Pharmaceutical manufacturers face an increasing drug utilization dilemma—not related to formulary acceptance—in the US marketplace regarding patent expiration, new-entry pharmaceuticals, and biotechnology products. Influencers of health plan reimbursement program decision makers (eg, benefit managers, consultants, consumer advocates) and reimbursement transaction platforms need more attention from pharmaceutical marketers and senior executives in relation to their current and emerging product pipeline. This is because of the current exchange of dollars in the controlled managed market flow, which will continue to constrict sales of pipeline products that are already drying up. As the pharmaceutical industry turns its attention increasingly to biotechnology or specialty pharmacy products, the managed market channel problem changes, but is not solved. The 2010 health insurance reform legislation underscores this point, because the anticipated healthcare system changes will likely further complicate the managed market.
Today we have a healthcare market that is focused on medical practices and regulatory oversight, where the majority of the healthcare system efforts reside in rewarding reactive management or delivery of services. For example, we have populations of patients with cardiovascular disease or diabetes who are at risk for a heart attack or a glycemic event, but are generally not screened for these events or often not detected in the current healthcare system.1 In contrast, better screening and detection programs can identify people for inclusion in drug and nondrug therapies to facilitate the prevention of a potentially serious illness and costly hospitalization.
This represents a true value proposition opportunity not only for health plan payers or sponsors but also for influencers in the US healthcare system, such as patients and providers. In fact, true value-based offerings supported by pharmaceutical manufacturers may deliver the opportunity for alignment of interests for improving health in contrast to the current pharmacy distribution channel's focus and health plan coverage in the marketplace (Figure 1).
The Value Proposition in Current Healthcare
Another difficulty in the current healthcare system is understanding what aspect of the drug product is of value, and to whom, and what determines value. There is no single definition of value consistently used in the marketplace or in the literature to date. Furthermore, the use of value in combination with various applications (eg, value-based purchasing, value-based benefits, value-based insurance design, and quality-adjusted life-year analysis) has contributed to increased confusion among stakeholders seeking to find a common ground. Fundamental to the understanding of value is the relationship between economic value and the individual stakeholder perspective. Key stakeholders include patients, physicians, health plans, and plan sponsors (eg, employers, union trusts).
Various value-driven product coverage or utilization decisions have been emerging from the traditional costonly (unifactorial) decision system as a result of finally recognizing that multiple factors are responsible for driving up the total cost of healthcare, including more sophisticated medical treatments and an aging population that will consume ever-more services. Consequently, even modest savings from this new value-based benefit design strategy can be significant for struggling employers, municipalities, and patients who are the key payers in our economically strained modern healthcare system. Value-based benefit design incorporates cost-efficiency with alignment of corporate business goals and objectives that should be reflective in the company's health plan (Figure 2).
The continuing absence of a compelling value proposition to the buyer (ie, patients and the health benefits payer community) has exposed a significant weakness for product coverage and utilization, despite some modifications to traditional pharmaceutical marketing practices. As seen in the October 2008 congressional votes authorizing "bail out" funding toward solving the economic crisis, Congress members could not fail to address the changes through funds that can lead efforts toward restoring the economy.
In the healthcare marketplace, the price for failure to change product-marketing efforts by addressing new drug distribution decision-making channels is going to be more costly than the relatively modest investment toward facilitating change to achieve marketplace success.
System Dysfunction versus Cost-Efficiency
Affordability and effectiveness are 2 components of value for health insurance payers. As an example, employers have used value-based purchasing strategies for many disparate services over the years, akin to the collective purchasing power by hospitals, health plans, and even pharmacy chains. This represents a unit cost–focused decision approach similar to cost minimization in pharmacoeconomic terms. However, a November 2007 survey of employers showed that as a whole, employers do not appear to be implementing healthrelated programs in line with value-based purchasing ideals that include affordability and cost-effectiveness.2
Even when using available health plan level quality information—such as HEDIS (Healthcare Effectiveness Data and Information Set) and eValue8—the information is used by less than two thirds of benefit design decision makers and less than one quarter of medical providers.3,4 However, existing sources of quality data, with their inherent limitations or usefulness, are not factored into many pay-for-performance programs and decisions.
This gap stems from the difficulty in executing a fully electronic exchange of patient-centered information at the time of service, along with traditional reimbursement programs that are not incented to align across different areas of coverage. For example, medical and pharmacyservices are typically handled under different benefit design and coverage rules, making it difficult for providers to treat a patient independent of what service or product may be covered under their area of the benefit design.
