Are We Aligned Yet? A Medicare Part D Roundtable
The most salient feature of the Medicare prescription drug benefit is its uncertainties. That was perhaps the key insight at a roundtable conducted by Pharmaceutical Executive in conjunction with the executive summit "Medicare Part D: Can There Be Alignment Between Government Goals and Industry Opportunity?" cosponsored by this magazine and Model N, a revenue management-solution provider. With a panel that included representatives from pharma, the legal community, prescription benefit managers, and data and service providers, the roundtable looked at the goals of Part D, the threats and opportunities it presents to stakeholders, the skills companies need to develop, and the way the playing field is likely to change over the next few years. What follows is an edited version of the conversation.
PARTRICK CLINTON, editor-in-chief, Pharmaceutical Executive: What do you think the government is trying to accomplish with Part D?
CHRISTOPHER ZANT, senior executive, Accenture: Moving forward, Part D becomes an experiment in public-private partnership. Can we go at this in a private manner, influenced by public policy, driven by government intent, but supported through commercial means without strict price controls or legislative mandates? "
METRO: The way Medicare has evolved, and Medicaid as well, the concern swings between health policy and budget policy. For the last ten years at least, budget has been far and away the bigger driver of the two, and it will continue to be for the foreseeable future. That's the long-term challenge.
LINDA SCHOCK, associate director, distribution and reimbursement, Actelion Pharmaceuticals: I agree that access is incredibly important right now in Part D, but the bigger challenge is making sure that everything works: the infrastructure, the systems, getting government to understand pharmacies and the nuances of how they operate.
JOEL WINTERTON, owner, SET Enterprises: It seems that Medicare is relying a lot on the states to sign up people for low-income subsidies, handle dual-eligibles, and go out and recruit people. But there is going to be a wide gap between the states that do those things well and states that struggle. When Medicaid started up, there was quite a delay in understanding what the real program was, how big it was, and how fast it was growing. Most manufacturers after '91 and '92 dramatically underestimated the impact of Medicaid in '93, '94, and '95.
METRO: I think they've put a bit of a fig leaf there in terms of the Medication Therapy Management Program requirements, but it remains to be seen how active that will be at the plan level. In the long term, now that they have all the pieces together, the real question is: Do they try to coordinate it? Do they try to work more with disease management and the like?
LONG: The conventional wisdom is that when you have a benefit and you didn't have one before, you consume. When you have a better benefit than you had before, you consume more. But some of those people are going to have less of a benefit than they had before. And the question is: How big is that group compared to the other group? That is probably going to have more impact a year from now, because a lot of people are getting a subsidy at least for the first year, but you may see the subsidy drop at year two.
When you talk about utilization, I would say co-pays have certainly been a brake on consumption. But one side effect of higher co-pays is more noncompliance than we've ever seen before. I always wonder how much demand potential is out there, when you figure that a good number of people who start on chronic-care medications are off of them six months later.
SHERMAN: I agree. And from the viewpoint of a stand-alone drug benefit, noncompliance is not such a horrible thing. In a stand-alone Part D plan, it is much tougher for them to make profits based on pharmacoeconomic value.
BILL DAVIES, partner, Accenture: I agree that the Medicaid Therapy Management Programs are a kind of fig leaf. The ceiling they kick in at is so high, it's like closing the barn door after the horse has gotten out. And that's where industry and the payers and providers can become more creative in trying to monitor disease-management programs or monitor therapy utilization, so you can get the appropriate utilization.
SHERMAN: Medicare leaves a huge cost share to the patient. Our initial plan design at Medco is making sure that consumers have all the tools to be well educated, and letting them decide.
SCHOCK: That's a good point, but I think we have seen that these patients are not well educated. A lot of them have literacy issues. How do you address that?
WINTERTON: It's the classic situation: People who need the benefits most have the least amount of education.
METRO: And even among those who are better off, you are also going to have the issue of attitude. There is a very passive attitude about their healthcare.
CLINTON: Could we look at Part D in terms of threats and opportunities to the different stakeholders? What conflicts does it create that haven't necessarily been there before?
SHERMAN: From what I have heard from pharma executives, they anticipate greater volume, but any plus will be offset by rebates. They look at it as almost neutral. But it obviously beats some of the alternatives.
ZANT: It might be an opportunity now, but it's a threat if pharma doesn't grasp it and support it and encourage it, because the alternatives are negative to pharma.
METRO: I hope the industry can push this as an opportunity to prove its value proposition.
WINTERTON: Do you see that happening as a coalition?
METRO: No. Hopefully to the extent it is going to happen it's probably going to be incrementally, through demonstration projects.
In some respects, the other thing that may be an opportunity is that we are getting all of the segments of the market playing from the same page. You have familiar ground, and you don't have to be slicing and dicing your populations as much. Maybe there is an opportunity for more coordination of strategy, because you are playing in a field of the familiar.
