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Pharmaceutical Executive challenges 21 experts to grapple with the future of the healthcare system.
To hear industry leaders talk, a new model for marketing pharmaceuticals to managed care is just around the corner. In the new paradigm, value will be key. Pharma will provide information about their products' superiority-and prove it through pharmacoeconomic data. And managed care will make simple, transparent calculations about which products will be included on the formulary and the level at which they are reimbursed. Contracts, rebates, and guesswork will be a thing of the past. Evidence will rule the process of formulary review.
It is, in many ways, an appealing picture. But it raises a host of questions: How does pharma transform a marketing process currently dominated by an army of traditional sales reps? Who will provide pharmacoeconomic data, and how will the industry move toward a reasonably standard way of interpreting it? How will value be defined? And most important, how will stakeholders with very different needs and goals manage the process of moving from the present system to the future one?
To help answer those questions, this July, Pharmaceutical Executive convened a roundtable of leaders from the pharma industry, public and private payer organizations, and public interest groups. In the course of a vigorous three-hour discussion, the group analyzed the new value paradigm, pointed out obstacles to change, and suggested strategies for aligning the interests of patients, healthcare providers, and industry.
The session was marked by a diversity of opinion, but some major themes emerged:
What follows is a summary of the roundtable discussion. For additional information about the issue, see "Show Us the Value," page 80, which is based on the same survey results David Balekdjian presented to the roundtable group.
The keynote address challenged pharma and managed care organizations to fully embrace a system in which products'
reimbursement is based on their value. The executives around the table agreed that value should play a lead role in determining whether and how a particular therapy will be covered. They even decided that the notion of value would define the next era of reimbursement. Yet, although they could settle on the general principals of value, they could not agree on how to apply the concept. After all, pharma's customers each have their own set of needs and concerns which they seek to have prescription pharmaceuticals answer.
"The range of players and their particular interests makes me realize we are on the front end of a relatively non-elegant journey," says Jack Bailey, vice-president of Lilly's business-to-business division. "But until we define value, we can't align the incentives, which is really when the healthcare system will transform."
Pharma companies' journey to defining value for its customers will likely affect their marketing practices. Richard Reece, MD, pathologist, editor of Physician Practice Options, Quality Indicator, and author of A Managed Care Memoir: A Physician's Whistle-Stop Journey, notes that industry "has historically defined its value proposition through consumer advertising and by 90,000 drug reps visiting doctors' offices."
But today, payers take the lead in defining value. John Seman, PharmD, and CEO of the reimbursement agency HealthBridge, says "The payer's power base is increasing by virtue of new drugs coming to the market, increasing healthcare costs, buyers or employers pushing back on those costs, and payers answering that by pushing more generics and other low-cost drugs and employing more cost-containment strategies."
But payers are a diverse group and use different endpoints for determining value. Joan Henneberry, director of health policy studies at the National Governors Association, analyzes state management of pharmaceutical programs and benefits. She says, "Private purchasers such as employers have additional incentives for quality and outcomes-like more productivity and better attendance at work-than a public purchaser like Medicaid might have."
That's in stark contrast to non-US models built around one payer. "The European Union and the United Kingdom's NICE [National Institute for Clinical Excellence] model have decided what value means to them," says Suzanne McDonald, division vice-president, general manager of Abbott's managed care franchise. "They clearly establish 'Is this therapy worth the number of life years that I might get from this particular product?' And that is not a position that payers in this country, up to this point, have been willing to take."
Sharon Levine, MD, a pediatrician and associate executive director of the Permanente Medical Group, represented RxHealthValue-a coalition that seeks to ensure that consumers get full health and economic benefit for their prescriptions-before the US House of Representatives last fall. She claims, "There is a standard definition of value in healthcare. It's quality divided by cost. How much health are you getting for every dollar you spend?"
But who defines quality? After all, patients and physicians may demand it in ways that don't accrue to payers. "For patients, it is ultimately about how important drug therapy is to their life, mobility, and ability to be productive in the workplace," says John Seman. "And it can vary by patients. Therapies that work with some patients may not work with others. How do we mark one therapy as high value when there is a group of patients who do not respond to it?"
