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Outcomes Based Access: Raising the Bar


Pharmaceutical Executive

Pharmaceutical ExecutivePharmaceutical Executive-11-01-2002

Managed care organizations (MCOs) and pharmacy benefit managers (PBMs)-representing 110 million US patients-have adopted new guidelines for formulary submissions. As a result, they now reject 40 percent of new drugs. Those standards, the most visible component in an approach called outcomes-based access, indicate a revolutionary change in the formulary decision making process that affects 46 percent of the insured population. Many pharmaceutical companies are being caught by surprise.

Managed care organizations (MCOs) and pharmacy benefit managers (PBMs)-representing 110 million US patients-have adopted new guidelines for formulary submissions. As a result, they now reject 40 percent of new drugs. Those standards, the most visible component in an approach called outcomes-based access, indicate a revolutionary change in the formulary decision making process that affects 46 percent of the insured population. Many pharmaceutical companies are being caught by surprise.

This article explains the genesis of outcomes-based access, discusses its objectives and administration, and explains how it is likely to affect pharma companies, their development decisions, and marketing efforts. It also recommends how companies should respond to the challenge and create a long-term competitive advantage.

In the past, MCOs and PBMs based their formulary decisions primarily on safety, efficacy, and drug acquisition cost, which, historically, has not represented a significant hurdle for pharma companies. Outcomes-based access, however, "requires manufacturers to prove the value of their products," according to Pete Fullerton, former vice-president and director of pharmacy at Regence BlueShield. Pharma companies must provide that proof through a mandatory presentation of pharmacoeconomic data, which quantify the impact of new drug therapies on overall treatment costs while producing specific patient outcomes and improvements in quality of life. (See "Pharmacoeconomics Basics.")

How It All Started

Under the guidelines of outcomes-based access, pharmacoeconomic studies must demonstrate that new therapies produce similar or better patient outcomes compared with existing products, while lowering overall treatment costs. With the exception of certain classes of medicines for life-threatening diseases such as cancer and HIV, treatments must meet those requirements to qualify for preferential formulary inclusion-making the product available for a nominal co-pay. Products that fail to receive such status are available only as a rung on a strict hierarchical ladder or at largely prohibitive full retail cost. The bottom line: MCOs are significantly tightening pharma companies' access to their markets through formulary exclusion.

Pharmacoeconomics Basics

How are those policies playing out? Regence BlueShield, the first MCO in the United States to implement outcomes-based access (in 1998), reports its per member per month (PMPM) drug costs at 30 percent below the national average-with minimal additional staffing. Regence's PMPM expenditures for cholesterol-lowering products, among the highest revenue-generating products of 2001 ($11 billion in sales), were 36 percent lower than the industry average. Clearly, the incentive to adopt the new standards is quite high.

MCOs and PBMs present outcomes-based access as an initiative to improve information flow and increase transparency in formulary decisions, but its implications are far more significant, even foreboding. The current phase of outcomes-based access represents the first step in a systematic and aggressive attempt to control drug costs by restricting access. For an increasing number of MCOs, pharmaceutical costs are now the single highest expenditure. In 2001, MCOs' retail drug costs in the United States increased, on average, 17.1 percent to $154.5 billion. That jump is partly a result of increased pharmaceutical use, which prevents significant medical and hospital expenditures. Greater therapy use combined with the politicization of rising costs have emboldened MCOs to target pharma expenditures as never before.

Even though its proponents overlook and misinterpret some critical facts, outcomes-based access is founded on legitimate concerns. Supporters argue that many new products fail to produce better outcomes-they are simply marginally improved treatments that are more expensive. Proponents also maintain that the purpose of such therapies is less to improve patient care than to help pharma companies recoup lost revenues as patents expire or to gain entry into lucrative markets with me-too alternatives. Further, they claim that, of the treatments that do produce better patient outcomes than their competitors, many do not show improvements commensurate to their cost. Proponents argue that, because the clinical benefits of those me-too treatments are insufficient by itself for market success, pharma companies use sophisticated and expensive marketing to create strong results.