Stephen zocchi, vice president, marketing and sales, Model N: But how do you support that focus? You have a world that is increasingly complex. You have new entities—maybe they are sponsored by familiar parties, but they are new entities. You have the merging of commercial and government business in a way that's never happened before. And with that comes increasing complexity in terms of how you handle administration or planning. Think about price calculations. Medicare is going to use Average Sales Price, which is very complex to calculate. Now, they are proposing a second version of ASP to be added to the mix. So you have increased operational complexities for all pharmaceutical companies and potentially all the parties.
WINTERTON: There is a fundamental conflict built into the system. We want to increase access, but we want to contain costs. This conflict used to be in more isolated markets. Now we are talking essentially 40 percent of the market. The stakes are much higher.
CLINTON: What about other players?
LONG: If you take retail pharmacies, it gives them an opportunity to offer a ninety-day script. That hypothetically allows them to compete better against mail.
On the flip side, their most profitable customer—the cash customer—is now going to be a third-party customer. The independent pharmacy will probably struggle more than chains, and some chains will struggle more than others. Canada could be a loser in this, because nobody is going to Canada for their Medicaid prescription at a three-dollar co-pay. Virtually nobody is going to Canada to trade off a $25 co-pay. So at least some of those cash customers will be back.
SHERMAN: From a PBM perspective, Medco is very dependent on seniors. They make up nine million out of the roughly 60 million people we have under management today—and you can imagine they account for a disproportionate share of our revenue. On top of that, a lot of our mail volume depends on seniors—and mail service is where our margins are, so nine million seniors might represent 35 percent of the prescriptions we handle. If you look at it from a margin perspective, they are even more significant.
If our employer clients discontinue traditional retiree drug benefits, and if we are not able to keep those retirees either in one of our Part D plans or in an employer-sponsored PDP [prescription drug plan], we have lost an important customer. If that happens dramatically, as some people predict it could in '07, that could be a big negative for us. On the other hand, Part D is just another venue in which to compete. When we go to clients, we don't get the traditional question anymore—What do you have in place for our retiree population? Now we have to have innovative solutions.
On a more positive front, we anticipate that we will get a lot of new enrollments—the auto-enrolls, the duals, and low-incomes that will be signed up at the beginning of '06, and individuals that carry over from the type of programs we have today.
On the retail pharmacy end, there is the ongoing saga between the mail PBMs and the retailers. Some retailers, especially chains, are reaching out to the PDPs in a big way. They are becoming more and more our competitors. Initially this occurred in the private sector, but now it is really going to happen in the Part D world.
CLINTON: On balance, is Part D going to be a good thing for the various stakeholders or not?
ZANT: It's step one. Nobody knows what steps two, three, and four are going to be. It appears to be positive. It appears to be structured well with the parties involved, and has the potential so that it doesn't go down the wrong path.
DAVIES: And I think CMS is really open to the idea that all the segments of the industry should come together and try to leverage the strengths and minimize the weaknesses of the program, so it does go forward successfully. "
METRO: The consequences of failure are potentially much more complicated and worse than the consequences of success, if you will.
LONG: As I go down the line, there are pluses and minuses to every position. There are no slam dunks, which might mean Congress did a heck of a job. You're going to have to earn what you get. If you have your head in the sand, you'll be a loser.
SHERMAN: No matter what we all do, the benefit is very complicated, it's not easy to understand. And relative to the private sector, it's lean and mean. There is going to be a lot of complaining about it in the senior population, in part because of the fundamentals of the program design, regardless of how much industry participants rise to the occasion. That to me is perhaps the biggest obstacle.
SCHOCK: What we saw in being part of the demo project is that it is ever-evolving. The way you do things today is not the way you are going to do them tomorrow. That gives some of us in the pharma industry a bit of a concern.
WINTERTON: What happens in year one out of the gate is going to dictate what happens in year two, and that's going to dictate what happens in year three. The momentum of the program is going to shape the future of the benefit.
CLINTON: What would be the best outcome?
WINTERTON: Enrollment and cost containment.
LONG: They won't know the cost until the second year.
WINTERTON: That's the problem we had in Medicaid.
DAVIES: If we consider enrollment to be paramount to success, it is important to make sure seniors understand the benefit. The people who need to guide those enrollees are the healthcare providers or physicians—because that is who patients are going to talk to—and retail pharmacists.
LONG: I think the pharmacists step up a lot more than doctors.
DAVIES: I think you're right. But it's important that the industry reaches out to them and ensures that they have accurate information, so they can guide those senior citizens to make a more educated choice. Part D is going to be difficult to understand. Seniors are going to be looking to people they trust, and they trust their pharmacists.
ZANT: Physicians have the up-front responsibility. But at the point where that patient is going to cross into the doughnut hole, it is the pharmacist who is going to see it on the screen. The doctor is probably not going to know.