When companies decide that achieving a preferred formulary status is important to their commercial goals, they may employ strategies to translate value into terms payers can understand. "As long as formularies are in place and use mechanisms such as patient out-of-pocket differentials that guide and affect patient choice of therapy, then pharma companies must consider formulary placement within the overall strategy of selling their products," says Kathleen Kaa, PhD, RPh, director of payer policy at the Lash Group consultancy. "But with preferred formulary status may come trade-offs, such as price and program concessions."
"To me, that's really the value paradigm," says Michele Pesanello, associate partner for IBM Consulting Business Services, which outlines changes to the pharma industry in its report "Pharma 2010: The Threshold of Innovation." "Companies must look at what they have to do-whether it is pharmacoeconomic studies, contracts and rebates, marketing programs like DTC ads, and other services-that make the perceived value of the product higher than the actual clinical value."
A recent Datamonitor report pegs industry's poor performance in communicating product value to its inability to understand what payer decision makers' needs are. That's true, according to David Balekdjian, who notes from his survey that payers are increasingly relying on pharmacoeconomics to guide their formulary decisions, but that pharma companies are not yet "up to snuff" on providing that type of information.
Part of the problem is industry's slow response in shifting its business to fit the emerging paradigm. Steven Avey, MS, RPh, Foundation for Managed Care Pharmacy executive director, says, "We realized that the pharmacoeconomic models aren't going to be very good in the beginning because industry needs more experience dealing with them. Quite frankly, the United States is very late getting into the game. Pharmacoeconomics and health outcomes evaluations have been going on in Europe, Canada, and Australia for a long time."
MCOs also need to gain experience in integrating those studies into their methodology for formulary decisions and expertise in analyzing and comparing models from different companies. To that end, Kaa says she often "has to come to the defense of pharma. A managed care organization can demand certain information, but until they show how they effectively use it, there is going to be some push and pull in providing it, given the very real resource issues manufacturers face to provide this information in the required formats. Payers should be capable of saying, 'Here's the information that we require companies to submit. And here's how we actually use this information.'"
Although an entire roundtable could be dedicated to the lack of communication between pharma and managed care, attendees hailed from organizations replete with examples of effective working relationships.
Tracey Gerthoffer, PhD, RPh, senior manager of outcomes research for Pfizer, noted that those conversations are happening at Pfizer. She says the company invites managed care organizations to partner with them and provide input into their economic models well before launch. Gerthoffer also stressed the importance of reaching out to payers to find out what programs matter to them and what their issues are, throughout the product lifecycle.
Cynthia Pigg, RPh, MHA, vice-president of pharmacy for Cigna, claims that relationships with health plans develop "just like in any other business relationship. There are some pharma manufacturers that you come to trust because you have worked with them in the past, so you tell them to come in with their pharmacoeconomics model. I'll give them a lot more attention than somebody that I don't have an established relationship with or that hasn't worked to the betterment of all of us."
Pharma companies can help build trust by tailoring formulary submissions to promote appropriate use to specific populations. Steven Lo, senior director of managed care for Genentech, says, "If a manufacturer can work with the payer to help identify the appropriate patient for their therapy, a greater level of trust can occur. For those products that have a diagnostic-Herceptin is an example-companies can define an appropriate patient, like a HER 2 positive patient."
Ceci Zak, director of customer marketing for Roche, says that the company's strategy in developing the hepatitis treatment Pegasys (peginterferon) is another example of an effective way to build relationships. "We focused first on the payer, because if the payer is not going to reimburse or the challenge for them is how to handle this product, the patient will never get it. We designed the clinical development of the product and different studies to show the economic value of Pegasys. We established efficacy first, safety second, and based on the clinical trials, we established different dosing regimens for hepatitis patients which provided additional value to the payers."
But health outcomes studies may not be enough in crowded therapeutic categories. Levine says, "The pharmacoeconomic part of the AMCP dossier is still quite primitive, and there are things that hamper the robustness of the use of pharmacoeconomics studies. They are handicapped without head-to-head comparisons of drugs in a class or different therapeutic classes to treat the same condition."
