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David Balekdjian is a partner at the Bruckner Group, (www.brucknergroup.com) a consulting firm assisting pharma and biotech companies with strategic, marketing, and development issues.
Michael Russo is a partner at the Bruckner Group, (www.brucknergroup.com) a consulting firm assisting pharma and biotech companies with strategic, marketing, and development issues.
Affordable healthcare has become a leading political and social hot button in the United States, and managed care organizations (MCOs) have responded by seeking to reduce pharmaceutical expenses to rein in rapidly increasing costs.
Affordable healthcare has become a leading political and social hot button in the United States, and managed care organizations (MCOs) have responded by seeking to reduce pharmaceutical expenses to rein in rapidly increasing costs. Historically non-aggressive, MCOs are now behaving like true consumers and demanding that new drugs bring value to the overall healthcare system, relative to the cost and effectiveness of cheaper, older alternatives.
That seemingly simple objective-to link pharmacoeconomic value to formulary access-has resulted in a dramatic paradigm shift called outcomes-based access. OBA policies, which include programs to promote generic drug use and restrict brand-name sampling, are forcing pharma companies to reevaluate the basics of their business model.
The Bruckner Group (BGI) has tracked the inception and growth of outcomes-based access for the past five years, including the 2001 release of a "Format for Formulary Submissions" from the Academy of Managed Care Pharmacy (AMCP). (See PE, "Raising the Bar," November 2002.). In June and July 2003, BGI surveyed executives from the largest MCOs and pharmacy benefit managers (PBMs), representing approximately 80 percent of covered lives. (See "Payers as Decision Makers," page 84.) This article analyzes the results of that survey and highlights how payers perceive the progress of OBA programs and how well pharma companies comply with them.
In designing the study, BGI specifically sought to understand
The study's results confirm that outcomes-based access is becoming an established industry standard.
Evaluating value. Nearly 100 percent of MCOs and PBMs now analyze a drug's value when making formulary decisions. To do so, they use use pharmacoeconomic models that are based on outcomes research data and that incorporate the fundamentals of a clinical evaluation: efficacy, side effects, and safety. The analyses seek to determine the relative value of a treatment, both economic and therapeutic, compared with the standard of care: available brand-name treatments and especially generic alternatives. When treatments demonstrate unfavorable value relative to the standard of care, MCOs often reject them for preferential formulary inclusion. And if they do make them available, patients must pay a substantially higher co-pay or the full retail cost.
The AMCP format. MCOs and PBMs, representing approximately 65 percent of covered lives, have officially adopted the format, and nearly all payers use it to some extent. The majority of those using the AMCP format will not review a noncompliant submission unless it represents a breakthrough treatment. The issue of compliance is somewhat moot, however, because survey respondents say 80 percent of formulary submissions are prepared in the AMCP format. Non-compliant submissions come largely from small companies that are unfamiliar with the process.
Lack of substance. Although nominal compliance with the format has been largely achieved, the substance of submissions is more problematic, especially in the key areas of evidence-based outcomes data and "value propositions." Virtually every MCO and PBM in the survey expressed dissatisfaction with the quality and quantity of submissions' outcomes data, pharmacoeconomic arguments, and value propositions. Most have found that when value propositions exist at all, they fail to demonstrate adequate value or are otherwise incomplete or misleading.
That shortfall may result partly from companies' lack of outcomes research capabilities and comprehensive outcomes data. Many of the clinical trials for recently submitted drugs were not originally designed for intensive pharmacoeconomic scrutiny. Companies often scramble to assemble reasonable composite models after the fact.
Fadia T. Shaya, PhD, associate director of the Center on Drugs and Public Policy and assistant professor at the University of Maryland School of Pharmacy, is an expert in outcomes research and has a great deal of experience preparing and conducting pharmacoeconomic studies for both managed care and pharma companies. She says, "It is a learning process for pharmaceutical companies as well as health plans. The process will be better streamlined when there is a critical mass of producers and users of pharmacoeconomic data."
Driving the actions of MCOs is their belief that the affordability of healthcare is at risk. "Manufacturers are producing many higher cost products that eclipse other products that have come before them that work very well," said study participant Dr. Robert Seidman, Pharmacy Director of WellPoint Health Networks. "The effect is to add cost to the healthcare system without adding any value." Another respondent, Matt Hosford, Advance PCS Director of Medical Affairs, concurred. "Where there is a large generic class, there tends to be not much value in the branded products."