DAVIES: The pharmacist may see that as a threat. They are overworked already, and now they are going to have to be a mentor and educator. There's the potential, if pharmacists are not really a valued part of the process, that they could become disenchanted and become a confounder that causes things not to go as smoothly.
METRO: There's a Catch 22 to industry playing a role in enrollment. You want to participate, but you have to be careful from a compliance perspective. You have to be careful about steering people to particular plans, especially if you have a favorable formulary placement in them. There is tension between wanting to help—maybe through having a telephone line or what have you—and at the same time feeling like you can only go so far. We all know that if you're on that call, walking through the patient's options, the question you are going to get is "Well, what do you think I should do?"
WINTERTON: I know there are significant restrictions for the state in terms of signing people up on different plans. Would those same provisions apply to pharmaceutical companies?
METRO: Not directly. I think it's a fraud issue. Usually when people think of a kickback statute, they think about incentive to get somebody to use a particular product, but there is a whole new world of kickback issues out there that industry has to be aware of—such as referral of patients to particular plans or particular pharmacies. If you are in the industry, you probably need to follow the neutrality principle and provide information up to a point—then let it go.
CLINTON: In what areas does pharma have the skill set it needs to effectively manage this program and in what areas is it lagging behind?
ZANT: From the perspective of a well-run pharmaceutical company, it's more of the same done well. If you have a good contracting function in place, you have more contracts. If you have good collaborations with brand teams for strategy and products and rebate opportunities, you need to do more of that well. You will have new data, and you'll do more with it. "
ZOCCHI: We did a survey last spring that asked pharmaceutical companies how they were preparing for Part D. One of the questions was: "Do you believe Medicare Part D contracts will be as complex as your contracts under managed care?" And 70 percent of people said they thought the contracts would be as complex or more complex.
We also asked where control of this new business area would reside within their organizations. That one was interesting: There was a fairly even split between those who named the group controlling governmental business and those who said the group controlling commercial. But 26 percent of the respondents answered "other," meaning perhaps that they weren't sure. So there isn't a predominant trend in how companies are lining up to manage this new type of business relationship.
You can't have siloed operations in this upcoming world of convergence of business types. More than ever now, you need to have shared processes, shared tools, across organizations that will allow you to collaborate.
METRO: I think that's right. The infrastructure and contracting departments are critical. You need somebody in the eye of the storm who can quarterback—and people in the line of fire who are able to understand enough about the big picture to make it work. The real challenge is that you need enough quality people to understand the bigger picture.
SHERMAN: From our point of view, as a PBM working with pharma companies, we often would have discussions with senior management as well as managed-care people. But when it came to negotiating rebate deals, we were left with just the managed-care people and saw a lot of the attitude that prevails in the commercial market—"I'll give you this rebate for 101, this for 102, this for 103 . . ." They want to pay for performance along traditional lines.
A lot of companies, especially smaller pharma companies, are already outsourcing rebate processing, contract administration, and so forth. And as these contracts in Medicare are equally or more complicated than the commercial or private sector, I think we will see more and more of that outsourcing, especially in the smaller companies.
SCHOCK: Well, the infrastructure, the knowledge, the understanding are not there. Obviously a big concern, as with any government program, is just to make sure you are under the OIG guidelines. From a small-pharma perspective, it's scary—what am I going to do today that is going to put me in jail tomorrow?
METRO: People have been doing their best to try to keep the program and contracts on the up and up. But the fact remains that we are talking about a program that is a couple years ahead of where the OIG is in terms of providing guidance.
CLINTON: What should pharma be looking at going forward?
LONG: I think you want to be a participant—and a leading participant—instead of hanging behind.
ZANT: And you want to go beyond handling the transaction and calculating the data and move into supporting the program and advocating changes.
ZOCCHI: Companies have been very reactive—"We have to respond to this, we have a deadline; let's try to put it together." But though the deadlines are still there, companies need to prepare themselves to deal with a new reality. Companies should ask, "Am I open to re-examining how I do my business, how I do my process? Should I rethink how I plan and price and establish my sales organization and my relationship position?" If companies can allocate the bandwidth to looking at business processes along with preparing for the program, I think they will benefit in the long term, maybe the short term as well.
WINTERTON: As a benefit, Part D is not the best benefit, by any stretch of the imagination. And there aren't a lot of controls built into the legislation. It's more of a free-market system. Manufacturers have a huge opportunity to step up to the plate and make it successful, but also there is a big potential downside. Any mistakes in judgment companies make are going to be magnified as part of the Part D program.
METRO: Let's not lose sight of the political dynamic—the demonization of the industry in terms of price. If Part D doesn't address that, there is no reason to think that wouldn't pick up again.
WINTERTON: That's the specter that's hanging out there.
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