Despite the rare instances in which pharma conducts head-to-head trials, MCOs welcome them with open arms. Dub Sitton, national director of managed care for Sankyo Pharma, points to the company's angiotensin II receptor blocker (ARB) treatment Benicar (olmesartan), which enjoyed significant uptake among managed care providers, despite the numerous competitors in that class. He says that, because Benicar was a late entry into the market, Sankyo demonstrated the product's value by conducting head-to-head studies that showed Benicar had superior efficacy over Merck's ARB market leader Cozaar (losartan) and Pfizer's widely prescribed Norvasc (amlodipine).
But given that most companies are still struggling to conduct effective pharmacoeconomic studies and that many managed care pharmacists must still undergo extensive training to analyze those models, PE editor-in-chief Patrick Clinton asks: "Are pharma companies the most appropriate stakeholder to provide health outcomes data for products? Might it be more effective for payers to analyze their databases to find out which therapies offer patients the most value?"
Kaa says, "Staff model MCOs, like Kaiser Permanente, are particularly good venues in which to conduct those types of analysis. They have claims and experience data, as well as access to other patient data like quality-of-life, productivity, risk assessment, and satisfaction levels. Clinical trial work is traditionally not 'real life' experience and evaluations depicting real life experiences are warranted in healthcare evaluations.
"Others don't have those resources. But even though pharma might be willing to provide MCOs with dollars to do those studies, some MCOs don't want to. It might be because they don't have the infrastructure. Or it might be because there is a struggle between MCOs and pharma and biotech groups about trust and appropriateness of information use."
Art Levin, MD, is medical director of HealthPlus, a Medicaid managed care company in Brooklyn, New York. He believes that "managed care organizations may be a logical place to conduct pharmacoeconomic studies. But we're not set up to do research or scientific investigations at the present time. And if we did them, we might be criticized for being biased.
"It might be that the best people to do those kinds of studies are neither the pharma nor the managed care companies, but someone who cannot be criticized for being biased, like a university."
Steven Lo agrees. He says, "Here's a real simple analogy: An employer that's buying a fleet of cars for its field force isn't going to hire mechanics to take it apart. But they're going to take the word of Consumer Reports, or some other reliable data source. Why should it be any different for systems that are buying healthcare products?"
Although nonbiased parties may be the best way to conduct health outcomes studies, Ceci Zak says it still comes down to the age-old question: "Who is going to end up paying for it? That's the part that we struggle with, because there is no one else right behind pharma companies that will help make pharmacoeconomic studies happen."
In fact, consumers may fund health outcomes studies, because they stand to benefit from having that information at their disposal. John Rother, director of policy and strategy for AARP, says, "There are drugs that represent such marginal improvement that it staggers the imagination to think any informed buyer would pay out money for, let's say, Nexium. On the other hand, there are products like statins that represent dramatic increases in value. How are consumers supposed to evaluate that? On the basis of TV ads? Health outcomes information held within the managed care community will not be as powerful until it gets out into a public realm. So it's inevitable that taxpayers will have an interest in funding these studies in order to give consumers the power of the information to evaluate their options."
Albert Wertheimer, PhD, MBA, director of the Center for Pharmaceutical Health Services Research at Temple University, has conducted studies on the value of prescription drugs on behalf of the National Pharmaceutical Council. He notes, "There is a more fundamental problem of communication because much of what people are asking for is out there. There is a very sophisticated expert group in Texas that does pharmacoeconomic analysis for the Army. The Blue Cross association has a group in Chicago that's getting off the ground-Rx Excellence. NICE has a tremendous database. The VA has done studies. The pharmaceutical industry has produced some. Plus all of the HMOs have done one or two studies.
"There really is a lot. Yet, maybe we're guilty of that 'not invented here' syndrome or we think other people can't do it as well as we can. But much of the data-the guts of it at least-that we're bemoaning isn't there is. It's just that we have to apply, borrow, and take it."
There's always the chance that the call for pharmacoeconomics is a party line. Because, in spite of its ability to simplify reimbursement decisions, payers haven't yet incorporated it in that way.