Managed Care's Thinking

Few disagree that pharma companies attempt to maximize the revenue of their innovations by making improvements as their products mature. Driven by pressures from Wall Street to achieve revenue growth projections and justify market valuations, manufacturers alter delivery systems, dosing schedules, molecular structures, and drug combinations to retain brand share and exclusivity. Outcomes-based access proponents argue that the end result is the continued introduction of expensive pharmaceuticals with no apparent new benefit. They consistently cite Schering-Plough's Clarinex (desloratadine) and Astra-Zeneca's Nexium (esomeprazole) as two visible examples.

The managed care industry's perspective is illustrated in a controversial May 2002 report from the National Institute for Health Care Management (NIHCM) called "Changing Patterns of Pharmaceutical Innovation." The report contains serious flaws. Its shortcomings and their effect on its conclusions are extensively discussed in PhRMA's response, "NIHCM's Report on Pharmaceutical Innovation: Fact or Fiction?"

The NIHCM report categorizes 1,035 FDA-approved new drug applications from 1989 to 2000. According to the analysis, only 35 percent (361) contain new active ingredients not available in marketed products. Of the remaining 674 drugs, 83 percent differ from marketed products only in dosage, route of administration, or combination with another active ingredient. The remaining 116 are considered "identical" to products already available, providing no apparent improvements.

By NIHCM's definition, only 15 percent of the total are considered highly innovative: those containing new active ingredients and providing significant clinical improvement. But its "innovative drug" list represents only 36 percent of managed care's total spending increases associated with new products. The balance of the spending increase,a whopping 64 percent, is on products NIHCM categorizes as either representing marginal improvements or identical to existing treatments.

PhRMA's rebuttal points out that the NIHCM report excludes all vaccines and biotech drugs from its study-130 products altogether. Excluding those relevant new therapies, PhRMA argues, drastically skews the study's conclusions and calls into question its objectivity. Furthermore, the NIHCM report classifies the majority of approved drugs (54 percent ) as only marginal improvements, an undeservedly harsh categorization. Although NIHCM categorization mainly considers the active ingredient and whether the drug was granted a priority FDA review, it ignores the clinical and quality-of-life improvements wrought by incremental yet significant advances.

On the Other Hand

Consider, for example, the benefits of transitioning a child with attention deficit hyperactivity disorder from dosing three times a day to J&J/Alza's Concerta (methylphenidate) once-daily treatment. The benefits include limiting pharmacological peaks and troughs, eliminating stigmatizing visits to the school nurse's office, and increasing a child's ability to focus during activities later in the day. Using NIHCM's standards, those patient care improvements would not necessarily be considered significant except for possibly improving compliance. Instead, Concerta would be dismissed as a reformulation of an existing product (Ritalin).

Similar arguments can be made for an array of products that represent

  • new methods of action: Merck's Cozaar (losartan)

  • a new formulation: GlaxoSmithKline's Augmentin (amoxicillin clavulanate)

  • a new delivery system: inhaled insulin.

Yet when the payer community makes a value assessment, such improvements are unlikely to draw praise, at least not at a competitive price. Valuing a patient's quality of life and assessing the indirect benefits of a therapy requires a great deal of subjectivity and a delicate balance of self-interest with ethical considerations.

There is also little debate that pharma companies have effectively reached markets through heavily regulated advertising and educational campaigns-a $15.7 billion total in 2000 according to IMS Health. Companies have learned that consumer "pull" is a very strong factor driving prescription choices. According to a recent FDA survey, 69 percent of patients received a prescription they requested from their doctor after seeing an advertisement. Highly effective physician marketing campaigns have, in some cases, been accused of minimizing physicians' incentives to seek cheaper alternatives.

MCOs cite those facts to explain why drugs such as Merck's Vioxx (rofecoxib) and Pfizer's Celebrex (celecoxib) have achieved their level of success. A recent study by Express Scripts showed that 76 percent of prescriptions written for Vioxx and Celebrex were for patients who lacked risk factors for the gastrointestinal ailments that those drugs are designed to mitigate. MCOs and PBMs feel they can no longer afford the cost resulting from "patient pull" and want to rein in physicians' options and lower patients' expectations.

A few things are certain: MCOs face untenable costs, the pharma industry has been all but labeled an enemy, and MCOs are aggressively cutting costs by requiring pharmacoeconomic proof of a product's value. Whether or not one agrees with the thrust of the managed care industry's arguments for determining value, MCOs clearly perceive a problem. And that perception is driving changes in how they do business. The pharma industry must understand those perceptions to respond appropriately.

