Ask the Expert: Pharma Pricing Methodologies

AtE Pricing Methodologies

What makes a good United States pricing project? I’ve had the chance to see what passes for pricing work by folks who don’t typically do payer research and it’s opened my eyes considerably. My conclusions: 1. Experience Matters, 2. Careful push-back at the right time is key, 3. Perspective and Context of results are EVERYTHING.

  1. Experience

In order to save one pricing research (it doesn’t make sense to try to cut corners on pricing research, but that’s a blog for another day) one of my clients asked me to support their physician researcher in the payer space. What resulted wasn’t horrible, but the guide needed revision and the moderator kept asking questions that the payers had already answered. You don’t want to pay for this kind of research twice, why not hire a moderator who’s expert at interviewing payers and PBM P&T committee members, rather than one who’s doing physician interviews between calls?

2. Careful Push-Back

These days, all new products are going to be NDC blocked until P&T review. What’s harder to understand is the specific tools that payers can use to thwart access. In areas with substantial generic (Gx) alternatives, liberal use of Step Edits can be expected. At the same time, such step edits are less effective if your target population has already past the hurdle through previous treatments. Understanding these dynamics and pointing out the likely patient flow through due to previous treatment is important. See bullet #1, if you don’t have the experience and the confidence, you’re more likely to take payers statements at face value, even when they don’t match the realities of the market.

This is particularly important in areas like anti-infectives, where payers don’t always keep product stewardship in the front of their minds – and are actually too quick to suggest Gx parity when such positioning is neither clinically sensible nor profit maximizing due to physician’s restrictive use.

3. Perspective and Context Matter

In a recent study that I performed, a simple error that MOST payer researchers make would have resulted in an overstatement of 12.5% market share. While we can NEVER reveal the organizations that we’ve spoken to, nor assign responses to individuals, it’s critical to present the findings of your payer research in a manner than can easily be used in forecasting. In my last two home office positions we forecasted directly from our payer research with MONTHLY accuracy within 3% at the gross-to-net level. Can you do that from you payer research? We can’t promise that your results will be as good as these, but we can use the same methodology that’s proven to be this accurate in the past.

Discussion guides are important, but even the best discussion guide, if read by some who lacks the experience to push-back won’t get you the results that you need. Pricing in pharmaceuticals is an incredible lever. Further the recent focus on restricting annual price increases has increased the importance on Launch pricing. Chiral Logic can help you identify the price maximizing price as well as provide strategies to bridge that gap between launch and NDC block removal. We have the real world expertise to separate the wheat from the chaff and we’d be glad to help you solve your hardest pricing and market access challenges.

Wait! This isn’t how it’s supposed to work…

As large hospital systems buy up independent medical practices, the cost of health care rises

This piece is worth listening to for a number of reasons. One of my pet peeves since our children’s birth is that consumerism doesn’t apply well to births in the United States. I’m all for women who elect to have a C-section. Personally, for our family that wasn’t the right choice, as my wife did extensive research that suggested that natural births produce better outcomes for the babies.

You can dispute that finding, but what you can’t dispute is that ELECTING to have a C-Section drives up the cost of care in a way that should justify increased costs to the family of the woman making that decision. Planned C-sections are easier to schedule for the doctor and provide an increased revenue stream – as per the report. Thus patients should bear the differential price, thus driving down costs for the rest of us.

This doesn’t apply to C-sections for medically necessary reasons. However, again we could look to the Finland and other developed nations with much lower C-Section rates AND higher infant and maternal survival rates. Nobody should be financially penalized for interventions that are medically necessary.

So why are reimbursements twice as high for OB-GYNs associated with large group practices? Oligopoly Power of course. And herein lies the pathway to truly reducing the (out sized) costs in our healthcare system – remove the perverse incentives for doctors to join these groups, and you’ve taken one step closer to reducing overall costs.

The increase of high deductible health plans SHOULD contribute to reducing costs – but only if healthcare consumers are smart enough to ask questions about cost and become educated enough to make informed decisions.

The most interesting part of this piece for me was the suggestion, toward the end, that consolidated group practices don’t improve the quality of care:

But Kristof Stremikis, associate director for policy at the Pacific Business Group on Health, which represents employers, said that studies suggest that is not the case. “All of the evidence that we see shows that the quality in these larger systems is the same or worse,” he said.

Jenny Gold aught to be careful not to bite the hand that feeds her. But a strong tip of the hat to the impartiality and independence of Kaiser Health News as I’d imagine that the Kaiser organization would argue that they make every effort to improve the quality of the care that they provide.



The Future of Pharmaceutical Pricing…(it’s not what you’re being told)

Novartis’ launch of Kymriah has opened up a number of discussions about pharmaceutical pricing. Perhaps surprising to many, I’m going to completely sidestep that discussion. But a lot of the talk of Kymriah returns to ‘value-based’ pricing. So today I want to go back and reinforce the points I’ve been making about the potential that the future will look more like it does today. While it’s tempting to see a future, where indication-based pricing dominates, I think this marks complexity for complexity’s sake. What other industry can we think of where the WAY a product is used determines its value. What we need to successfully differentiate pricing is differentiation – think Avastin and Lucentis, for starters.


Photo credit Zach Dischner

Yes, stock quotations vary depending upon the time duration of their delay. “Live” quotes are most costly, slight delays moderately priced, and 15-minute delay cheapest (often included for free).

You’d walk out of your luxury car dealership if the price that you paid depended upon HOW you were going to use the car. So why the tendency to think that this is the future of pharma? “Well health care is different” you hear the proponents saying.

How so? Healthcare buyers have every right to use the products as they see fit. Worst still, doctors in the U.S. have the explicit ability to use FDA approved drugs for any use they see fit – further complicating payers’ decisions as to how to cover products, and what to cover. So, the current conversation goes, the way to decrease drug prices, while balancing Pharma profits is indication-based pricing. But this simply provides doctors and insurers the incentive to document the use of the product for the lowest cost indication. Unless, of course, the manufacturer pays for the testing required to document the actual indication – and this introduces all sorts of privacy concerns…

And what about complexity? Healthcare is complex. To demonstrate the various and complex value of pharmaceuticals, the industry has hired numerous highly educated and brilliant health economists & pharmacoeconomic experts. I argue that during this period we’ve seen a HUGE increase in prices and an ever-decreasing value of these medications to the GENERAL population. Certainly, we can’t BLAME the PHDs. for this. They are a symptom, not the disease. But who’s stepping back from this insanity and asking whether this is the kind of system we want to have. I don’t want to be the only dissenting voice here.

Now that the industry has all these ‘value justifying professionals’ there’s a huge need to justify value.

My suggestion is, and will always be, to simplify pricing. To stick to simple, intuitive pricing schemes with some sometimes-I-win-sometimes-you-win outcomes. As I’ve argued, there’s more areas of complexity in value-based contracting than there are rays of light – at least now.