Coordinating payer contracts and direct-to-patient discounting

Payer contracts and discounts directed at patients are two of the most powerful tools available to pharmaceutical manufacturers for gaining access and driving top-line growth. The success of these programs often begins inside the organization, where a wide range of internal stakeholders, including Managed Markets, Brand Management, Marketing, and Sales must work in concert to ensure alignment of objectives and strategies.

While Managed Markets teams have historically operated independently from other commercial teams in spending an estimated $60 to $80 billion each year on rebates, this siloed approach is bound to change. In primary research conducted in 2011, IMS found that educating and aligning commercial teams across functions was the biggest challenge cited by Managed Markets strategy executives in maximizing pull-through efforts and driving success.

Indeed, Managed Markets activities need to be viewed in a larger context, considering the economic forces that are changing the trade dynamics for manufacturers:

• Generic competition continues to increase (an estimated $171 billion in sales will be lost to generics, globally, through 2015 with the “patent cliff”).
• Patient out-of-pocket costs are rising (the co-pay amounts for non-preferred brands have climbed from just under $30 in 2000 to just under $50 in 2011).
• Payers have expanded their use of interventions such as step edits and prior authorization, to control usage.
• e-Prescribing has reached a new level of significance (20—30% of all prescriptions are currently written electronically).

These changes, designed to combat rising healthcare costs, are negatively impacting manufacturers’ profitability, and suggest that companies should re-evaluate their contracting practices. Many leading companies have come to realize that contracting alone with payers for access in a crowded therapeutic category is no longer sufficient; they must combine patient incentives with a comprehensive channel strategy to pull through sales at a local level. And this requires greater alignment across commercial teams.

Local contracting, local pull-through

The days of needing to secure and manage only a few dozen contracts with pharmacy benefit managers (PBMs) and health plans/insurers are quickly coming to a close. There are now hundreds of entities within the healthcare delivery chain that influence prescribing decisions. These include clinics, Integrated Delivery Networks (IDNs), Accountable Care Organizations, Health Information Exchanges, and Specialty Pharmacies.

Adding to the complexity of the number of healthcare entities is the number and variation of benefit designs an insurer offers its clients. As employers have become more creative with benefit design selection and shifting more cost to patients, the correlation between nationally contracted formulary status and local utilization is no longer necessarily direct. Contracting for a formulary advantage does not always equate to a co-pay advantage. Sub-national differences in formularies and patient sensitivities to out-of-pocket expenses will impact a brand’s volume and share.

Manufacturers are beginning to develop localized contracting strategies because specific geographic locations or Metropolitan Statistical Areas (MSAs) are frequently associated with unique conditions that drive a product’s access and uptake. These include:

• Variations in employer benefit design
• Patient demographics and coverage, private and public
• Pharmacy factors (such as restrictions on patients as to which outlets they can use with a given plan, including mail-order mandates)
• Regional or local plans that influence prescribing patterns and spillover
• Influence from other healthcare entities, such as IDNs, group practices, hospitals or thought leaders.

What is more, as electronic prescribing becomes the norm, the need for localized insights and regional contracting will intensify. Once a patient’s plan design information is routinely in physicians’ hands at the point of prescribing, we can expect formulary compliance to increase sharply.

To pursue a localized strategy, manufacturers will need to:

• Understand the relationships between healthcare entities at a local level and the influence of each
• Measure the influence of a specific payer at a local level
• Profile the local benefit design structures and the marketplace’s response
• Organize the sales force to best navigate the local conditions.

Quantifying the managed care impact

Given that the formulary information tied to a national plan does not provide the level of insight necessary to uncover patients’ true access conditions—and the potential of individual physicians—companies must understand the local co-pay structures that drive patient behavior. Following is an analysis of physician performance within the context of benefit plan design that reveals how the field force can best be deployed to pull through demand.

Fig. 1. More accurate benchmarking based on true potential

For one product within the crowded class of angiotensin receptor blockers (ARBs), IMS studied prescription volume for 150 top prescribers in the top local plan for the Chicago metro area during one quarter of 2010. Within Blue Cross Blue Shield (BCBS) of Illinois, the product in question had an above-average share, although that share differed widely across the top prescribers, ranging from 0 to 31%.

IMS then compared each physician’s share of the product’s prescriptions to the average shares within each BCBS benefit design rather than to the overall plan volume. The analysis put the performance of individual physicians in a new light, revealing that some had greater potential than had been assumed, while others, previously viewed as underperformers, were indeed prescribing to their full potential.

As seen in Fig. 1, the product’s shares for Dr. “X” ranged from 0.2%, when the patient’s co-pay was $40—$60; to 11.4%, when the patient’s co-pay was $20–$35.

Across the entire territory in the Chicago area, the analysis uncovered 45 prescribers for whom the prescribing opportunity had been understated and another 44 for whom the opportunity had been overstated. Such findings can be used to allocate resources (including sampling) within a territory, to set goals for reps, and to structure physician-specific messages that pull through demand.

