"Physicians, patients, and government are going to realize some of these categories that used to be off-limits in terms of
limiting drug choice can be in play. Once physicians are more sensitized to that with specific guidelines, which I think they
will be, they will understand the rationale for trying to limit choice or steering patients toward certain products. I think
Alzheimer's will be an area where we will begin to suggest you can start patients on the same drug all the time and have a
kind of sequenced approach."
Although selected efforts are underway for plans to standardize physician prescribing in these disease areas, the new marketing
horizon will reflect industrywide quality improvement efforts to standardize practices in the future. If evidence justifies
a more expensive therapeutic class be pushed further back in a protocol or there is no evidence to establish differentiation
among agents in the class, and your higher cost product is the loser—c'est la vie. Under this scenario, pharma might come to the table with a better value proposition, but health plan pharmacy directors will
"have their hands tied."
Being on the right side of evidenced-based commodification is ideal, but for products that are not the challenges will be
considerable. The following are three suggestions for attacking subordinate product positioning in evidenced-based, quality-driven
Gap analysis between thought leaders and pharmacy management. This means identifying distinctions in assumptions, perspective, and priorities between national thought leaders and specialists
who participate in health plan P&T meetings on the one hand, and pharmacy management on the other. It also means developing
functional and measurable implications that flow from this gap. What is it that thought leaders and specialists are saying
that pharmacy management policy is not attuned to—and why is this important?
Differentiation based on physician and patient value chains. Since P&T thinking focuses on safety and efficacy, if products are equivalent on these two dimensions, cost becomes the focal
point. To avoid playing the low-cost game when "equivalent" products are locked out by quality-driven guidelines, pharma marketing
will need to establish differentiation in new ways. The suggestion here is that, like business organizations, physicians and
patients have value chains, and that product features could lend themselves to making a measurable case for differentiation
depending on the utility of a product's value chain benefit. Will, for example, a product make physician monitoring, or patient
self-management more effective? Are there additional benefits from a product for patients with certain comorbidities? While
this area requires more market research, it holds out the possibility of building a differentiation argument before a brand
director is forced to tell senior executives "it all comes down to price."
Framing the efficacy equation more narrowly. Making the claim for superior efficacy is most frequently based on comparisons to placebo and less frequently on head-to-head
comparisons. But the emphasis either way tends to be on broad populations. Brand planners usually do not want to "niche" their
product and unnecessarily restrict demand. However, brand teams increasingly may find it advantageous in the long run to build
niche positioning more prominently into Phase III research so that managed-care teams can develop a narrow, empirical case
for differentiation. The tradeoff is increasing the risk of limiting demand for a new product in the launch phase versus decreasing
the risk of an evidenced-based P&T commodity decision
Horizon Three: Marketing Through Medicare Prescription Coverage
Aside from providing seniors with the means to have prescription coverage, a key goal of the 2003 Medicare Prescription Drug
Improvement and Modernization Act is to migrate the delivery and risk for prescription coverage from government to the private
sector and managed care. To say this new development will add complexity to pharma
managed care is an understatement. Indeed, the complexity likely to unfold when coverage takes effect in 2006 is so multifaceted,
and so capable of undermining predictability, pharma managed- care divisions might be better served without a Medicare strategy
per se, emphasizing instead tactics for selected products. Perhaps the best way to understand how this new horizon will take
shape is to examine three different aspects of the emerging environment. These are discussed below
Seniors As Consumers
Based on market research conducted over the years, there are at least seven attributes of seniors that are likely to reflect
their behavior as prescription drug consumers in the new Medicare market:
- Ongoing decline in cognitive function and reasoning
- Simple black/white distinctions in evaluating tradeoffs when forced to make choices
- Segmentation based on cognition no less critical than segmentation based on income
- Medication characterized as "critical" and "not so critical"
- Strong "if my doctor tells me" bias regarding medication
- Temperament not inclined toward change
- Low cost will usually win until proven otherwise
This suggests that pharma managed- care marketing, as a general rule, will need to plan for seniors who will be unlikely to
sort through the complexity and confusion of the discount card and insurance programs; will rely heavily on the physician's
office and pharmacist for coverage advice; will have a strong bias towards generics; and will be less willing to switch for
"serious" medication and more willing to switch for "discretionary" medication
Interim Discount Card Phase
News reports have documented countless flaws that are either inherent in the design of the discount card program or a consequence
of its implementation. Both sets of flaws can be expected to undermine the effectiveness of the Medicare discount card leading
up to the onset of insurance coverage in 2006. (See "Little Impact")
Given the confusion, the modest savings anticipated (10-25 percent), slow growth in membership, and 18-month time frame, the
discount card program is unlikely to have a significant impact on the overall seniors market. However, depending on discount
match-ups and the popularity of a given card locally, it is conceivable that local market shares could be affected. It is
possible to imagine scenarios in which seniors leverage their $600 low-income credit with purchasing strategies that change
Two developments illustrate tactics companies have adopted for the Medicare discount cards. Merck and Novartis will charge
only a small fee for drugs needed by people who use up their $600 subsidies. Pfizer and Eli Lilly will offer 30-day supplies
at a fixed copay to Medicare beneficiaries below a certain income level if they use the United Healthcare U Share card.
