Three steps that would ACTUALLY bring down LIST and NET Pharma pricing

Now that we’ve seen the White House Plan to bring down healthcare costs – I’d like to offer a counter suggestion. Here are three steps that would ‘immediately’ bring down list/net pricing and reduce the cost of insurance.

#1) Eliminate structured, tiered patient out of pocket and move to a graduated out-of-pocket system based on family income level (opt-in ONLY)

One-size-fits all copay levels are regressive and discriminate against the working poor – while making drugs artificially INEXPENSIVE to high income earners. Currently, there’s a question whether tying patient benefit to ability to pay is legal and most agree that it’s not fair. Why not move to a system where the goal is to charge a nominal fee for each BRANDED prescription tied to income level. A secure, opt-in databased could be pinged for patients seeking to pay below the maximum out-of-pocket level.

I would suggest maintenance of Gx/Brand differentiated out-of-pocket for low priced (MAC’ed) Gx.

#2) Require pharmaceutical companies and PBMs/Payers to negotiate over true market access

There’s lots of evidence that out-of-pocket requirements lead to patients foregoing or postponing care. A much better solution would be for Pharma Cos to contract for access (see above at truly nominal out-of-pocket levels). In exchange, pharma would contract PBMs/Payers down to a level that enabled the payers to reduce/eliminate copays. Further, since Pharma would be on the hook for price increases, there would be very limited incentive for price increases. This move would single handedly decrease the perverse incentive to have a HIGH list price, larger rebate, and low net price. Additionally, co-insurance insurance would be largely eliminated with #1 above…

Payers, for their part, would commit to a price where they could provide access to the broadest amount of their patient base. Explicit conversations would be had about the appropriate place in therapy for Gx and Branded alternatives. I’d suggest the PBMs adopt a model like Italy’s – there they provide a price that they’re willing to pay, up to an annual maximum for a given indication, product class, or product. Use beyond this maximum would be provided at the pharma co’s expense. Pharma companies then decide whether they want to ‘take it or leave it.’

#3) Remove the Medicaid Best price requirement for instances where the caps in #2 are surpassed and/or for outcomes-based contracts (in situations where the product didn’t work)

Acute readers will note that #2 isn’t possible with the current rules regarding Medicaid best pricing. Allowing exceptions to this policy will enable increase creativity in value-based pricing. To qualify, value-based contracts would have to include potential RISKS and BENEFITS for BOTH parties – outcomes would determine whether the product worked and, built into this proposal, payers would commit to paying MORE in cases where clinical endpoints were met/surpassed in real-world use.

As Michael Kleinrock has demonstrated pharma is ALREADY picking up ALL of the net effects of price increases ON PATIENTS. The price increase game is largely over, and the ones left holding the bag are payers with the weakest hands. Moving to these strategies would increase certainty and ease actuarial risk. That would, in turn decrease the cost of insurance coverage – and this effect would be magnified if we increased the total number of people covered with comprehensive insurance. I’d also like to see implementation of truly portable healthcare coverage – paid for by employers, employees, and/or the government (for the record, I’m against single payer but these are bigger/longer conversations, beyond today’s scope).

Decrease the incentives for high prices and you decrease the likelihood of having high prices. Suggesting that government programs lack the negotiating power they have (pharma feels the massive power of the Part D providers every year during the contract renewal process) perpetuates a political myth. I can see the argument that Medicaid pays too much for brand new, high priced biologics; but I don’t understand the suggestion that Part D lacks some power that the same providers wield for their Commercial coverage. (?) States, including Massachusetts, are already asking for waivers outside of current Medicaid rules – maybe the adoption of #2 above for States Medicaid would help to meet their needs and challenge Pharma to provide ‘fair’ prices for open access.

Three takeaways from the CBINET Access and Coupon Conference

As faithful readers will already know, this week we sponsored and attended the West Coast Access and Coupon conference. The three biggest takeaways were:

#1) A wide gap still exists between the leaders in the space and those who are new to the area. While this is natural and a part of the landscape, coupons are becoming too big (estimated to be $13B in aggregate spend by 2019) to leave coupons to the newest members of your brand team. Time to set up a Center of Excellence, if you haven’t already done so, and put as much time and attention into creating and monitoring these programs as you do on Managed Care strategy. In fairness, the members of COEs that I do know from Pharma weren’t in attendance – but this is a problem too, because we need opportunities to get together, brainstorm, and collectively address points #2 & #3.

#2) From our perspective, neither Industry nor the Copay Card providers are taking fraud and abuse seriously enough.

Only one panel covered fraud and abuse, and only at the most basic level. The comment was made that performing audits and excluding pharmacies from the network is the job of manufacturers – which seemed strange to us – as profiting, via volume-based contracts, in situations where fraud is either confirmed or highly suspected, would AT A MINIMUM put the commercial interests of the copay vendors in opposition to their pharmaceutical clients.

