When the Payer IS the Player - Pharmaceutical Executive


When the Payer IS the Player
As Medicare, Medicaid, and the nation's vast web of private payers consolidate and gain market power, how can pharma stay ahead of the cost-containment curve? Pharm Exec hosts a conversation between two experts on each side of the payer and pharma divide

Pharmaceutical Executive

Ted Sweeney
Private payers, such as HMOs or insurance companies, have emerged in recent years as a formidable force in the complex arrangements that determine market access to prescription drugs. Formulary inclusion, rates of reimbursement, copays, and other coverage decisions have long played a critical role in the fate of a new treatment, especially when pharma was running its assembly line of primary-care me-too products. Now, as the cost-containment and quality-improvement promises of the US Affordable Care Act (ACA) begin to be tested, the influence of payers—in particular, the 800-pound gorillas, Medicare and Medicaid—is likely to increase.

Jan Heybroek
Value-based pricing is the new regime under which pharma must labor—whether through outcomes data, economic models, or other tools—to make the case that a new product delivers not only clinical benefits but also real-world advantages that improve the management of a particular disease. Nowhere will this pressure to show the value be more intense than in the increasingly crowded oncology and biologics space in which most of Big Pharma has placed substantial R&D bets in recent years. Experience in other markets outside the US also shows what is ahead in the domestic arena.

Addressing the challenges of collaborating with the US healthcare system's immensely fragmented web of private payers remains a work in progress for the pharma industry. Pharm Exec asked two experts on the payer/pharma interface, the Arcas Group's Jan Heybroek and PriceSpective's Ted Sweeney, to have a wide-ranging (albeit oncology-focused) conversation about where these two stakeholders stand at the current moment of great uncertainty in the healthcare industry and what new trends and strategies are in the offing. — Walter Armstrong, Senior Editor

Pharm Exec: To start off with broad strokes, what's the big story about pharma's hopes and fears regarding the growing power of payers?

Jan Heybroek: There has been a significant increase in efforts by US commercial teams in pharma and biotech to understand the interaction between physicians and payers, especially in the oncology space, which is not surprising given the high value or high cost of these drugs. We see a similar trend toward a deeper understanding of the whole payer side of the business—and not just to understand but to impact it.

Ted Sweeney: Absolutely. Over the past five years, the recognition that payers are one of the ultimate market stakeholders has gained traction, and you see that reflected even in the organizational structure of pharma companies: the focus on market access and payer landscapes. Its reach is really quite remarkable—that information is used as input even into decision making about drug development and clinical trial structure. But there's also the recognition that the payer isn't necessarily the clinical expert. Payers rely on the physician community and other external expertise, especially in rapidly evolving, specialty disease states, like oncology.

PE: Do pharma's experiences with payers in other countries offer insight into what it should do in the US?

JH: In Europe, pharma's need to understand the payer landscape seemed to precede that in the US, given the strong and early role of the national organizations that approve and reimburse drugs. In the late '90s, pharma was already commissioning studies on this topic.

For example, in France, the way the system works is that pharmaceutical companies are bound to make agreements with the government on the amount of their total revenues, with total revenues being a multiple of your price versus the quantity, so that if you start to sell a lot more of it, they force you to reduce your price.

TS: You launch a drug, and there's typically some price/volume agreement in place, where you provide France with a budget projection, including the number of appropriate patients and the annual cost. And then, if you exceed that, there are mandatory price cuts across the total volume of your business. In oncology, in particular, when products first come to market, they often target a very late line of disease and a fairly small population. But the company's goal is typically to continue to demonstrate the value of the drug and move up the treatment pathway into an earlier stage. As you do that, you start treating more and more patients. So then you're running into the likelihood of triggering those price/volume agreements—more patients, more volume.

In addition, in terms of international price referencing, the French price that a company achieves for its drug is important not only because France is a major market but because it is probably one of the most referenced countries in the world due to the very methodical and transparent way it assesses drugs.

JH: Transparency is a growing imperative in terms of pricing. Increased transparency with more government systems publicly accessible both in the US and in the EU is supporting the growth of informal cross-country price referencing and sharing of information that works its way into national-level decisions. Public scrutiny of the cost of drugs is also increasing, of course.

TS: There are other mandated approaches in other markets across Europe. In Germany, oncology therapies have not been part of physicians' annual drug budgets, so there has been minimal price exposure there as well. If a new drug is able to demonstrate "incremental benefit," it should not be subjected to price discount negotiations.

In markets that rely more heavily on health technology assessments, like Canada and the UK, oncology agents are subject to the normal review processes. In Canada, maximum pricing is determined at the national level and then each province can negotiate prices below that, deciding whether to add a product to its formulary on the basis of clinical effectiveness. Private payers sometimes offer broader coverage. In the UK, NICE conducts its QALY-based analysis, and as a rule of thumb drugs must stay below the 30,000 per QALY threshold to win NICE endorsement.

