Part D Phase 2

For many pharmaceutical and biotechnology companies, 2005 has been a hectic year as they work to understand the potential implications of and prepare for the new Medicare Part D prescription drug benefit. Earlier in the year, manufacturers were scrambling to make Part D-related contracting decisions. These decisions had to be made quickly, with limited information—a requirement that will continue for pharma and biotech for the rest of 2005 as they prepare for Part D.

CMS Deadlines

While the pharmaceutical and biotechnology industry might like to take a moment to catch its breath following the contracting crunch, there is still a daunting amount of work to be done before the new benefit goes into effect on January 1, 2006. Companies still need to assess their own levels of "Part D readiness" and define and implement required changes to their structures, processes, strategies, and tactics.

In September, CMS will award bids to MCOs and PBMs, and we will learn which plans will administer the benefit in 2006. But many key variables will remain unknown for quite some time after January 1, and manufacturers will not have the luxury of waiting for complete or perfect information before making Part D-related decisions. With more than 40 million Medicare beneficiaries in the US, the stakes are high for manufacturers, and the window for making strategic decisions is closing. Companies need to move forward with their Part D readiness planning now, develop hypotheses, and make informed projections on how the Medicare market will play out in 2006 and beyond.

Part D will shift the market dynamics and revenue potential of many products at the national, regional, district, and physician levels. The variables that will determine the magnitude and impact of these shifts include:

• Portion of total prescriptions represented in the Medicare population

• Part D sponsors' approach to managing a given pharmacologic class

• Positioning on Part D formularies

• Number of beneficiaries and total prescriptions at stake in the Medicare population in a given geographic area.

There are a myriad of marketing- and selling-related items that manufacturers need to address over the next few months to ensure they are prepared for Part D—planning points that can be segmented into four primary areas: brand management, managed-markets marketing, managed-markets sales, and field sales. The following section introduces some of the specific items that manufacturers need to consider in each area.

Brand Management

Brand marketers must develop a detailed understanding of how Part D will affect their products, and coordinate their efforts closely with their colleagues in managed-markets and field sales. This will be especially critical for brands that are heavily used by seniors or dual-eligibles—Medicare beneficiaries who also qualify for Medicaid. Roughly one-third of dual-eligibles are under the age of 65. Therefore, Part D will affect a number of products (such as HIV medications and antipsychotics) not typically associated with the elderly. There are four important areas for brand marketers to address:

PLANNING AND FORECASTING Historically, most brand teams haven't placed much emphasis on Medicare beneficiaries. Now they need to ask some basic questions, including:

• How can we effectively segment the Medicare population?

• What criteria (such as health status, geography, dual-eligible status, income, current source of prescription coverage) should be used in segmenting the Medicare population?

• How do the various segments behave differently?

• Who are the most important influencers of healthcare decisions for the different segments?

• Which segments are most attractive to our brand?

When the plan sponsors and their formularies are revealed in September, brand teams must overlay that information on their knowledge of the geographic distribution of beneficiaries and prescriptions. This will help them understand the overall business potential and attractiveness of the Part D regions. Brand marketers will have to make tradeoffs between the overall prescription potential for their product class in any given region and the formulary positioning and access they have gained in the initial round of Part D contracting with MCOs and PBMs. For example, a geographic area with fewer beneficiaries might be more attractive than an area with more beneficiaries—depending on the access a brand has.

Clearly, manufacturers' senior management will continue to request updates on how Part D is expected to affect their brands financially. Thus, brand marketers need to hone their understanding of the drivers of sales and profitability in Part D and revise forecasts based on contracting-related interactions with Part D sponsors and changes taking place in other segments, such as the transition of dual-eligibles from Medicaid to Medicare.

POSITIONING AND MESSAGING Companies need to conduct market research with physicians and Medicare beneficiaries. Not only will this help brand teams better understand these two key stakeholder groups and how they fit into the Part D buying process, but it will also help teams define their products' value proposition, positioning, and messaging in relation to Part D. The process should include steps to identify any unique challenges in preventing or treating the disease in question in the Medicare population.

Brand marketers should also examine how clinical, health-economics, outcomes-research, regulatory, and product-development activities can support their products' Part D value proposition. For example, a company can identify potential opportunities for additional claims or indications by evaluating existing product-level clinical data about seniors.

PROMOTIONAL MIX AND RESOURCE ALLOCATION Another critical decision for brand teams lies in adjusting their promotional mix and allocating Part D resources. Key questions that need to be addressed include:

• How do the requirements for personal selling change in Part D?

• How might product-sampling requirements change?

• What role could coupons play in helping address co-payment or coinsurance requirements for beneficiaries (for example, patients in the doughnut hole)?

• What might we want to consider in the area of public relations and outreach to support the success of Part D?