We, at ChiralLogic, aren’t lawyers and can’t/don’t provide legal or compliance advice. But suffice it to say that our eyebrows were raised. If we were directly managing these programs, we would provide written instruction to our copay card provider to make us aware, in writing, of any pharmacies in their network either confirmed or strongly suspected of fraud – either for our programs or in their network for another company. We’re also working on establishing a real-time fraud detection capability and starting to think about working with ChiralLogic clients on implementation.

We support human and computer driven monitoring looking for suspicious pharmacy activity. For more information on what we’d look for, please contact us directly.

#3) The industry is losing – losing the battle of contracted access, and losing the battle by bearing the brunt of increased patient out-of-pocket

Various sources, from the companies that report their Gross-to-nets, to ESI’s 1.8% price increase, to the performance of most large pharma and biotech stocks suggest that the tide for price increases has changed and the payers and PBMs have won. The coupon industry is stuck doing things the way they’ve always done them – they’re still focused on coupon aggregators (easily fixed by increasing your cap to avoid the ‘copay surprise’) when the payers are counting their rebate dollars (increasing while access is stable and declining).

What’s needed is new and truly innovative thought. That might come in the form of an upstart copay provider. Innovation might come at the expense of the employers – but from what I’m learning employers and PBMs are innovating FASTER than the industry. Retail will, eventually, win the battle and issue their own copay adjustment vehicles (for obvious reasons they probably won’t be ‘cards’ but they’ll act similarly). Vertical integration means MORE copay aggregation as the payers get increased access to even retail transactions.

So even the innovation edge is going to the payers/PBMs. Coupons and copay cards are here to stay until 2023, at the earliest. Let’s work together to turn this around for manufacturers, patients, and providers.

Also published on LinkedIn

Coupons: Transaction Cost Fallacy & Why Program Design Matters (More)

How to make a classic pricing error in Copay Card Vendor Selection

At the recent CBINET Formulary, Copay, and Access Summit, I heard tales of finance and procurement strongly suggesting and even forcing brand teams and Centers of Excellence (COEs) to select vendors based on lowering transaction costs. While establishing and maintaining cost effective programs IS important, focusing on transaction costs when selecting vendors is a classic pricing mistake, here’s why:

#1) Transaction costs represent a fraction of the investment in the program

Let’s simply assume that fees represent a total of 5% of total program cost, with patient benefit taking up 95%. That’s a ratio of 1/19. If the goal of the program is to truly cut costs, it would be 19 times more efficient to focus on reducing the patient out-of-pocket expenses, or better yet as we’ll see, enable those investment dollars to go farther.

#2) Reducing patient out-of-pocket expenses, though VASTLY more efficient than reducing program management/transaction costs, isn’t REALLY the goal either

As your sales force produces more scripts, your total expenses for these programs will increase. The goal of the program should be to increase NET revenues. Since BOTH the patient benefit AND the transaction fees are tied to filled scripts, the goal should be to increase the number of filled scripts. As Luke Greenwalt puts it, increase your script volume AND your efficiency ratio and you’ll increase net revenues. In this case you’ll have both higher transaction costs and higher patient benefit. But you’ll also have a lot more net revenue with which you can pay your expenses.

Unless your market is extremely mature with completely flat script generation and an immovable efficiency ratio – in which case, perhaps focus on optimizing BOTH expenses and patient benefit. This is because it’s not possible to increase net sales in this kind of market using patient assistance.

#3) Therefore, focusing on the 5% (expenses) at the expense of the 95% (dynamic program design) misses the point

From my experience, borne out at the conference as well, the focus on decreasing transaction costs may be due lack of differentiation in program design. Clearly, Finance and Procurement teams solely focused on expenses don’t believe in program differentiation. I tend to believe that card providers overstate the potential sales lift from their program designs; card providers should do a better job helping stakeholders to understand the dynamics of these leveraged programs.

I mentioned Luke Greenwalt’s efficiency ratio above – and spoke with the leaders of each of the major coupon providers at the conference. Each had his or her own suggestion for differentiating their services – via increased compliance offerings, better program design, improved data and reporting platforms.