Outcomes-based access is based on practices that have been used in Australia, the United Kingdom, Canada, and other European countries, in some cases for as long as a decade. In 1998, Regence BlueShield introduced, and subsequently formalized, the approach in the United States, and the Academy of Managed Care Pharmacy (AMCP) now advocates it. Regence BlueShield's cost savings motivated AMCP to publish a set of guidelines-"The AMCP Format for Formulary Submissions" (www.amcp.org)-that standardizes the contents of a formulary application. An updated revision of the AMCP format was expected by mid-October.

Setting Standards

What is new about the AMCP format is that it requires much greater disclosures from manufacturers. The guidelines call for the submission "dossier" to include all relevant published and unpublished clinical studies, information pertaining to off-label uses, and extensive pharmacoeconomic models that show the cost-effectiveness of producing specific patient outcomes with the new treatment. It also specifically excludes non-relevant "marketing materials" that some MCOs and PBMs claim characterized as much as 75 percent of traditional formulary submissions. The AMCP format effectively levels the playing field for all companies.

In just two years, MCOs and PBMs representing more than 110 million patients have adopted the AMCP format. Some of the adoptees include Advance PCS, the US Department of Defense, Wellpoint Health Systems, Regence BlueShield, Blue Shield of California, and Mayo Health Plan. Additionally, other MCOs such as United HealthCare have incorporated elements of the AMCP format without formally adopting it. Humana has taken the concept one step further, assigning tiers and co-payments based on the relative value a product provides.

The outcomes-based access approach has emboldened some MCOs to adopt other hard-line policies. With greater regularity, MCOs are establishing strict limits on treatment duration, the number of prescriptions allowed per patient annually and the number of pills per prescription. Furthermore, they are limiting access by mandating prior authorization for off-label usage and initiating programs that require the failure of lower cost therapies before allowing the use of higher-cost brand-name products.

Further Restrictions

In a similar vein, MCOs have established programs directed at physicians that aim to rein in their prescribing habits. As a softer sell, they have developed educational initiatives that create partnerships with the clinical community-"building a better healthcare system based on value and quality." Harder-line policies restrict and even control physicians' prescribing patterns, often usurping their professional discretion by requiring additional paperwork and the use, and failure of, other treatments first.

Some payers are also educating patients about the links between cost controls, premiums, and healthcare delivery in the hope that they will understand and accept the restrictions placed on them. Of course, the greatest tool MCOs have for restricting patients' pharmaceutical choices is setting co-payments prohibitively high.

The most aggressive programs are being adopted by a limited but growing number of organizations. Some of the measures they use include

  • negotiating contracts directly with companies

  • limiting the availability of their physicians to pharma sales forces

  • limiting the distribution of non-preferred drug samples

  • encouraging sample distributions of generic drugs.

Outcomes-based access represents a threat that promises to shake up the entire industry. Pharma companies can expect significant revenue reductions as a result of formulary exclusion of products that are labeled "marginal improvements"-perhaps 40 percent of new FDA approvals. Many Phase II and III pipeline products might be at higher risk than previously expected.

Industry Impact

It seems inevitable that those losses will result in increased pressures for even more industry consolidation. With revenue streams from individual advances drying up far more quickly than in the past because of limitations on product franchise extensions, the pressure to develop significant innovations will be overwhelming. As fewer drugs reach the market, revenue growth will narrow and profit margins will suffer. Wall Street is unlikely to accept a permanent reduction in profit margins, so companies will need to either cut costs and downsize or adjust to the new realities by developing economies of scale to rationalize the high fixed costs of running a pharma company.

If the rules of outcomes-based access render me-too drugs valueless, the entire healthcare system is likely to face some severe unintended consequences:

Innovation may drop drastically as the incentives to compete are inadvertently removed by MCOs. Disease areas in which several brand-name and generic drugs already compete are likely to see little further development attention even when patient needs exist, because the risks will be too great.

Funding for high-risk research ventures with the potential for huge advances will decrease significantly, because that money often comes from the revenue generated by low-risk developments-"marginal improvement" brand extensions-which will be diminished.