• How do we approach direct-to-consumer advertising?

TACTICS, PROGRAMS, AND MATERIALS Manufacturers will need to incorporate Part D-specific messaging into all current marketing materials. In addition, they should consider CME and publication plans that specifically address seniors. Partnerships with key influencers and advocacy groups will be increasingly important, not just to advance products' value propositions and positioning, but also to support the success of the Part D program itself.

The Medicare Part D Buying Process

Managed-Markets Marketing

Managed-markets marketing teams have their work cut out for them, particularly in the areas of planning and forecasting; positioning and messaging; pricing and contracting; and tactics, programs, and materials.

PLANNING AND FORECASTING Within the managed-markets group, people with responsibility for Medicare Part D will have two key tasks: projecting how the new channels are likely to evolve, and integrating Part D channel-planning into overall brand planning. To do this, they will need to work with other groups within the organization, including government affairs and policy. Meanwhile, managed-markets personnel responsible for other segments (such as commercial managed care, Medicaid, and long-term care) will need to understand Part D and determine how it will affect those segments.

Medicare Part D is expected to be a catalyst for change across the broader payer environment, and managed-markets group leaders should focus on predicting the magnitude of these spillover effects, determining what they mean for their companies, and making the needed adjustments. In doing so, they'll need to address the following key questions:

• How are the Medicaid and long-term care environments likely to evolve vis-á-vis the transition of the dual-eligibles to Part D?

• What degree of confluence should we expect between Medicare Part D and commercial managed care?

• What is the potential financial impact for our company and products?

• How should we adjust our strategy in these other segments?

POSITIONING AND MESSAGING Brands will need Part D-specific value propositions, positioning, and messaging; developing them will be an important task in the months ahead. Managed-market teams should conduct market research with MCOs, PBMs, and other Part D stakeholders (such as long-term care and retail pharmacy) in order to develop an accurate forecast of market dynamics and support. This research will also help channel marketers understand the unique needs of different types of plans and stakeholders under Part D, as well as the resultant marketing opportunities.

PRICING AND CONTRACTING While the dust has settled a bit from the sprint to develop product-specific contracting strategies for Part D, manufacturers need to assess the results of their initial contracting approaches and adjust accordingly. Some questions they will need to address include:

• How successful have our initial approaches been, and what adjustments—including innovative contracting approaches—might be necessary?

• How might spillover effects affect our business in commercial managed care?

• How should our approach to contracting vary by type of customer (for example, PDP versus MA-PD)?

• How might we need to adjust our approach to contracting with states in the Medicaid segment?

TACTICS, PROGRAMS, AND MATERIALS Certainly new Part D-specific promotional materials will need to be developed to communicate products' value proposition and to support account executives' interactions with Part D sponsors. But one of the most intriguing opportunities for manufacturers is the possibility to support Part D sponsors as they develop and implement their medication therapy management programs (MTMPs).

These programs, which Part D sponsors are required to execute, are intended to improve patient outcomes by promoting appropriate use of medications and reducing adverse events associated with the use of multiple medications. MTMPs are expected to target beneficiaries who have multiple chronic diseases, take multiple medications, and are likely to incur costs of more than $4,000 annually for covered drugs.

CMS guidance on MTMPs is still vague. Nevertheless, manufacturers need to evaluate the potential for supporting Part D sponsors. Companies should gather feedback from prospective Part D sponsors on their expected approach to MTMPs and the role manufacturers could play. Internal legal and regulatory groups can provide guidance on what the company deems acceptable and appropriate.

Managed-Markets Sales

Although a government program, Part D is designed to be administered by private entities—MCOs and PBMs—that are already key customers for manufacturers in the commercial managed care segment. Hence managed-markets sales (or account management) needs to address a number of Part D readiness items.

ACCOUNT PRIORITIZATION AND TARGETING Manufacturers need to reassess how they prioritize and segment MCOs and PBMs, within and across Part D and commercial managed care. Prior to Part D, for example, some manufacturers placed less emphasis on PBMs. Now, several PBMs are expected to serve as national PDP sponsors—and their importance is expected to increase. In addition, the new geographies established under Part D will require manufacturers to view their businesses in a whole new way. In particular, companies must decide how to segment and prioritize Part D PDP and MA-PD regions for individual products and across the portfolio.

ACCOUNT PLANNING AND MANAGEMENT The relationships between MCOs, PBMs, and manufacturers are changing as the same parties begin to interact across two different books of business—Medicare Part D and commercial managed care. Many plans would like to realize efficiencies by managing these two books similarly. As a result, pharma companies need to determine if the evolving dynamics of Part D create the need for changes in account management. For example, some manufacturers have taken a more aggressive approach to pricing and contracting in Part D than they have in commercial managed care. The Part D sponsor is likely to see the transparent difference in pricing offered by the manufacturer and could attempt to demand a similar rebate for commercial managed care. Some manufacturers may decide to establish a separate account team for Part D.