Michele Pesanello notes, "It's great to say, in an ideal world, that formulary decisions are made based solely on pharmacoeconomic or clinical data. If that were the case, everybody from the pharmaceutical side of the table would cheer because that would eliminate the need for rebates or discounts, and companies could then just plow that money back into clinical instead. It may come down to pharmacoeconomics in the future. Right now, though, pharma companies aren't positioned to do those because they haven't done them in the past, so it will be more of a long-term investment."
Given the cost, the management of biologics is payers' number one issue in 2003 and beyond. But overcoming the disconnect between pharma's high-priced advances in science and payers' ability to manage those prices-exemplified in headlines such as "Last Hope for Lymphoma, $28,000 a Dose" (Wall Street Journal, June 18, 2003)-is a challenge to all stakeholders.
At the most basic level, health plans are wrestling with how they manage those products by altering benefit design. "Biologics can fall under the pharmacy or the medical benefit, which has implications for how it is billed to the health plan," says Lo. "Pills are always covered on the pharmacy benefit side. But we're seeing a trend where managed care organizations are shifting self-administered biologics to the pharmacy benefit side-while those biologics that are administered in physicians' offices are billed under the medical benefits-which gives health plans opportunities to try to manage them by putting together a biologics/injectables formulary."
The challenge to industry is that each payer deals with advanced therapies in a different way. "Orals are simple," says Zak. "The review process is consistent and when they put pills on formulary, it is fairly transparent throughout the industry. But injectables are continually changing-how payers review them, put them on formulary, and what that status is-and they are starting to look at how to manage them as a whole."
However, benefit design philosophies and strategies, such as the emergence of fourth and fifth tiers on formulary and co-insurance schemes, mean that MCOs are jockeying into position to pass those costs onto patients. After all, no matter what benefits look like, it is unlikely that payers can sustain a $5 patient co-pay for a $25,000 drug. Therefore, pharma companies must pay close attention to how MCOs manage relevant therapeutic classes so they can include their value proposition as well as reimbursement information in their professional marketing campaigns.
"We know that the way physician office-administered drugs are going to be reimbursed is a huge issue around the success of these biologics," says Kaa. "We've got products that are in the middle of either succeeding or failing, simply because of what's happening at the physician office over reimbursement. In some cases, patient preference may not matter as much as it has traditionally. There can be instances when a physician may not administer a product due to their own reimbursement issues and feelings that their services will not be adequately financially recouped."
Because the net of therapeutic categories that contain injectables or biologics is widening, it behooves all stakeholders to figure out how to more effectively manage their cost, administration, distribution, and reimbursement.
"A lot of biologics and pharmaceuticals are coming out for diseases that have never been treated with an injectable before-dermatology, HIV, and osteoporosis to name a few," says Zak. "The challenge that we all have is how does a practitioner handle them, because, with everything that's been going on in the field of reimbursement today-sometimes, they back off and manage with what they have."
Despite those challenges, biologics and injectables pose an opportunity to create a more integrated, efficient system. The good news is that health plans can create it from a clean slate, because the management of those products is so different from conventional pharmaceuticals.
Pigg says, "Biologics and specialty injectables present many opportunities for better integration of care. Everyone has to participate in the integration. But MCOs are in the position to take a lead on it because they can look at patient care across all fronts. They have the information-the physician, hospital, pharmacy, and lab records. MCOs can take all those pieces of data and work together with providers and pharmacists to improve the care. As that value proposition is demonstrated, it allows us to open up those lines and make the care more seamless."
Specialty pharmacies, which serve narrow patient populations that take high-cost injectable drugs, have sprung up to help make that care more seamless. What they offer system users may turn that short-term fix into a long-term answer.
"The way that companies' products will distinguish themselves to not only the payers but also to patients and physicians is to provide some level of service behind the therapy," says Lo. "Specialty pharmacies are implementing a wide variety of programs, such as compliance and persistency programs. Others even include nursing support for the product."
Biologics and targeted therapies offer great possibilities to serve patient health and better unite the healthcare system, but if stakeholders fail to get out the story about their products' value, it can have a devastating effect on their business.
Levine says, "Care management and the integration of care pose a real challenge. Biologics also raise some social insurance issues-like Lilly's experience recently with FDA and their growth hormone product.
