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As healthcare costs have risen, the insurance industry has relied upon increasing premiums as its main compensatory vehicle. The 2005 Bruckner Group (BGI) Study of Payers indicates that the largest purchasers of healthcare—major employer groups—are beginning to aggressively refuse continued price hikes. The evidence suggests they have to. Despite creative attempts at risk-sharing and consumer-driven plans, employers spent $330.9 billion in 2003 on health insurance, representing a 12 percent increase from 2002, according to the Employment Policy Foundation. Compounded by the expected cost  

shifting the new Medicare prescription benefit places onto the system, employers are sending clear messages to the managed healthcare system: "Figure it out with what we are already paying, and don't come back asking for more." The strength of this "customer pushback" is unprecedented, forcing payers to even more aggressively scrutinize the cost side of their business. They will need to find every way possible to stretch healthcare dollars further, even by instituting programs no one in the industry would have expected.  

Aggregate employer cosy of employee health insurance 			

The 2005 Bruckner Group study is based on extensive discussions with managed care payer decision-makers who represent greater than 80 percent of covered lives in the United States, about all major therapeutic classes with significant pharmaceutical utilization. BGI analyzed this year's results against its previous payer studies and determined that payers are moving with even greater aggressiveness toward two major cost-cutting goals for their pharmaceutical and biological therapy utilization: 

 ensuring that new therapeutics added to their armamentarium deliver healthcare value commensurate to or in excess of their costs

restricting, wherever possible, the use of branded pharmaceuticals and biologicals to an identifiable patient base with particular healthcare needs necessitating their use. 

Payers continue to rely on traditional methods for policing utilization: step management programs, prior authorizations, and tiered formularies. Yet pharma manufacturers should expect that, going forward, while these programs will appear to be similar in principle to what has come before, in practice they will be quite different. 

The Size of the Piece Depends on the pie 						

Consider that many managed care organizations (MCOs) strongly believe that there are still great efficiencies to be realized. The 2005 BGI study indicates that pharmacy directors can identify significant opportunities for cost control in most classes through improvements in the efficient utilization of resources. Their previous programs have demonstrated proof of concept that historical utilization can help determine the patient profiles best suited for a particular expensive alternative. The goal is to provide patients with the least expensive therapy that matches their diagnosis, prognosis, previous utilization, and risk factors.   

One classic example is in the area of pain relief. Branded COX-2 inhibitors are widely used to manage pain in many patients for whom their use is clinically unnecessary. According to data published in the 

 in November 2003, up to 73 percent of patients who use COX-2 inhibitors lack the risk of gastrointestinal (GI) adverse events common with use of NSAIDs (non-steroidal anti-inflammatory drugs) such as GI bleeding and ulcers. Many payers believe that as long as their analysis of the clinical data indicates pain relief similar to old-school OTC pain relievers such as ibuprofen and aspirin, they will save money and achieve the same outcomes by matching patients to therapy based on risk profiling.  

Conceptually, the historic relationship between payers and pharma companies has created an environment in which payers are largely on the defensive. Although the public maintains  a negative perception regarding MCOs' willingness to pay for therapies, payers have in the past been very likely to cover any reasonable therapeutic regardless of its healthcare value—though patients might have had to jump through some hoops and pay a higher co-pay. Bad press, physician support, and most importantly patient advocacy have served to obtain coverage even in the most resistant of circumstances. Expect this to change.   			

As The Bruckner Group reported in a series of articles appearing in 

 over the past four years, payers have asked pharma companies to provide pharmaceoeconomic data that demonstrates products' healthcare value (See "Biologics Beware," June 2004; "Show Us The Value," September 2003, and "Raising The Bar," November 2002). Though a few pharma marketing and development teams have embraced the outcomes-based access (OBA) paradigm, many manufacturers have complied minimally while aggressively continuing to pursue traditional marketing tactics. Payers are dismayed at the continued utilization, for example, of Nexium (esomeprazole) and Clarinex (desloratadine), and the lack of use of generic Prozac (fluoxetine) for depression and Mevacor (lovastatin) for hyperlipidimia. As BGI had reported, a lack of manufacturer compliance was likely to create an environment for an extreme crackdown by payers. This crackdown is in its initial phases of rollout, though it has been in organization phases for years. Unfortunately, as the pendulum swings, some of these policies appear to be outside reasonable clinical guidelines.   