The redundancy needed for the smooth running of a complex healthcare system will no longer exist. For example, if a product is suddenly pulled from the market and there are no me-too alternatives, patients will suffer.

According to many MCO and PBM decision makers, a large majority of pharma and biotech companies have only limited awareness of outcomes-based access and the changes it brings. Few are even aware that many payers require submissions in the AMCP format. For the companies that are aware of AMCP's format, many struggle to produce high-quality dossiers for three primary reasons:

  • Many clinical trials were not designed a priori to capture all currently relevant pharmacoeconomic, outcomes, and quality of life data.

  • Most companies lack sufficient pharmacoeconomics expertise, mainly because, in the United States, individuals with the required skills are few and far between.

  • Most companies lack personnel experienced in working with the AMCP format.

Proficiency in pharmacoeconomics is key to the industry's response to outcomes-based access. Pharmacoeconomic arguments make it possible for companies to demonstrate the real benefits of what the managed care industry dismisses as "marginally improved" treatments. The value and significance of a substantial number of products, including many of the therapies misclassified in the NIHCM report, would be beyond reproach if presented with well-thought-out pharmacoeconomic arguments. Collecting the appropriate outcomes and quality of life data is critical to preparing and defending those arguments-and the pharma industry could do a much better job of it.

Steps To Take

Many in the managed care industry recognize GlaxoSmithKline for setting up an internal model that successfully incorporates outcomes research. With its roots in the United Kingdom, GSK has significant experience in dealing with pharmacoeconomic issues. The company's model integrates outcomes expertise throughout the organization, specifically within each product group, rather than maintaining a separate and distinct outcomes research department.

In contrast, other big pharmas are still getting up to speed and need a cultural shift to adopt the new paradigm. Historically, many large US pharma companies have viewed outcomes research departments as less mission-critical than sales and marketing and have often failed to commit adequate resources to them.

Thriving in an outcomes-based access world requires the integration of outcomes expertise throughout the organization. Pharma companies should routinely gather a wide range of outcomes information, because it is difficult to know in advance which outcomes will prove to be the most significant. They must be ready and able to prepare compelling pharmacoeconomics arguments for MCOs and PBMs that clearly show the value of new treatments.

Currently, no standardized model for developing pharmacoeconomic and quality-of-life arguments has gained acceptance within the US healthcare industry. But there is a critical need for such a model, developed by pharma, that takes into account the "values" in new treatments, such as societal, emotional, and indirect healthcare benefits that are likely to be overlooked in a payer-centric system. (See "A Matter of Perspective,")

A Matter of Perspective

The pharma industry must take advantage of the opportunity to coalesce around a consistent pharmacoeconomic format, much as the managed care industry has done with the AMCP format. Once such a standard is in place, it will be more difficult for MCOs to overlook value components that do not immediately accrue to their organizations. The robustness and acceptability of the standardization can be enhanced by including FDA in the effort, with additional input from managed care organizations.

Although the pressure to rigorously detail multiple clinical outcomes might seem daunting, the shift will empower those companies that embrace the concept. Not only can improved outcomes research override access restrictions and provide evidence for improved patient care, it can revolutionize a drug category and substantially increase revenues.

Consider Merck's Zocor (simvastatin) and Bristol-Myers Squibb's Pravachol (pravastatin), which by many standards could have been considered me-too products. Before Zocor's and Pravachol's landmark studies, the primary outcome measure for drugs in the statin category was their ability to lower cholesterol (a cardiac disease risk factor), a rather vague and abstract measure of overall health improvement. Merck and BMS rewrote the rules by changing the outcome endpoint. They showed that Zocor and Pravachol are effective in generating far more meaningful outcomes. Zocor's results demonstrated 42 percent fewer deaths from heart disease and 34 percent fewer heart attacks compared with a placebo. By changing the outcome focal point through inclusion and quantitative demonstration of the two statins' life-saving cardiac benefit, Merck and BMS increased the value of the category tenfold and pushed it to the forefront of physicians' cardiovascular armamentarium. None of that would have been possible had the companies avoided the challenge and expense of collecting a wide variety of outcomes data during a lengthier clinical trial process.