For pharmaceutical product coverage and purchasing decisions in the traditional pharmacy channel, misaligned incentives between quality (ie, performance) and cost means that key decisions for branded products with (an actual or perceived) low or marginal health improvement could be placed in a higher copayment or coinsurance tier, or not be covered without prior approval. Therefore, quality outcomes that are researched in the absence of economic impacts may fail to influence actual physician prescribing, plan coverage, or use by patients.
Different industry, accounting, and benefit consulting organizations indicate that although employers as a whole are not ready to adopt even value-based purchasing, such a strategy has the potential to lower costs and improve quality. For example, despite a 2001 report from the RAND Corporation that healthcare spending could be reduced by nearly 30% without adversely affecting health,5 as well as evidence from the health literature from the past 20 years, employers still maintain their deep-rooted ambivalence regarding the reality that value-based purchasing is limited in its potential to contain healthcare costs.
The importance of these emerging trends for pharmaceutical marketers and executives is in the rapidly evolving need to better align the value proposition of a drug product with all stakeholders and influencers. Such an approach requires looking beyond any perceived clinical need, US Food and Drug Administration (FDA) approval, or drug price to address the issues of the payer or consumer as buyer in a product's value proposition.
Rethinking the Process
One approach would be to look to the marketplace to address how pharmaceutical manufacturers, especially biotechnology-based companies, establish a value proposition to stakeholders beyond just clinical data and rethinking the traditional pharmaceutical strategic planning process (situational analysis, strategic development and planning, implementation). Several examples during the past 2 years have been reported in business and industry publications, suggesting that pharmaceutical industry executives, including GlaxoSmithKline Chief Executive Officer Andrew Witty, have held product pipeline meetings with insurance carrier payers and European regulators to gain feedback on marketplace needs as well as issues related to new or future product acceptance.6,7
Expanding the individual situational analysis to the broader marketplace perspective requires a translational utilization (ie, applying data such as comparative effectiveness research into benefit decisions) of traditional differentiating drug data. For example, when developing a new drug, the developer considers clinical parameters toward the FDA approval requirement and provider acceptance, whereas benefit plan managers are looking for the product's value in their covered population and to their operational bottom line. Including the perspectives of the new buyers and influencers of buying decisions, such as employers or unions, in strategic planning and implementation requires a more robust understanding of all those stakeholders, along with the different drivers influencing their decision making for health benefits coverage.
Validation and strategy refinement in working with buyer segments, such as employers, need to be accomplished before consideration of a new product launch. For example, what is the impact of managing a condition with the various medical, surgical, pharmacologic, andnonpharmacologic treatments that are available to cover in a benefits program? Among drug choices, even with a single-source brand-name product, the relative value to the employer could be evaluated according to the most appropriate level of coverage in the benefit design rather than according to a national standard.
When drug alternatives are available, outcomes beyond clinical therapeutics alone could be evaluated to determine the best overall economic fit to an individual employer-based benefit program.
Implementing New Market Strategies
Successfully implementing a new market-channel strategy necessitates a well-orchestrated approach in dealing with the tactical integration issues within the manufacturer's marketing and sales organization. Defining a value for the new marketplace buyer of drugs requires a broader medical business perspective that has yet to be accomplished by manufacturers. Establishing a high-performing team that can deliver a meaningful value proposition for this new buyer market is a higherstakes business scenario than was dealing with disparate managed care entities in the past.
Companies are beginning to address disease states and classes or categories of drugs from an employer's or a buyer's perspective. Buyer-specific tools, models, and materials require more of an outsourced and independent business solution, because of the negative perceptions or distrust that commercial plan sponsors (including employers, unions, and municipalities) have of manufacturer-supplied programs. Benefit decision makers are skeptical of manufacturer-driven or -developed programs and instead tend to rely on their trusted network of consultants or brokers for their benefit design and formulary decisions.
In addition, adequate development budgets are needed for entry into the employer markets, because there is currently a dearth of independently developed tools for these commercial buyers of healthcare services. Traditional efforts by manufacturers have focused on physician organizations and health plans, yet it is the commercial plan sponsors along with government programs (ie, Medicare, Medicaid) that are becoming increasingly important in driving demand for preventive and new products that will improve health. This effort goes along with established patient advocacy trends, direct-to-consumer campaigns, and recognizing a changing business environment. Overall, realigning resources (ie, field and research personnel and funding), tools, models, and nonbranded support materials needs to be included when addressing this (ie, employers) market channel.
The Emerging 21st-Century Technology
The emergence of the human genome, and the resultant biologic- or biotechnology-based diagnostic and medication products is a cutting-edge 21st-century product technology. Manufacturers need to look beyond vendors in the marketplace—such as pharmacy benefit managers (PBMs) and health plans/managed care—and the current vendor-only business model(s) for manufacturers to sell their product. Current influencers on a buyer's decision makers that are invisible to manufacturers include health benefit consultants and brokers. Of more interest for successful market behavior change are the reimbursement platform technology and money flows that have not changed since the past century.