Payers are enacting or plan to enact broad, sweeping changes that switch the burden of proof to companies. They are saying, "If you want your drug covered, prove that I should pay for it." Citing cherry-picked patients, unrealistic dosing schedules, and placebo control, companies will increasingly find that the proof must come from head-to-head trials. Unless the results of a clinical trial are stellar and represent an unparalleled clinical outcome regardless of the above criticisms, the drug will be in limbo. It will be neither accepted nor formally rejected—instead, the decision to place that drug on a formulary status will be deferred.  

The 2005 BGI Study of Payers uncovered a variety of sweeping rules that are already being locally tested by some of the largest payers. These include: 				

No coverage for off-label utilization, particularly for targeted biologicals, blood products, and branded drugs that had been covered despite serious questions or doubts about their use, such as Neurontin (gabapentin).

Reduced coverage for the treatment of chronic diseases where proof of superior outcomes for intensive therapies and prophylaxis are not evident. 

Recurring demonstrations of a patient's improvement or stabilization to permit the re-approval of a medication. 

 The key to all of these programs is that the prospective cost savings from tightening utilization need to exceed the cost of developing and implementing the systems and staffing to achieve them. Payers may have been more reluctant in the past to aggressively expand these efforts, instead seeking a balance of measures including working cooperatively with some obvious candidates to try to efficiently utilize limited healthcare resources. But with the unabated escalations in healthcare costs, and with added pressures on the other side from their customers, payers are feeling forced to more aggressively develop and implement the systems that will make it possible to achieve their utilization efficiency and cost-containment goals. 

 Many payers have been improving their data collection, storage, and mining capabilities over the past years. This has expanded their ability to locate additional targets that might have been otherwise missed, and rapidly roll out new cost-cutting programs. While in the past payors largely ignored therapies—however high priced—that  were used by a relatively small population, they now see an opportunity for cost-cutting. 

The 2005 study of payers determined that the vast majority of payers are actively moving, or gathering the resources to move, the administration of biologicals from the medical benefit, which is the cost center for such services as physician and hospital care, to the pharmacy benefit, where pharmaceuticals are currently covered. Although this has been an issue on the horizon in previous years, payers now believe that the benefits of this change outweigh the costs, and the time has come to address this issue.  							

Although change is occurring in most of the major MCOs, there are varying degrees of urgency. Some companies like Aetna are planning to complete this process in two years, whereas others are moving forward less aggressively. What is unmistakable, however, is that almost all the major MCOs recognize that changing how and where biologicals are administered is critical to efficiently utilizing limited healthcare resources and cost control. 

Previously, MCOs didn't consider biologics a major concern, both because they represented a relatively small cost (at the time) in absolute dollars and because the cost of biologicals was less "visible," buried within the $1.2 trillion medical benefit. However, in the last few years, as companies have brought many more biologicals to market—and increasingly for diseases with much larger patient populations such as rheumatoid arthritis and multiple sclerosis—managed care executives have come to realize that they need better tools to manage the utilization of these increasingly large costs. 

Administering biologicals under the pharmacy benefit will dramatically alter how biologicals are made available to physicians and patients, and how they are utilized.  

Under the medical benefit, payers receive a claim submitted by physicians after the service and therapeutic have already been delivered or administered by the physician. Their only choice is to pay or not pay the claim.  