To demonstrate competitive advantage, pharma companies will have to conduct clinical trials beyond those required by FDA for approval. Although companies have been historically cautious about launching head-to-head trials, such studies will become increasingly necessary to conclusively establish the relative value of new treatments. Trial designers should consider comparing products in development to future, not current, standards of care. Today's brand leader will be tomorrow's low-cost but effective and highly valuable generic option.

Take Bigger Risks

Additionally, companies will need to rethink their businesses in some rather fundamental ways. They must revisit the process for prioritizing drug and market development and move toward higher-risk projects, underserved disease areas, and niche patient populations. Research aimed at developing additional product features or demonstrating a competitive marketing advantage will likely have substantially reduced return on investment than it does now. Companies that take risks and cut losses early, quickly weeding out drugs that offer no significant improvements over existing treatments, will be able to quickly and efficiently focus resources on those that do.

Companies must also refocus their sales and marketing efforts as MCOs become more aggressive about formulary purchase decisions and the pathways to both physicians and patients narrow. The outcomes-based access approach strategically addresses all three major targets for pharma marketing: MCOs, patients, and physicians. Pharma companies must stay aware of ongoing changes to anticipate necessary adjustments to marketing programs and implement timely and relevant tactical maneuvers.

Sales reps calling on MCOs and hospitals need a solid understanding of the pharmacoeconomic advantages of their products, and that involves basic training in pharmacoeconomics. Administrators are engaging sales reps in increasingly rigorous question-and-answer sessions. Meetings are now attended by both MCO clinical and outcomes experts, who are often interested in issues that go beyond most sales reps' core competencies in clinical and patient quality-of-life advantages.

The discussions are increasingly about how companies' products fit into a health management program. More and more, MCOs and hospitals expect sales reps to be prepared for those conversations, so it is essential that pharma companies respond accordingly. Without proper answers to their inquiries, MCOs will simply delay product reviews or place new products on a full retail payment tier until they get the information they need.

Companies also need to rethink their sales strategies, especially in light of the new guidelines issued in October by the US Department of Health and Human Services. They ban incentives to doctors and managed care organizations that encourage the prescription or improved formulary availability of drugs. Banned incentives include items such as generous perks provided to doctors and payments to MCOs to switch patients from a competitor's product.

DTC advertising currently seeks to raise awareness, expand markets, and produce patient requests. But within the context of the new MCO approach, pharma companies must restructure advertising for non-preferred products to take into account the possibility that requests will fall on deaf ears. In the absence of a real value proposition, campaigns driven by product attributes attractive to consumers will not have the same impact they've had in the past.

Two important tactics that will pay off in the long run are encouraging patient activism and persistence and helping physicians with the extensive paperwork required for overrides and pre-authorizations.

Implementing and operating the managed care programs will be costly, but MCO administrators hope that their upfront investment will pay strong future dividends in the form of subsequent patient care savings. With the fragile financial condition of most MCOs, the pressure will be on to produce even short-term gains. MCOs may hold the reins for formulary inclusion, but the buy-in of physicians and patients will be essential for success. Patient advocacy groups, vocal physicians, high-profile litigation relating cost-cutting to adverse health events, and the potential for bad press could mitigate the speed or success of MCO efforts. Momentum will also be lost if the programs lag in results or produce a "waiting game" struggle with pharma companies.

The Downside

Despite all that, Jean Brown, vice-president of Advance PCS, believes that outcomes-based access represents "an opportunity that most of the pharmaceutical industry doesn't yet appreciate." Outcomes-based access represents a chance for the managed care and pharmaceutical industries to work together in new ways. For companies that appropriately address managed care concerns, there are opportunities for collaboration that could prove mutually beneficial. Such areas might include using managed care resources to more appropriately focus drug research and development efforts, joint marketing programs, and political alliances, among other possibilities.

In the past, some disease management programs developed by pharma companies, particularly those with ownership in PBMs, have been met with suspicion by the managed care industry. Perhaps at this juncture, both MCOs and the pharma industry can put their resources to better use by jointly developing such programs. In all likelihood, outcomes-based access will prove to be a paradigm shift that permanently changes the pharma industry. The companies that recognize the shift and adapt their business strategies accordingly are likely to emerge, or strengthen their positions, as industry leaders.

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