Of course, in the US, nothing like that exists. For pharma, the problems arise because of having to deal with its fragmented payer system. Private and public payers do evaluate new agents, but their approaches vary significantly: Some private payers manage products more stringently than others, relying on assessments of clinical value in the context of economics and their ability to contract for price discounts.

What all of this means is that the strategies that pharma uses to engage with payers necessarily must be flexible and multifaceted. I think there's room for some innovation, but payers aren't necessarily going to be embracing innovation unless it also brings them high profitability.

JH: Exactly. You always go back to the economic argument to convince the payer that not only is this treatment in the best clinical interest of the patient, but it's in the best management interest of the patient—that using it leads to quicker recovery, fewer side effects, and so on, so the overall cost of the patient's entire treatment is less, even though the cost of the new drug may be two, three, or 10 times more expensive than the standard of care.

TS: There's a justified awareness among payers of that argument, which is why there's a greater desire on their part to see things like comparative-effectiveness data.

PE: How will the implementation of healthcare reform complicate the pharma/payer relationship?

TS: That's exactly what everyone is trying to anticipate. Most eyes are on Medicare and CMS. Technically, Medicare is concerned with cost containment but, legally, it's not allowed to take cost into consideration when making a coverage decision. That doesn't mean that people at CMS won't find other characteristics of a product to focus on, in lieu of cost. In the past, what pharma has most feared is the "national coverage determination," which occurs when CMS determines if an agent or procedure is reasonable and necessary.

Under the evolving new healthcare system, comparative effectiveness is the biggest issue. Some organizations are being set up now to run the comparative effectiveness research that can be used. Technically, under the current law, that research can't be used as the only reason to make a coverage decision. There has to be at least some other justification for restricting access to a drug, and also, comparative effectiveness, by definition, doesn't really take cost into consideration.

In oncology, for any major changes in how access is managed in the US to be successful, it will require collaboration between payers and physicians—and the buy-in of the oncologists and clinicians, because they're not a group who will fade away quietly if access is restricted.

JH: There are several ways of looking at the potential impact of comparative effectiveness. The typical model is, you put two agents head-to-head in a clinical trial, see which one comes out better, and then do your evaluation of the cost of treatment. Those kinds of head-to-head studies are less often done in the US than in Europe, particularly in oncology. You always go back to old-fashioned chemotherapy, and only recently have people started to do trials of the newer agents. Unfortunately, in testing a very new agent against the standard of care, there often isn't that much of a difference in terms of overall survival. And that brings up the question of the cost of a few extra weeks of survival.

TS: To some degree, comparative effectiveness is harder to realize in an area like oncology, because things change so quickly. It's interesting that in certain tumor types, like breast cancer, there have been amazing advances over the past 10 years in terms of life expectancy. Products like Herceptin, which was started in a fairly late-line population, has again and again proven its benefit, moving into earlier lines of therapy and really changing that disease state.

There's still a lot of room for improvement, but I think we'll be seeing more and more new agents that actually have active comparators in their arms. For example, new product X versus Herceptin on top of standard background therapy. But in metastatic prostate cancer or metastatic melanoma, it's much more difficult—and essentially unethical—to have comparative effectiveness trials like that, because it would involve withholding standard of care from patients. So in these cases, as well as the more competitive cancers like CML, you may see more comparisons between different trials, as opposed to within trials.

PE: Where do physicians fit into the equation, especially in a specialty field like oncology?

JH: There's an assumption on the part of pharma that there's a group of physicians who actively guide payers, in their assessment of drugs, and thereby influence coverage. But if this is the case, it's a limited number of physicians.

Our company has done extensive surveying of medical oncologists and hematologists, asking how often they interact with payers, and the low level of interaction surprised us. These are studies of about 250 medical oncologists, with about 30 percent academics and 70 percent community-based—and only 8 percent of the total reported being routinely consulted by payers on clinical pathways, formulary decisions, and reimbursement. So 92 percent of physicians have no interaction with insurance companies on formularies.

This suggests that payers are getting their information from the same pool of medical literature, and from attending the ASCOs and other big cancer conferences, and then, like pharmaceutical companies, they will reach out to people that they believe are experts for further guidance. And in that 8 percent, there was hardly a differential between academic and non-academic. Many of these physicians are not necessarily thought leaders—they're high prescribers, and I'm guessing that may be the reason they are being sought after by the payers.

TS: Payers, even medical directors within managed care organizations, are themselves physicians, but they really value the opinions of practicing specialists. In an area as complex and rapidly evolving as oncology, getting this external insight is quite important, especially if the payer is interested in making a decision that might restrict access to the drug. They want to make sure that a particular restriction will resonate with the oncology community.