As we’ve noted above – improvements in program benefit design are 19x more likely to improve your program’s bottom line. Let’s look at an example

ACME Pharma – procurement/finance tell brand team to switch from Good Co to Cheap Co

Savings on transactions = -20%

Loss on Program design = -10%

$100m program (to make math easy)

BEFORE: transactions and maintenance = $5m

Program investment = $95m

ROI of the program = 2 to 1 (this number was presented at the conference)

Yield = $180m – $100m = $80m net sales lift

AFTER: transactions and maintenance = $5m * 0.8 = $4m (reflecting the 20% transaction savings)

Program investment = $95m (held constant for analysis purposes)

ROI of the program = 1.8 to 1 (previous efficiency -10%)

Yield = $171m – $99m = $72m net sales lift (reflecting a loss of 10% versus the previous net sales level but an ROI of -800% versus sticking with your previous vendor + $1m saved versus -$8M lost)

But what if the company were to switch to a vendor that was 15% more expensive but 20% better at program design – after all the best doesn’t come cheaply

Excellence Pharma – COE and brand team switch from Good Co to Great Co

Increased Expenses on transactions = +15%

Gain from better Program design = +20%

Same $100m program

New: transactions and maintenance = $5m * 1.15% = $5.75m

Program investment = $95m (held constant)

ROI of the program = 2.4 to 1 (2 from before times 1.2)

Yield = $228m – $100.75m = $127.5m net sales lift

Versus the original program, that netted $80m, you’d be ahead 59%!

Coupon and copay dollars are leveraged – because they often take advantage of managed care money that you wouldn’t otherwise get. Please don’t focus on the pennies and miss picking up the dollars. And you shouldn’t WANT to work with vendors who want to play the low-priced transaction game. How can you trust that they have your best interests in mind when they can’t demonstrate their value in this way – and avoid an industry destructive price war. Maybe it’s better to go with a vendor who can explain the math behind WHY they’re maintaining their transaction fees at a profitable level.

Finally, at some point, copay and hub vendors are going to wise up and ask for percentage of WAC – as do wholesalers and specialty pharmacies. It might be a better overall deal for pharma to cease this race to the bottom before the industry’s best adopt this approach.

Also published on Linkedin

A (partial) list of Pricing and Market Access questions to answer before Launch

Last night I got a call from a Regulatory consultant who’s working with a pre-clinical biotech. They need pricing and market access insights before their NDA is approved. The technology is great, the leadership team is experienced, and they want to make sure they ‘get it right’.

Instead of doing a capabilities presentation, I decided to put together the list of pricing and market access questions that EVERY brand team needs to have nailed in advance of launch to be successful. In the spirit of helping the industry in general, I figured I’d share the framework here. Chiral Logic has extensive experience in answering these questions both from the manufacturer’s and consultant’s point of view.

Pricing:

· What is your likely weighted average net price cut by relevant books of business?

· What is the optimal WAC price to communicate the value of the product to the market?

· Are there relevant price versus access tradeoffs for your product? What are competitors likely to do in response to your competitive launch? What will you do to avoid a price war over the life of the asset?

· Are there other indications, patient types, or clinical attributes that your product will develop over time that may unlock additional value? How do they influence pricing at launch and over the course of the asset’s lifecycle?

· What are the expected discounts to achieve your market access goals? What are your breaking points – where you’d like to return to senior management for guidance and potentially delay contracting due to margin erosion?

Market Access

· What is your plan for the period when the product will be NDC blocked by most payers?

· What are the likely restrictions on your product if you do minimal contracting?

· What is the BEST possible market access that you can achieve, whether through extensive payer education, contracting, or both?

· Are there restrictions including Step Edits, Prior Authorization, or quantity limits (etc.) that dramatically decrease your commercial opportunity? Conversely, are there sets of these restrictions that you can ‘live with’ because >90% of your target market will already have completed them?

· What kind of payer segmentation can you expect for your product? Is it based on behavioral or perceptional criteria?

Patient Pay / Out-of-pocket / Couponing

· Will you employ Relay Health or Coupons or both to keep patient out-of-pocket reasonable?

· What is your strategy regarding transitioning your coupon program from launch mode into long-term growth stability mode?

· What are your expected out-of-pocket costs for patients? What will your TARET copay be? What are your maximum contribution limits? Why? (these should be tied to your market access and profitability objectives)

Answering these questions is the FIRST STEP on the road to generating your payer launch strategy. As I’ve mentioned before, it’s possible to answer these questions via qualitative or quantitative means AND feed your forecast. While the legwork to get these answers doesn’t have to be time consuming and expensive, this probably isn’t an area to skimp. After all, now more than ever, pricing provides critical input into overall product profitability.

So as my dermatologist says, ‘even if you don’t come to me, get checked out’. Invest to answer these questions – your stakeholders deserve the answers and your commercial partners (including payers) will expect that you know the answers and have a plan.

We’re happy to help you work through these questions as you prepare for launch. For more information – www.chirallogic.com or josh@chirallogic.com

Image credit: Maina Kiai – https://www.flickr.com/photos/mainakiai/

Used via Creative Commons License image used without any modification https://creativecommons.org/licenses/by/2.0/

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.

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.