SIZE, STRUCTURE, AND ALIGNMENT OF THE ACCOUNT EXECUTIVE FORCE Once a company prioritizes and segments Part D regions and customers, and defines how it is going to approach account management in Part D, it follows that the company will need to assess the size, structure, and alignment of its account executive group. Specifically, companies need to determine the optimal number of account executives and how to allocate account responsibility to each.

TOOLS AND TRAINING Account executives are manufacturers' most direct line of communication with Part D sponsors and will play a critical role in an organization's success in Part D. Therefore, manufacturers need to define the training and tools required to enable account executives to:

• Thoroughly understand Part D and how it will affect their customers' business

• Understand the marketing, selling, and account-management adjustments driven by Part D

• Communicate the Part D value proposition for the company and its products

• Facilitate pull-through with the field sales force.

Field Sales

Part D will dramatically change the environment in which sales reps promote their products. As a result, manufacturers need to consider a number of field sales-related changes.

SIZE, STRUCTURE, AND ALIGNMENT The potential of individual products will change at all levels—national, regional, and territory. Sales leaders need to assess this change for each promoted product, and then roll the data up across all products promoted. Even before the relevant data are available, companies will have to make critical decisions about the size, structure, and alignment of its sales force at each level.

• What do we do with our sales force if we have disappointing formulary access in one or more key Part D regions (for example, decrease or realign sales force)?

• What do we do with our sales force if we have very strong formulary access in one or more key Part D regions (for example, increase or realign sales force)?

PHYSICIAN TARGETING As Part D unfolds, the relative value of many physicians will shift, forcing a re-segmentation of the market, and adjustments in targeting. For example, a prescriber with a large number of Medicare patients (many of whom were cash-paying patients prior to Part D) may become more important under Part D. But if a large proportion of those patients are enrolled in Part D plans to which the product has limited formulary access, the same doctor could become a less important target.

Criteria companies can use to segment physicians include:

• Prescription volume (Medicare and non-Medicare population, payer type)

• Current prescribing practices

• Patient-population mix (age and payer type)

• Plan affiliation

• Most important Part D sponsors for patient population.

INCENTIVE COMPENSATION Incentive compensation plans are intended to drive desired behavior from the sales force based on the current market. As the market changes under Part D, sales leaders will need to adjust their incentive approaches appropriately. As discussed earlier, the business potential of physicians and territories will shift, sometimes dramatically, under Part D. And sales executives need to determine the specific behaviors they want to incentivize vis-ávis Part D. These two variables should serve as the underpinnings of a new approach to incentive compensation in the new environment.

The potential and dynamics of a given territory can be significantly affected by factors outside the rep's control, such as number of Medicare enrollees, formulary wins and losses, and the effects of spillover into the commercial business. A sales rep might be successful today, but give him a product widely used by the Medicare population, and a territory where the product has poor Part D formulary access, and that may change. Conversely, a rep who performs poorly in today's environment might be a success under Part D, without changing his underlying practices, if his territory has very good Part D formulary positioning for a key product.

TRAINING With Part D, the reimbursement-related environment will become much more complex for sales reps. Training a sales force to succeed in a market heavily influenced by Part D is just as critical as securing adequate formulary access for products. Manufacturers will need to address a number of critical questions:

• What tools and training will our sales force need to succeed in the Part D environment? How does this vary by level?

• How can we leverage Part D training to provide our sales force with a competitive advantage in the market?

• How can we ensure that our sales force is prepared to be successful in developing and executing Part D pull-through initiatives and activities?

• How can we integrate Part D training into our existing training processes, programs, and materials?

Conclusion

While many unknowns remain with Medicare Part D, pharmaceutical companies don't have the option of waiting to see how things shake out before making critical decisions regarding their activities in brand management, managed-markets marketing, managed-markets sales, and field sales. Now is the time for pharmaceutical companies to assess their own Part D readiness; to identify changes they need to make to structures, processes, strategies, and tactics; and to implement them. This should include:

• Developing and executing Part D readiness plans at the corporate and product levels

• Conducting scenario-planning exercises to project how the Part D market will likely evolve

• Modeling the financial impacts of various scenarios and decisions

• Refining strategies and programs based on this analysis

• Developing and implementing programs and tactics

• Training relevant stakeholders across the organization.

By conducting these activities, companies will be better informed, they will be able to spell out many of their strategic options ahead of time, and they will be able to respond more quickly to the changes that are sure to come.

Kevin Barnett is senior vice president, managed-markets practice, at Campbell Alliance. He can be reached at kbarnett@campbellalliance.com.