"Another issue is that there is no regulatory framework for generic biologics. How long will it be before we see that? That's one thing that has made the marketplace for prescription drugs as competitive as it is. Are we comfortable with drugs this expensive having no foreseeable end to their patent life?"
Bailey notes, "In the next few years, there will be greater communication between managed care and pharma and bio companies. It's going to continue down the path that's been established in many ways by the Academy of Managed Care Pharmacy: better communication, the building of trust, and the sharing of information. In five to ten years, pharmaceutical and biotech products will consume a greater portion of the healthcare dollar, but appropriately so because they will improve the quality of life and reduce morbidity. The hope is that, by sharing and passing along the knowledge, there will be a greater appreciation of the value that pharmaceuticals bring to overall healthcare."
The value paradigm will alter the way stakeholders think as they become accustomed to the new environment. As rising consumerism feeds employer to employee cost shifting, and cost shifting informs consumers about the price and value of pharmaceuticals, new roles will emerge for payers and industry.
Rother notes, "We're at the beginning of a pretty major shift, and new roles will be created by it. Much of the information about value, almost out of necessity, will find its way into the public realm. Consumers will have a much stronger voice because they'll have a lot more information at their fingertips, with the internet available to just about anybody. That information will allow consumers to become more of a factor in making decisions, along with employers and plans."
The internet will also play a role in helping recipients of a potential Medicare drug benefit compare therapies. Rother says the prescription drug benefit "is designed to tie into a searchable website that will, for the first time, give consumers price data at the retail level in their neighborhood-and it can easily be modified to give them value data. So we're going to have a much more structured, much more information-intensive environment at the consumer level starting in about six months after legislation's been active.
"Prescription benefit managers will also have a lot more market clout after they sign up a large part of the Medicare population. Because seniors take so many more drugs than the working population, I see a fairly significant
shift in the market reflecting their greatly increased purchasing clout."
In the coming years, patients will continue to become empowered through their pocketbooks. "Consumers will be brought into purchasing decisions much more than ever during the past 20 years," says Levine. "They will become increasingly sophisticated and have a much more immediate sense of themselves as payers. They will bring very different questions into the exam room. They'll ask the question today that managed care organizations have been asking for the last 20 years: 'How confident am I that the prescription given by the doctor is really the best value for me?' And that will be the fuel that drives the engine of the paradigm shift."
It is likely that the new paradigm will affect DTC efforts. Patrick Beers, senior vice-president of CommonHealth's new managed market strategy agency Solara, says, "There will be more of a shared responsibility to communicate value to the end user."
Wertheimer explains, "It can't be very long before enough of the sleeping giants, which are the employers that pay for all of this, 'get it,' so to speak, and realize that they don't have to take an MCO contract off the shelf. They ought to be saying, 'This is what we want. We want our workers to have exercise and be club members.' That becomes the goal. And I'm thrilled when I read about the employer business community groups in Minnesota and elsewhere that are doing exciting things."
But employers that adopt new health benefit models, such as consumer-directed health plans, pass the buck over to that rising tide of value-driven consumerism. That adoption, Wertheimer says, "will switch from a defined benefit to a defined contribution. Instead of the employer saying we're going to provide you with health insurance, they'll say here is $3,000 dollars to spend how you see fit.
"The role of the virtual MCO will grow enormously. It makes perfect sense for people to customize and to get this GP, this family practitioner, this pediatrician, and create their own managed care organization. Even though these people don't speak to one another, the data will." That will most likely happen through electronic medical records, which have already taken root in several systems.
Some pharma companies have begun detailing employers to promote the need for their product on formulary. But hiccups along that road, such as who in employers' human resources offices is responsible for reviewing that data, have stunted those efforts.
"One challenge is to understand how employers will or will not accept us," says Zak. "Over the last five years, there has been a huge shift in employers' receptivity to being detailed. Employers now want us back in the door to give them new information about breakthrough therapeutics. The challenge is that there are so many of them out there that and they tend to accept and trust MCOs a lot more than they trust us. We're trying to understand how to get to them with the information that they want in the most efficient way, but it's not easy."