Once payers move the administration of biologicals under the pharmacy benefit, they will be better able to control the selection and utilization of biologicals (and the total cost thereof) by having the ability to monitor and pre-authorize therapeutic utilization, physician selection of brands, and benefit administration. Not only will payers be in the position to have advance knowledge of the prospective usage of biologicals, but they can also use the same tactics that have been effective in controlling utilization of pharmaceuticals including formulary tiering, favorable co-pays for preferred branded therapeutics, step therapy programs, disease management programs, and prior authorizations. In that way, they can better drive utilization toward those treatments within a therapeutic category that demonstrate the most favorable pharmacoeconomic value. 

The integration of specialty distributors and outpatient care facilities into the decision-making process adds an additional complication not encountered with other pharmaceuticals. Specialty distributors' and outpatient facilities' motivation are almost entirely financial, driven by the margin between their purchase price and the level of reimbursement. In several markets, these players can greatly influence usage depending on the exclusive contracts or discounts given by a particular manufacturer. Payers leveraging the limited resources of the medical benefit can have some influence by varying their reimbursement formulae. But, with payers armed with the capabilities of their pharmacy, they will begin to take more targeted control over utilization—before utilization takes place. This will severely curb the capability of manufacturers to drive their sales by influencing distributors.    

			Currently, many payers are frustrated with the level of cooperation they receive from pharma manufacturers. This frustration extends to:   							

compliance with the Academy of Manager Care Pharmacy's (AMCP) format for formulary submissions 

 transparency of pharmacoeconomic information 

 a shared grievance having their critical needs "not really being heard" by manufacturers. 

While most manufacturers comply with the nominal requirements of the AMCP format for formulary submissions, payers find that most dossiers fall significantly short of substantive compliance, specifically in the area of the economic impact model (i.e. the value proposition). Others in the payer community disagree, citing the difficulty for pharma manufacturers to accurately assess the pharmacoeconomic value of a product at or just before launch (when these models are developed for payers), while insufficient outcomes data exists to determine the therapy's long-term impact on the cost of treating disease.   

However, some payers note they have seen a clear relationship between the quality and quantity of pharmacoeconomic data that is presented in a dossier, and the number of branded therapeutics already on the market in that disease area. These payers indicate they see both better pharmacoeconomic data, and more of it, for new therapeutics arriving in the most competitive markets. To them, this means manufacturers have the ability to fully comply with payer needs, but do so only when it suits their purposes. On the other hand, it also means that manufacturers are not taking advantage of the opportunity to pull far ahead of future competition by providing clearly defined advantages for those products in less crowded markets. Though the risk of revealing or measuring too much might seem great, that approach is short sighted. By setting the bar and obtaining a solid market footing based on concrete arguments, one can gain a long-term defensible position.

Almost all payers voiced frustration with the transparency of pharmacoeconomic information they receive from manufacturers. They note companies typically submit pharmacoeconomic models in formulary dossiers in a non-dynamic format, making it difficult to meaningfully assess the model. One payer said, "There is a world of difference between receiving a model presented in an electronic spreadsheet that you can play with and evaluate, and receiving hardcopy output of that model." Another MCO executive relayed a situation in which the MCO went back to a manufacturer to request an electronic version of a pharmacoeconomic model that was presented, and they received, after a lengthy delay, a PDF file. When the MCO pressed the manufacturer for compliance with the request, the MCO was told the electronic model is considered proprietary information and could not be shared. 

The result of this kind of heavy-handed action by manufacturers is that most payers believe they can't rely on the models companies submit. MCOs say this leaves them with little choice but to produce their own models and economic impact assessments, from which they make formulary decisions. Pharma manufacturers should be greatly troubled by this. These credibility issues limit manufacturers' abilities to make sure their best arguments are properly considered and limit their ability to proactively influence payer decision makers.   