Strategically, it would appear that there are at least three implications pharma managed-care teams might consider in addressing
the discount card aspect of the Medicare market
- Like the early, developing phase of business cycles where consolidation has yet to materialize, the discount card period offers
an opportunity for unusually creative moves that might otherwise not seem practical.
- Brand teams could approach the discount card period as a time for "loss leadership" in anticipation of 2006.
- Critical success factors for new initiatives will almost certainly involve simplicity and effective communication.
2006 and the Emerging Insured Seniors Market
Medicare prescription coverage (Part D) will be provided through one of two vehicles: Prescription Drug Plans (PDPs) for
those staying in Medicare fee-for-service, and Medicare Advantage plans (currently Medicare+Choice) for those opting to be
in managed care. The centerpiece of the new prescription benefit is the statutory design. (See "Statutory Benefit Design.")
Although both Advantage plans and PDPs will have the technical ability to offer alternatives, their Medicare premium will
be tied to this benefit design. Any change from the cumbersome deductible and donut features will need to be actuarially
equivalent. Most significant is the $3,600 out-of-pocket cost that seniors are intended to absorb prior to the 5 percent co-insurance.
Also, it bears emphasizing that unlike the current Medicare+Choice plans where senior prescription benefits are capped, there
can be no cap in the 2006 environment. As severe as the statutory design is, therefore, Advantage plans and PDPs will be financially
pressured to offer alternatives with their own severe features—many, quite possibly, with a deductible and certainly with
huge tier differences.
Based on interviews conducted with several managed care decision makers and others in the Medicare community, three strategic
observations emerge from a snapshot of how the 2006 seniors prescription market appears to be developing. Any number of subsequent
events could alter the points outlined below.
1. Lack of predictabilityManaged-care contracting considerations, with its traditional formulary structure, product channeling, and rebates, appear
unlikely to come to fruition as broadly or as cleanly as proponents contemplated.
- Assuming generic availability, PDPs and Advantage plans may contract for just one branded agent per therapeutic class, otherwise
they may contract for just two branded agents, with both the definition and number of required therapeutic classes still to
be determined. This applies to the statutory design as well as more classic managed care designs. However, the legislation
also mandates an appeals procedure for permitting nonformulary agents to be covered under medical necessity, and nonpreferred
(third tier) agents to be covered at preferred (second tier) levels. Given the uncertainty of how this provision will undermine
formulary or second-tier positions, manufacturers are unlikely to be able to count on the predictability their contracting
business models require.
- Since the "actuarial equivalence" for alternative designs requires an expenditure of $3,600 in out-of-pocket costs before
what might be considered typical managed care coverage takes effect, here too, predictability on which contracting and rebates
are based will be undermined.
- Health plans are reportedly in discussions with the Centers for Medicare and Medicaid Services (CMS) to share risk on certain
chronic and expensive disease states. Shared risk with the government is uncharted territory that in general creates many
difficulties, further undermining the predictability manufacturers assume with contracting and rebates.
In addition, CMS can be expected to take on much more full risk in the traditional Medicare market than originally intended
because PBMs have signaled they have little interest in assuming PDP risk. For PDPs where CMS takes full risk because PBMs
(or health plans) want an administrative services only (ASO) role, rebates are unlikely since the federal government to date
has avoided rebate relationships.
Statutory Benefit Design
2. Price mattersThe seniors prescription market in 2006 is likely to be more oriented to lower average wholesale prices (AWPs) than a lower
net cost through contracting.
- Products with relatively higher AWPs achieving price competitiveness in managed care through rebates will find it more difficult
to establish price competitiveness at the point of sale under the new Medicare regime.
- There are signs that co-insurance is likely to be more widely adopted in Medicare prescription benefits than it is now under
managed care. In addition to the statutory design, Advantage plans and PDPs are likely to turn to co-insurance for two other
reasons: greater budget predictability for the at-risk entity; and more transparent cost to seniors. Suffice it to say, the
more co-insurance operates, the more seniors will be responsive to products with a lower AWP as opposed to higher AWP with
a higher rebate.
- Because the statutory design is structured as an indemnity benefit and the dollar thresholds are authorized to increase with
any inflation (for example, the 5 percent co-insurance level that starts at $5,100 in 2006 could increase to, say, $5,500
in 2008) the out-of-pocket price that seniors will have to pay at the point of sale will probably always be a primary consideration.
3. Formulary uncertainty.
To date, there does not appear to be any managed-care consensus around a host of basic formulary issues, further complicating
how a pharma managed-care team should approach a given account. Some of those issues include:
- Whether the same agents will be on formulary or second tier for commercial and Medicare business lines
- What the co-insurance or copay differences between tiers should be in the benefit designs offered by Advantage plans and
- How much of the "heavy hand" of pharmacy management controls will be needed for Advantage plans and PDPs to maintain the financial
viability of their prescription business.
Conclusion: Toward Strategy
One exercise in strategic planning is for the enterprise to identify how it expects to be successful three, four, and five
years out. This might include how it wants to be positioned competitively, what sales numbers it hopes to achieve, and what
market identity it seeks to establish. The three new pharma managed-care marketing horizons described in this article are
by no means transformational. They are, though, important enough to have a considerable impact on how pharmaceutical manufacturers
succeed going forward. Companies that understand how these horizons define what steps are needed to get to their desired future
are more likely to succeed than companies that do not.