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There's been much talk of how US health reform will impact physicians, patients, and insurance companies. But how will it affect the often overlooked specialty drug market?
Six months after the passage of landmark health reform legislation, industry has completed its preliminary assessment of the impact on drug revenues and margins. As we move toward full implementation of the law, price and access pressures will be a particular challenge in the specialty care segment (defined as those products routinely prescribed by specialist physicians) due to its relatively expensive procedure and pricing base as well as the pace of individual product cost increases—overall, this makes the class a big target for payers.
The combination of increased Medicaid rebates, $340 billion in coverage, Medicaid managed care, donut hole liabilities, and the industry tax are now largely understood. Individual companies have announced their revenue exposures from these changes for 2010 (see chart).
Estimated impacts over the next two to three years are higher still (for example, $900 million in 2011 and another $800 million in 2012 for Pfizer alone). More importantly, the outlines of several key pieces of the legislation are beginning to take shape, including indications from FDA as to how follow-on biologics will be reviewed, PCORI (Patient Centered Outcomes Research Institute) leadership appointments, and some insights as to where the CMS innovation projects might focus.
Where does that leave specialty care? Products and services in this segment can expect more scrutiny, and more than their fair share of price pressure. The utilization of specialty tiers will become more widespread, and, as companies increase co-pay support in the private plans, pharmacy benefit managers (PBMs) will inexorably increase the size of these copays. Most importantly, the legislation creates a powerful Independent Medicare Payment Advisory Board (IPAB) that will have enormous influence over future coverage decisions for the public plans.
PCORI has potential as an important player in shaping the access climate for specialty drugs. While it will not have the administrative power to drive reimbursement like the UK National Institute for Health and Clinical Excellence (NICE), it will play a crucial role in establishing a permanent institutional platform for using formal comparative effectiveness tools—if its recommendations are credible with payers and the prescribing community.
The recent announcement of PCORI leaders is encouraging. It includes people with experience in conducting comparative effectiveness research and broad representation from physicians and patients. Unlike its predecessor, it is not dominated by public sector payers, and includes industry representatives. The Institute of Medicine recommendations for PCORI are encouraging as well. They suggest taking a broad view—comparing surgical interventions to drugs, health system changes, etc., and not focusing exclusively on drug-to-drug studies.
IPAB, the vehicle for cost controls, has extraordinary administrative power (its recommendations become law barring an act of Congress) and unrealistic cost control targets (keeping Medicare inflation at CPI +1). Worse yet for the specialty care business, primary care physicians are promised increased rates, while IPAB is prohibited by law from proposing cost controls on hospital or long-term care facilities until 2020.
If we are going to achieve IPAB targets, increase payments to primary care physicians, and hold hospitals harmless, then where do we find the resources to pay for the expansion of health insurance for 32 million people? One key customer group, specialist physicians, appears vulnerable. Unlike hospitals and primary care physicians, there is nothing in the new legislation that protects their status or income. Many such physicians rely heavily on income from specialty infusion drugs dispensed and administered in office.
The combination of credible data from PCORI on cost effectiveness with a powerful IPAB could dramatically alter prescribing behavior. The anti-TNF class of biologics, for example, will receive immediate scrutiny. These medicines have provided huge benefits to patients suffering from rheumatoid arthritis, psoriasis, and other serious ailments, but their dispensing and administration together represent one of the largest and fastest-growing cost centers. The opportunity might go to the oral medicines being developed for these indications. They may provide equivalent safety and efficacy—and could be less expensive to manufacture, store, and distribute—thus entering at a price that encourages a positive review from PCORI. This, plus a powerful IPAB, could fundamentally alter the adoption and ultimate market penetration of new therapies—driven by existing tools such as prior authorization or "fail-first" strategies.
First, continue to support advocacy at the federal and state levels to ensure that the rules that are implemented going forward are pro-patient, pro-innovation, and not anti-industry. This requires teams to become more sophisticated about the implications of healthcare reform on their business so that they can articulate a lobbying strategy that supports it. For example, pay particular attention to IPAB membership. Can you support the appointment of a physician who understands the therapeutic area of interest to you? What about the PCORI—can you engage? Drafting guidance is complicated and highly technical. What support can you provide? AHRQ has been open to input from industry in developing methods for comparative effectiveness studies. Industry has tremendous intellectual resources that can be very influential—for all the right reasons—in shaping the rules under which we will operate.
Second, put together a small team of individuals to conduct scenario planning. This team should include commercial, policy, strategy, finance, and public affairs colleagues. They should look at impacts from three perspectives:
1. What are the known impacts on sales over the planning horizon, for each key product? What steps, if any, could be taken to minimize these impacts? What is the medium to long-term impact, again by product? What do follow-on biologics, comparative effectiveness, and IPAB mean for your development portfolio? Given that there are more people with health insurance, estimate potential new patients by therapeutic area.
2. What are the implications for your prescribing community? For example, how will specialty physicians fare in this new system? If primary care physician rates are increased and hospitals held harmless, then which specialty practices are most at risk? Talk to the key specialty groups and engage their policy specialists in this analysis.
3. How will these changes impact the overall business environment for industry? What lessons have we learned from Europe? Work with EU colleagues to do scenario planning and propose specific estimates on impacts to sales, IBA, etc. These observations should then be integrated in the long-range forecast as well as the strategic plan for the business.
Finally, healthcare reform represents a golden opportunity for the pharmaceutical industry to reconnect with physicians, patients, and managed care customers—to work collectively to make the case to patients on the importance of innovation. The new healthcare legislation includes very few elements that pit industry squarely against doctors, patients, or other key constituents. If the reform plan is implemented as presently constituted, the "bad guy" in the room will be the IPAB, which will be responsible for controlling costs across the entire system. Developing partnerships to make a collective case—working with physicians, for example—can be a win-win situation. The faster the start on building these coalitions, the better positioned the industry will be when the real cost pressures are applied in 2015.
John Swen is Vice President of Public Affairs for Pfizer's Specialty Care Business Unit. He can be reached at email@example.com