Payers feel their requests are not being answered and are thus resorting to the radicalized approach outlined in this article. Placed in almost any other context, no one would ever expect this kind of behavior from a seller toward a customer—refusal to fulfill customer requests typically would mean a lost sale. To that end, the general tone of the relationship between manufacturers and payers is shifting. The payers are claiming the role of customer with the rights to: 

decide what they will purchase to fill a need

 decide the context within which a product can be utilized.

The overall concern here is that manufacturers are thinking almost exclusively of how to compete against other brands, ignoring the need to satisfy their customers in the absolute. The result is a marketing-driven focus on marginal one-up smanship, rather than a broad sales view, encompassing the needs of the holders of the purse strings. 

Many of the OBA changes that were publicly and privately predicted by the Bruckner Group and published in 

 in the last five years are now reality. So where does that leave payers and manufacturers?  			

By and large, many payers believe that companies need to do a much better job of developing and bringing to market pharmaceuticals that offer better value. Although this has been the mantra of the payer community for the last several years, MCOs understand that the lengthy development time for therapeutics makes it difficult for manufacturers to simply comply overnight.  However, there is also a feeling that manufacturers are frequently failing to make a real effort at addressing payers' needs. Some even believe that cooperation is not even on the horizon. 

Others do not share these stark viewpoints, and believe that there is much that can be done to build a framework for better cooperation. "One of the easiest areas where payers and manufacturers can cooperate—and still need to cooperate better—is in compliance," one pharmacy director said. Although many companies and payers publicly discuss how better compliance can improve therapeutic outcomes, and hence substantially enhance the value of pharmacological interventions, this is still an area that has seen insufficient cooperation and results. And that this remains such an area of opportunity for cooperation is especially surprising, given how frequently manufacturers and payers publicly discuss, at least, that it is in their mutual best interests to collaborate on effective compliance programs. As one managed care executive described it, "It really doesn't matter how little we pay for statins, when in the end the patient stops taking them within a year. The best way to improve the value payers receive—quickly—is in better compliance." 

What is unmistakable is that a number of blockbuster products are losing their patent exclusivity in the next two years in disease areas that represent a significant share of the pharmacy budgets such as depression, hyperlipidimia, peptic ulcer, and gastric reflux disease. Given that more than a few of these treatments represent the current standard of care in their respective disease areas, payers are going to be in a much stronger position to compel utilization of low-cost generics in disease areas where generic products have not previously been among the leading therapeutic options. The longer payers are left to feel that their concerns are not being addressed by pharma companies, the more incentive they will have to adopt ever more stringent and restrictive prescribing criteria. This will result in the further development and implementation of processes and systems that will even more effectively produce greater efficiency in the utilization of healthcare resources. When you combine these trends, they suggest that pharma companies would be wise to work more proactively with payers now, to arrive mutually at solutions that address each of their concerns, rather than continue to go in different directions—a strategy that could prove advantageous in the short-term for pharma manufacturers but offer considerably less favorable long-term results.  

 Many payers charge that pharma manufacturers aren't providing all the  information they need to make a formulary decision

Some manufacturers say that MCOs don't have the bona-fide ability to review and process all the information requested in formulary dossiers. Given their suspicion that much more information is requested than managed care payers utilize, some companies question the importance of expending significant resources to produce dossiers that they perceive are often not fully engaged. 

 Many MCO managers and executives do agree that it is often difficult to review all of the information presented in the dossiers. But they believe that their experience allows them to process dossiers faster than before and that they're able to excerpt information in a dossier that is particularly critical for different aspects of the decision-making process. In addition, MCOs feel strongly that between their internal resources and selective utilization of outside resources—primarily academicians—all of the relevant information is both analyzed and sufficiently taken into consideration. This is a change from years past, when payers simply recognized a lack of staff as part of the growth process. 

 are partners at The Bruckner Group, a strategy and research firm exclusively addressing the competitive revenue opportunities and strategic challenges of pharma manufacturers. David Balekdjian can be reached at (781) 245-4454, x222 or at 

Features

Citing cherry-picked patients, unrealistic dosing, and placebo control, payers will increasingly require that the proof for payment of drugs must come from head-to-head trials.

