketing horizons for manufacturers. These new horizons include increasing out-of-pocket costs, evidenced-based commodification, and Medicare prescription coverage.

Should pharma executives neglect any one of these developments, they run the risk of causing a decline in their company's sales. Neglecting more than one compounds that risk.

Horizon One: Marketing Through Increasing Out-of-pocket Costs The old news is that cost-shifting to patients with multitier prescription benefits is well established. Generic-to-second tier copay differences as well as second-to-third tier differences of at least $10 have become the norm. Based on interviews I regularly conduct with pharmacy decision makers, over the next two years it would not be unreasonable to see generic-to-second tier and second-to-third tier copay differences at a minimum double to $20—all part of a general belief that patients need to have "skin in the game." These, it bears emphasizing, are conservative projections.

Prodded by employers, it is also likely there will be an emerging market share shift to tiered co-insurance, with consumers paying, for example, 10 percent of a generic/first tier, 20 percent of a brand/second tier, and 40 percent of a brand/third tier. Aside from reinforcing cost-sharing, the rationale for co-insurance is that it gives employers budget predictability, knowing that employees are absorbing a fixed percentage of total drug cost.

Coinciding with increased cost differences between tiers will be a dramatic increase in the number of quality generic agents on the market. Over the next two years, some of the most successful brands will be available as generics, making consumers think twice about spending extra money for marginally better brands at the second or third tier.

With this next wave of generics, five developments are likely to shape how health plan pharmacy management will try to steer member drug utilization:

  • Reduced number of second-tier agents in classes with respected generics available
  • More aggressive use of generic switch programs
  • Greater use of automated step edits and prior authorization
  • Broader reliance on mail order, pushing patients into three-month purchase cycles
  • Increased support for physician education promoting "generic value" to patients.

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