No one denies that pharmaceuticals can reduce costly emergency and critical care. But from the payer's perspective, many of those benefits have already been realized and are available from proven and cheap generics. Managed care executives argue that in many disease areas, expensive new treatments are little different from existing, cheaper alternatives. They feel strongly that manufacturers must provide evidence-based data to demonstrate that new therapies produce equal or better patient outcomes and have a favorable effect on the overall cost of treatment. Otherwise, they need to be priced in line with equally valuable competitor products.
Yet many survey participants expressed skepticism about whether pharma companies are genuinely serious about addressing those concerns. One pharmacy director said frankly, "They act like they get it, but then they go home and they laugh at us."
Payers are uniformly asking for the same thing: products that offer more compelling value. Specifically, payers are looking for more Phase IV trials, head-to-head studies against the standard of care rather than placebo, and better communication with companies throughout the product development process.
Medicare, the single largest payer, also seems to be moving toward a value focus. Consider the following developments:
Although a Medicare prescription drug benefit is still uncertain, the huge expansion of Medicare's mission will undoubtedly include the introduction of a formal value methodology to stretch scarce dollars as far as possible.
Although pharma companies have taken some steps toward providing managed care providers with what they want, many have reservations about doing so. For example, most manufacturers fear conducting head-to-head studies because they see them as highly risky-because the results are unpredictable and potentially unfavorable.
Those fears, though undeniably real, are self-defeating. Pharma companies need to appreciate that there is far greater risk in not conducting such studies. If a company initiates a head-to-head trial, it will have complete control over the dosing regimens, population, and endpoints-resulting in hard data demonstrating the clinical superiority of its product over competitors'. Free to frame the marketing debate on such solid footing, the company can expect at best a weak "sore loser" attack on the details of their study design, pending a competitor's reactive head-to-head trial.
Another trend in MCOs' push to cut expenditures is the promotion of generic drugs. (See "The Truth About the On/Off List," page 86.) Those programs include widening the gap between generic and brand-name co-pays by as much as $30, providing samples of generics, and dispensing materials that tell patients how they-and even their doctors-can be a team player in the fight against the high cost of healthcare. Every managed care company surveyed indicated it had programs to promote generic drug use, but two companies discussed relatively new initiatives that are more assertive.
United HealthCare launched a program within the last 18 months that sends letters to patients who use certain classes of brand-name drugs for which a generic equivalent is available. The letters inform patients of the specific alternatives and cost savings that would result from switching to the generic. Executives from UHC claimed that the program is a success, and although they were unwilling to provide actual numbers, they said simply that they are seeing "a high response rate."
Aetna has launched a similar program, generating a 10-15 percent response rate. Coupled with other initiatives, the company now has a 30 percent generic substitution rate. A sample of its promotional copy reads: You can save $300 per year on just one prescription medication by switching to a generic drug! As you can see, the choices you and your doctor make regarding prescription drugs affect how much you pay for them.
The managed care industry seems to be trying to work with pharma companies to address product development and value concerns. But if the cooperative approach doesn't work, MCOs have the ability to take aggressive unilateral steps that will address their needs.
One new development that makes those steps possible is that an increasing number of MCOs and PBMs, including Advance PCS, Health Net, and Aetna, have drastically changed the responsibilities of pharmacy and therapeutics committees by separating economic decisions from P&T committee decisions. Under the new model, the committee, frequently composed of a majority or entirely of non-employee voting members, is exclusively responsible for deciding safety and efficacy issues. Once the P&T committee has completed its review, a separate internal group, composed entirely of MCO employees, then considers the economic merits of treatments before making final coverage decisions.
It's worth noting that survey participants would not explain the economic review process, either citing it as an internal matter or simply refusing to provide any specific information. What's clear is that, if pharma companies do not independently comply, MCOs will find it that much easier to limit physician and patient access to drugs that do not demonstrate adequate value.
Additionally, annual therapeutic category reviews have taken on new meaning. In the past, they were a relatively benign tool used to assess overall coverage, particularly efficacy and side effect issues, within a particular category. Yet, several survey participants indicated that value discussions have not only entered those reviews, they have often produced formulary changes. They reported that coverage decisions have been affected by new value propositions within a therapeutic class. Manufacturers, which have traditionally focused on getting their products on formulary, must now take steps to ensure that their products remain there.