The Year Payers Stopped Threatening

The market-driven system, which relies on patents and protected pricing to finance medical innovation, leaves treatment gaps in Europe and the developing world. So says a report commissioned by the Dutch government on behalf of the World Health Organization. The report, "Priority Medicines for Europe and the World," identifies 17 conditions for which treatment is inadequate or nonexistent, and it maps out strategies for filling the gaps, using government-funded research, public-private partnerships, and adjustments to the incentives offered to industry. (The full report is available online at mednet3.who.int.prioritymeds/.)

Heading the list are antibiotic-resistant bacterial infections and pandemic influenza—which WHO believes have the potential to kill millions around the world. The authors identify conditions for which better formulations are needed (diabetes, for example, and depression in the elderly and adolescents) and two for which biomarkers are absent (Alzheimer's disease and osteoarthritis). It calls for more basic and applied research on treatments for cancer and acute stroke, and lists several areas that disproportionately affect the developing world and receive insufficient research because they are unlikely to generate large profits. These include malaria, tuberculosis, and sleeping sickness, as well as a vaccine for HIV. Finally, the report identifies diseases for which prevention is particularly effective, such as chronic obstructive pulmonary disease (COPD) and diseases caused by alcohol abuse. 

Because of Europe's history of social service provision, the report argues that the European Union should play a global leadership role in public health. It notes that poor people in developing countries are increasingly being affected by chronic illnesses that are widespread in Europe, such as cardiovascular diseases, diabetes, and depression.  

Shortening the drug development process could go a long way toward promoting pharma innovation, the report says, as long as this can be achieved without compromising patient safety. One suggestion is that the European Union could create and support a broad research agenda, with the European Agency for the Evaluation of Medicinal Products and the national authorities—alongside scientists, industry, and patients—reviewing regulatory requirements for their relevance, cost, and predictive value.  

It also says that another research agenda could look at how clinical performance of medicines is rewarded, and how prices can be linked to national income levels. "The uncertainty over therapeutic value and the different methods used by different national systems to value innovation and reimbursement creates a complex environment for companies to bring their product to the market," the report says. 

It proposes a model for valuing innovation that uses pharmacoeconomic methods to combine measures of efficacy with gross national income per capita to set prices for new medicines. Essentially, this means that the richer European countries such as the United Kingdom, France, and Germany must pay more than they do now for medicines, which raises financial issues for their governments and national health systems.  

Although much of the report garners the support of industry, the last part is much less popular. The European Federation of Pharmaceutical Industries and Associations welcomes the idea of greater predictability in reimbursement—but does not believe that the single, mechanistic price system outlined in the report is the best way to approach the issue. Industry would rather price new medicines according to their benefits than on the basis of what countries can afford.  

The industry in Europe has long complained that new medicines invariably get launched first in the United States, where price controls are absent, claiming that the trend is pushing research to the US and threatening the future of R&D in Europe. But the report is largely against free-market solutions, claiming that novel vaccines and antibacterial drugs are rarely developed because they are just as expensive to bring to market as more profitable products, but don't recoup money for the company once they are launched. 

"Pharmaceutical innovation is good for Europe's health," says GlaxoSmithKline Europe President Andrew Witty. "Modern medicines benefit society by helping people live longer, healthier, and more productive lives. But as governments in Europe face expanding healthcare costs, they are increasingly opting for short-term policies instead of focusing on the long-term value of healthcare investment. We need to move from a procurement to an investment mindset."  

's global correspondent. She can be reached at 

World News

Heading the WHO list are pandemic influenza and antibiotic-resistant bacterial infections. Together the two could kill millions.

Pharmaceutical Executive-01-01-2005

Mexico

The Year Payers Stopped Threatening

Filling the Gaps