We tend to think of physicians in the US as really not having much pricing sensitivity or exposure to price. I think that is starting to change. More and more in discussions with physicians in the US, I detect a feeling of social burden—a growing awareness of healthcare costs that's also leading to these ideas of preferred protocols. You can think of it as another pilot program around pay for performance—for certain disease tumor types, stages of disease, there would be a preferred approach to therapy. And the idea is, if you hit that 80 to 85 percent of the time, you get reimbursed at a certain rate, and then, below that, your reimbursement range would change.

JH: Oncologists have seen their income drop dramatically due to changes with Medicare Part D, and these economic interests also probably influence the use of certain products. It's not a mystery that physicians have infusion suites where they've got staff and they've got costs. I think in some cases, they tend to look for drugs that are infusion-based rather than oral-based, so they can support their infusion suites. That said, most oncologists are interested in treating cancer as aggressively and effectively as possible.

TS: The fact that your typical Medicare patient will have to pay thousands of dollars out of their own pocket for an oral agent is a limitation. Whereas, for a physician-administered product, which would be under Medicare Part B, many patients don't have to pay a cost share because they have supplemental insurance. But as it is, the donut hole is being phased out over time—and essentially subsidized by the government and pharma.

PE: Everyone agrees that healthcare costs in the US are unsustainable, but no stakeholder wants to take a hit. Are we getting any closer to a consensus on cost containment?

JH: In any medical decision, there are always economic arguments. But often these economic drivers are brushed aside as not being relevant on the assumption that the decision should be based entirely on the clinical benefit of a drug. Unfortunately, in cancer, the clinical benefit is something that is often tested in smaller numbers of patients than in other therapeutic areas, so efficacy is harder to generalize to a larger population. There's also the perception that the clock is ticking fast, so you've got to do something for the patient now.

And complicating the cost issue even more, a significant part of the improvements in breast cancer have also been due to the personalization of medicine. For example, doctors have been able to identify, through diagnostic improvements, the tumors that are responsive to Herceptin. And that process has probably had as much of an effect on transforming the disease as the availability of very good agents. But these are not inexpensive diagnostic procedures. Still, payers are generally willing to cover them because there's a significant benefit to being able to treat more patients more effectively and in a more precise manner.

So one question is—and this is an important deliberation by NICE in the UK—if you as a patient fall into the Herceptin-responsive category, should your reimbursement or coverage in advance be different because of the anticipated improved response of Herceptin treatment and, therefore, the anticipated health-economic benefit, compared to a patient in another category? This raises some very challenging ethical situations.

TS: It's important that the US adopt a cooperative approach in order to be successful. A cooperative approach could define the best-practice approach for patients with a certain disease state: a tumor, type of cancer, stage of disease, prognosis.

Now, of course, cost has to come into it at some point, but the danger of using cost as a key determinant of access is the impact that that can have on new innovation. I mean, you just mentioned the progress in the personalization of medicine by means of advanced diagnostics and drugs. It's costly to develop these new technologies.

PE: Is it inevitable that the US will have to adopt a more European-type model, where Medicare is the single major player and other payers just follow its lead?

TS: I think that private payers are actually waiting for that—on a range of issues from oncology management to dealing with biosimilars. There's certainly a desire among private payers to use what Medicare does as cover. But Medicare's not taking action at the pace that some would hope, so some large private payers will probably lead the way on certain issues.

I don't think the US healthcare system will ever get to a point where there is a single dominant player. There will always be a lot of private players because of the desire to maintain competition. As a result, the US healthcare system will remain fragmented, despite consolidation that is taking place right now in the private sector. And while the government is prohibited from making coverage decisions based on cost, the Part D payers—Part D being implemented by private plans—do make formulary decisions based on cost.

JH: The European countries are appreciating their leverage—they're less afraid to do so, and there's more of a political or governmental agreement to do so. But given the US marketplace and political landscape, I don't believe Medicare will ever get that kind of stature.

TS: Medicare has tried cost-containment policies in the past, such as the concept of "least costly alternative," to try to manage their reimbursement rates. But a couple of court decisions have said that Medicare doesn't have the authority to do that. So it would require legislative action to gain that authority, and following the reforms and the amount of political capital that was spent to get those through, I don't see something as controversial as letting Medicare make decisions based on price happening any time soon.

JH: I don't see that happening in our lifetime or in any lifetime, probably. Fairly or not, it smacks too much of this great political statement of Big Brother stepping in, and that's viewed as so fundamentally un-American.

PE: With that note of agreement on the one thing that is certain not to happen, I will conclude this conversation. Thank you very much.


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