To date, drug manufacturers maintain their traditional channel focus on access (ie, formulary acceptance) or copay modifications through managed care vendor relationships to include expensive rebates to intermediary health plans. These efforts that focus solely on product costs ignore the marketplace need for vendors in providing value to buyers, and do not offer an improved transaction platform or money flow that could be used to create a winning business-to-business product solution to buyers (ie, patients and providers) that would allow opportunities such as creating brand value beyond a product's patent life.
For pharmaceutical marketers, not establishing a money-flow product value proposition to buyers in a new business transaction environment can result in market share losses to evolving benefit design policy decisions. For example, the allergic rhinitis drug category represents a large pharmacy cost, but more significantly, an important asset in the management of a disease that represents a high-frequency and high-spending category for buyers.
Managed care plans to date have focused on generic substitution by default as a way to control costs, because of the obvious benefit influencers (ie, PBMs, health plans) and money-flow managers (including healthcare providers) who gain the most from that practice. However, generic substitution alone is a self-limiting value proposition from an employer total-cost management perspective and ignores the bigger value proposi-tion of managing a disease risk for a buyer, which is where the manufacturer and employer are in alignment.
In addition, a new electronic communication platform for evolving information transactions can lead to more effectively addressing adherence that can amortize investment costs made but lost through patient behavior or market forces.
Contemporary health benefit design decision makers and their influencers are disrupting the traditional pharmaceutical sales and distribution channels, along with demand control, whereas manufacturers are still relying on traditional physician-focused marketing efforts for demand creation, with little focus on utilization or product pull-through. Several limitations to changing healthcare decisions exist, including, for example, patient or employee confidentiality, union-negotiated restrictions on benefit changes, and specified services contracts. In addition, health benefit brokers who represent vendors, or benefit consultants who represent purchasers, may not be the solution for manufacturers seeking advocacy as a result of conflicts of interest.
Further exacerbating product use problems are the current managed market coverage and reimbursement platforms that have created ever-changing or varying barriers to product entry and utilization. This is what pharmaceutical marketing and senior sales executives continue to find difficult to understand or to successfully address.
To date, the lack of a compelling value proposition to patients and to the health benefits payer community exposes a weakness for product coverage and utilization, despite talk of changing from traditional pharmaceutical marketing practices. As seen in the banking and finance industry, the cost for failure to implement change in addressing new channels can be more costly than the investment toward facilitating change. For some pharmaceutical companies, the risk may be no less than failure of the product or the failure to survive as a business.
Despite the best efforts in traditional market channels by marketers and their vendors to achieve sales goals or market share, the new buyer channels for pharmaceuticals can effectively neutralize potential gains and eliminate a product's clinical value in the marketplace. The new road map for success will require systems, processes, and tools that are aligned with the customers in the marketplace. Training and development of personnel also require a change, to implement, sustain, and hold onto marketplace achievements. Harnessing 21st-century technologies, and better understanding new customer channels, may prove to be the best investment by a manufacturer aside from applied research.
- Collins AJ, Vassalotti JA, Wang C, et al. Who should be targeted for CKD screening? Impact of diabetes, hypertension, and cardiovascular disease. Am J Kidney Dis. 2009;53(3 suppl 3):S71-S77.
- Rosenthal MB, Landon BE, Normand SL, et al. Employees' use of value-based purchasing strategies. JAMA. 2007;298:2281-2288.
- National Business Coalition on Healthcare. eValue8 2009: measuring progress toward value-based purchasing. 2009. www.nbch.org/NBCH/files/ccLibraryFiles/ Filename/000000000640/Evalue8%202009%20Annual%20Report.pdf. Accessed May 17, 2010.
- Survey reveals employers rethinking health care benefit offerings. Workforce Management. February 23, 2010. www.workforce.com/archive/article/27/02/07.php?ht=. Accessed May 17, 2010.
- Garber A, Goldman DP, Jena AB. The promise of health care cost containment. Health Aff (Millwood). 2007;26:1545-1547.
- Whalen J. Glaxo seeks guidance from health systems. Wall Street Journal. July 7, 2008. http://online.wsj.com/article/SB121538798154831045.html?mod=2_1566_ leftbox. Accessed May 18, 2010.
- Taylor P. GSK opens pipeline up for comment. Outsourcing-pharma.com. July 7, 2008. www.outsourcing-pharma.com/Clinical-Development/GSK-opens-pipelineup-for-comment. Accessed May 18, 2010.