Survey participants noted that certain companies-Merck, Pfizer, and Roche were frequently mentioned-have shown serious intent to address the managed care industry's needs. Merck, in particular, has demonstrated a high level of responsiveness to payer requests and a willingness to engage in meaningful dialogue. CEO Raymond Gilmartin stated in March 2003 that Merck's strategic focus and mission-critical goal is to develop products that offer compelling value. "Where the competitive advantage can be gained is the ability to deliver true value," he said. "That is, proven outcomes, true advancements in patient care, and being able to price it competitively." Although the company still has a good deal of work to do to solidify that position, MCOs praise its progressiveness, attention to the realities of the US healthcare market, and ability to build trust through cooperation.
Other companies, including Schering-Plough and AstraZeneca, were cited in the opposite light. Schering-Plough was not only criticized for its aggressive promotion of Clarinex as a follow-on product to Claritin, but survey participants also cited the company's poor pharmacoeconomic and outcomes research data, its tone-deafness in dealing with MCOs and PBMs, and its credibility issues, which stem from the mismanagement of numerous products. AstraZeneca was similarly mentioned.
Pharma companies face a clear fork in the road. Some will continue straight ahead, using a business playbook that has produced phenomenal success in the last 20 years. They believe that whatever changes MCOs and PBMs institute, their companies can use sophisticated marketing programs and other actions to circumvent them.
The alternative road goes in a different direction, and those that choose it, will likely become-or continue to be-industry leaders that experience growth greater than the industry average. The payer community is speaking with one voice and calling for products that offer pharmacoeconomic value. When customers clearly say they have an unmet need, suppliers would be wise to take notice and find a way to fill that need before a competitor does.
The first pharma companies to solve the OBA business problem will become the new industry leaders. Those that consistently develop and market therapies that offer compelling value will create high barriers to competition, build a self-sustaining competitive advantage, experience growth in excess of industry averages, and become the darlings of Wall Street with resulting market capitalizations. Those that continue to conduct "business as usual" will experience short-term success but medium- and long-term marginalization.
Considering the pressures of Wall Street and the attractiveness of "lower risk" franchise extensions and proven markets, the value path is not easy to choose. However, the OBA shift fundamentally alters the risk equation. Franchise extensions are now more risky than many in the industry may realize. Compare, for example, current offerings in the lipid-lowering class versus available treatments for Alzheimer's disease. (See "The Real Risk Factors.") Products that offer only a marginal improvement over cheaper alternatives will, at a minimum, cause friction with customers/ payers and, at the most extreme, be excluded from formularies altogether.
Developing innovative therapeutics for pressing healthcare needs-the pharmaceutical industry's core mission -will restore companies' long-term vision, produce the greatest stability, and result in great rewards for manufacturers and the entire healthcare system.
Outcomes-based access does not neuter the marketing process but, in fact, creates a new and exciting playbook. In the past, pharma companies' goals were to be the most visible, the most vocal, and the most often seen-especially in physicians' offices. That has not changed. What has changed is the content. With patient outcomes and value propositions taking center stage, the most critical marketing battles will be fought in medical journals on the basis of medical data. That information will serve as the basis for marketing messages that differ in style and content according to the needs of payers, physicians, and patients.
Outcomes-based access also will have a major impact on sales force strategies. Physicians want sales calls that provide meaningful information and medical data. If companies develop a reputation for delivering such information, physicians will make time to listen to them and respond positively.
To successfully instill the pharmacoeconomic focus, executives must ensure that the effort is company wide. It is not enough to enhance the resources available to the outcomes research department and leave it with the mission of spreading the value mantra.
Astute companies recognize that value creation begins in development. GlaxoSmithKline's innovative Healthcare Information Factory, an initiative that brings together high-end database technology with pharmacoeconomics to focus development efforts early on toward high-value products, is a great example. Development is a critical place to start, but the effort must not end there. Companies must structure clinical trials to include a wide range of outcomes measurements, including quality-of-life data, that are needed to create compelling pharmacoeconomic arguments and value propositions.
Marketing departments need to think in terms of multiple value messages for different audiences and more rigorous conversational and data-driven approaches to disseminate them. Salespeople will need extensive retraining so that value becomes a central component of their sales discussions with physicians and payers. A mastery of basic pharmacoeconomic principles will be as important for sales reps as cell phones.
But the single most important factor in developing an effective OBA strategy is the attitude of senior management. Pharma executives must truly buy in to the need for evolutionary change and not approach the value challenge simply as a public relations issue. In the absence of executive commitment, companies will not reach the desired results.
The Bruckner Group's discussions with managed care companies and the survey's results make it clear that the value paradigm will be a defining issue for pharma companies. How they respond to the challenge will determine who will be the dominant industry players for years to come.