Although the different aspects of pharmaceuticals-selling, prescribing, taking, or managing their cost-point to different missions, there are areas in which stakeholders can be partners. "This bumpy journey defining value starts with a collaborative and transparent approach with all stakeholders," says Bailey. "Good, quality healthcare actually can reduce costs. And at the end of the day, everybody can rally around that."
One key to good health-for patients, MCOs', and industry's bottom lines-is to ensure that patients take their medications as prescribed. Zak says, "The one common goal is persistency and compliance, because if the patient doesn't continue on the drug, we all lose. Our drug isn't as effective, the payer loses out because they have been paying the money for a long period of time but they don't get the end result that our package insert states. Then the practitioner ends up losing, because the patient isn't being treated."
Lynn Nagorski, national field manager for managed care at Purdue Pharma, notes, "We've talked about the physician's role, the patient's role, and the employer's role. But the nurse's role will play a bigger part in ensuring compliance."
Wertheimer agrees. "Whatever the condition, the lack of compliance ends up costing MCOs a fortune because they will have to pay, probably with a lengthy hospital visit. And compliance seems to be such a simple, definable problem. But for whatever reason, no one chooses to go after it as a horrendous, solvable problem even though the strategies that are known to be effective are not that terribly expensive."
It is realistic to expect that managed care's quarterly newsletters and industry's e-mail medication reminders have done little to promote persistence and compliance. "We don't do a good job of educating patients about how important it is for them to take their medicine," says Avey. "If we don't solve the compliance issue now, there's going to be trouble later on when there are more expensive drugs."
Both industry and payers may turn up the spotlight on pharmacists to drive appropriate patient behavior. Steven Friedman, RPh, president of Pharmacy First/Wholesale Alliance, which assists in developing patient medication compliance and persistency programs at the pharmacy level, asks, "How does industry maximize utilization to keep the patients on the drug that the companies work so hard to get on the formulary, to get the physician to write it, and to get the pharmacist to dispense? That is a core issue that is an opportunity for the industry as a whole. In my opinion, pharmacists are not being used properly in today's environment. They are focusing on the mechanical aspects of taking pills and putting them in the bottles as opposed to providing healthcare to patients, keeping them on their drugs, keeping them compliant."
Another area of partnership is unbranded disease education. Sitton recalls, "Physicians took the lead back in the early 1990s and said, 'It is important to warn patients about heart disease. We need to ask what their cholesterol number is.' And then patients started asking, 'What's my number?' Then statin sales increased. We must now ask, 'What can we do with diabetes?' We all should throw our chips in the game and say, 'Give consumers better diabetes education so they can get healthier.'"
But perhaps disease management programs between private companies and the states offer the most hope for big-picture change. Indeed, it is likely that companies will continue to take those public health roles if partnerships are as effective as the one Pfizer developed with the Florida Agency for Health Care Administration. The company recently reported that its two-year trial program to deliver $33 million in Medicaid savings, in exchange for listing the company's products on the state's preferred drug list, is on track. "I'm very encouraged, both from the public and the private side of things," says Bailey. "Numerous examples have gotten some air time over the last year or two-with Pfizer in Florida and Lilly's programs in Arkansas and Colorado."
Those partnerships are particularly effective because they "align the incentives" between companies and payers and generate efficiencies, integration, and communication. That may offer a stopgap to the growing rumblings pushing for a single-payer system, such as the proposal put forth by Physicians for a National Health Program in the August 13 issue of the Journal of the American Medical Association.
Says Wertheimer, "We all hear the stories about why do something for a patient when they'll be someone else's problem five years from now? The only way to arrive at high-level wellness with screening and optimal patient education is to have the people invest in it today for a benefit in the future. That requires one payer."
Levine notes that a national healthcare system is the answer-but only if today's stakeholders fail to make the market-based system work. "If we can undertake a responsible approach so that we optimize all of the pieces in the system, we have an opportunity to make the market work. When we look around the world, we don't see any single-payer systems that are working terribly well. We've had a lot of experience with the national health system over the last few years, and there are many parts of that that do work, but there are many parts that are broken. And they are looking to the United States for models on how to improve their single-payer systems. But if we fail to behave responsibly over the next decade, it will default to that."