Is Pharma Losing the Centerpiece of Its Market Access Toolbox?

With employers and the public scrutinizing drug prices like never before, rebates – which have long been at the center of pharma’s market access strategy – may be losing their luster. 

There is a growing recognition that the complex financial incentives associated with the rebate model don’t always align with the interests of plan sponsors and their members. Historically, many PBMs have received a percentage of rebates as compensation for their role in engineering formularies. In these cases, one could argue that the PBMs responsible for making coverage decisions had a financial incentive to include higher priced products on formulary and certainly no incentive to negotiate lower list prices (i.e., wholesale acquisition cost, or WAC). In contrast, patients and plan sponsors have different incentives. A higher WAC price for a product generally results in a higher copay for members taking that product who are subjected to percent-based coinsurances or high deductible plans. Higher WAC prices can also result in higher net costs for plan sponsors when rebates are not fully passed through.  

Concerns about these controversial incentives are compounded by a general lack of transparency into rebate agreements. Until recently, many rebate arrangements have occurred beyond the view of plan sponsors. While pressure from employer groups is affecting change in this regard, there remains very little transparency from the patient perspective. Even if this was to be remedied, few laypersons (i.e., individuals outside this highly nuanced arena) have the healthcare financial literacy to make sense of the complex flow of healthcare dollars or the corresponding web of incentives. 

Against this backdrop, pressure is mounting for a transition to new approaches that encourage payers to focus on managing net costs rather than rebate streams. 

A number of other industry dynamics are supporting the shift to new approaches. Adoption of electronic medical records and mega mergers are giving payers unprecedented access to data. Medical records provide valuable insight into patient by patient (and, therefore, therapy by therapy) resource utilization. Megamergers (eg, Aetna/CVS, Cigna/Express Scripts, Advocate/Aurora) are expanding evaluated populations, providing the significant numbers required to validate assumptions. In addition, by integrating data across multiple types of organizations (eg, pharmacy/health plan/Integrated Delivery Network/PBM), some merged entities command a more panoramic view of healthcare decision-making and patient behaviors, and the impact of these on associated costs. Importantly, that view often bridges both pharmacy and medical benefits, supporting a more comprehensive and meaningful approach to drug cost analysis. These capabilities are further enhanced by advances in data integration and analytics. The resulting visibility into cost drivers will empower payers to negotiate more effectively for new pricing models that truly serve their interests and those of their members. 

Pharma companies should be taking steps, right now, to prepare for this new reality by formulating strategies and solutions capable of supporting long-term success. Here are a few suggestions: 

1. Develop integrated value messages that reflect customers’ integrated perspectives

As payers gain more complete visibility into costs (including the cost of drugs, as well as the costs associated with drug utilization patterns and medical resource use), it makes sense for pharma marketers to tell more holistic stories – stories that payers can confirm based on their own data. This means expanding cost messaging beyond traditional budget impact modelling to include cost savings from reduced medical resource utilization. It also means extending beyond the limits of initial treatment cost comparisons to project the potential value of avoiding, reducing, or delaying downstream implications (e.g., side effects, comorbidities, sequelae). Over time, this increasingly multidimensional perspective should serve the higher aspirations of the healthcare system as a whole by supporting optimal treatment decisions. 

2. Devise creative offerings that rekindle fading interest in value-based contracts (VBCs)

While public scrutiny has tended to cast rebates in a bad light, virtually all stakeholders have acknowledged the positive potential of VBCs. Unfortunately, generally speaking, VBCs have yet to fulfill that potential due to the complex challenges of accessing and managing data. Nevertheless, as you read this, the dual tailwinds of data integration and evolving analytic capabilities are clearing the way for more meaningful and innovative contracting relationships. It’s up to pharma to turn potential into reality by seeing risk from the payer’s perspective and finding innovative ways to share in it. 

3. Engage in brave collaborations that deliver relevant, real-world evidence supporting product value

Empowered by the industry’s advancing data infrastructure, pharma companies should feel inspired to collaborate with payers in the development of real-world evidence. (The day is coming when the response to any value story will be, “prove it.”) Opportunities for collaboration can range from joint research efforts and data mining to pilot programs designed to strengthen patient engagement and outcomes.  Pharma companies should position individuals on the front lines who have the insight and creativity to discern these opportunities. It’s also important to arm these “scouts” with the organizational support required to sell-in and implement the programs

Yes, the healthcare landscape is changing. And, as always, that change is replete with threats and opportunities. The way for pharma marketers to avoid the threats is to seize the opportunities. And the time is now.

Amber Gilbert is Managing Director at Cyan Health.