Direct-to-patient discounting

Coupons and co-pay cards have assumed a broader role in the arsenal of incentives that US pharmacos use to improve patient compliance with their treatment regimens. The use of coupons, vouchers and co-pay cards has more than tripled in the last five years; and last year at least 300 branded products offered a co-pay card program or voucher.

Estimates of the industry’s annual expenditure on these programs range from $3 billion to $6 billion, with IMS data revealing that the average subsidy paid for claims using a co-pay card and/or voucher rose 28% between 2010 and 2011 (from $19.34 to $24.78).

The practice is more than a little controversial; it has spawned negative press, a lawsuit and an FDA study. Yet, despite the shadow of regulation and active opposition, it appears that manufacturers will continue to rely on co-pay offset programs to supplement their managed care contracts. Such programs, which make medications more affordable for patients, have proven to be effective approaches to driving patient compliance and increasing brand loyalty.

The following trends are worth noting:

• Some companies are discovering that they can opt for a less aggressive formulary position and supplement their payer contracting strategy with a co-pay card for patients.
• Rebating directly to patients in the form of co-pay offsets is beginning to be used as a supplemental tool for achieving access throughout the lifecycle of a brand. While the first applications were designed to improve patient loyalty and adherence for products in mid-lifecycle, co-pay programs are now showing promise as ways to drive demand at launch, as well as to preserve value upon loss of market exclusivity.
• Soon, advances in e-prescribing platforms should make it possible to alert physicians at the point of prescribing about the availability of co-pay cards or coupons. One can envision that the subsidy could then either be presented to the patient on the spot or forwarded with the electronic script to the pharmacy.

Optimizing co-pay card distribution

Considering the cost burden being placed on patients, companies should maintain an in-depth understanding of the co-pay sensitivity of their patient population, and be ready to adjust their pricing and contracting decisions accordingly. Introducing a co-pay program is one way to make price adjustments on the fly. To do so effectively, however, companies must ensure that they are reaching the right patients; otherwise they can unwittingly subsidize existing patients or waste the offer on patients for whom product choice is not determined by price.

Fig. 2. Target patient populations for co-pay assistance.

To help one large pharmaceutical company ensure that it was distributing its co-pay cards optimally, IMS conducted an analysis of the true opportunity to affect product usage within three sample territories.

The company had established its co-pay assistance program because its drug to treat a chronic gastrointestinal condition was substantially more expensive than competing treatments. Distributed to physicians, the card was intended for patients whose insurance coverage made their out-of-pocket expense greater than it would be for a competing brand—those patients on the left-hand side of Fig. 2 in boxes A and B. These patients represent a true opportunity for the company, either through increased persistence or through conversion from a competing brand.

The patients on the right-hand side of Fig. 2 are those whose insurance coverage made their out-of-pocket cost for the company’s drug equal to or less than that of the competitors. It is not in the company’s interest to put co-pay cards in these patients’ hands because they are either: 1) on the manufacturer’s brand and are not at a cost disadvantage (Box C); or 2) on the competitor’s drug even though the price holds no advantage for them (Box D).

It is impossible to control how physicians allocate cards among their patients. Therefore, the company’s objective was to mitigate the risk of unintended use, and maximize the likelihood that co-pay cards would get to patients in need of co-pay assistance.

Fig. 3. Recommended distribution vs. historical distribution of co-pay cards in one territory.

For the three study territories, IMS examined the benefit coverage for each physician’s patient population, excluding Medicare Part D recipients and patients responsible for a fixed percentage of the drug’s cost through coinsurance. Next, IMS segmented each physician’s patient population into four categories (Priority, Opportunity, Inefficient and Avoid) based on the patient’s current product usage and on differential pricing and co-pays.

In all three territories, the card distribution had been far from ideal. In one territory, for example, 41% of the co-pay cards had been given to physicians and segments that represented an inefficient use of the cards, or that should be avoided because the revenue risk posed by giving financial assistance to their patients. (See Fig. 3.) This startling finding suggests that many of the cards were being wasted or, even worse, were chipping away at existing revenue.

A comprehensive approach

As the healthcare environment becomes more complex, with more potential partners, variations in benefit design structures, and e-prescribing adoption, manufacturers must think in terms not merely of a contracting strategy, but of a more comprehensive pull-through strategy.

As a first step, they must look at the chain of influence in its entirety, and determine what mix of incentives will be most profitable. This involves answering some very broad questions:

• How can I ensure that my strategy is carried out all the way through to patient compliance and adherence?
• What is the optimum mix of direct-to-patient discounts and contracting with channel partners?
• How can we deploy and monitor these programs at a local level?
• How can we avoid over-discounting?

Being able to step back and thoughtfully select from among the options requires a high level of cooperation between the functions responsible for each stakeholder group. Historically, the Managed Markets function has controlled the contracting budget, while Brand Managers have been in charge of the patient rebating budget. These functions must work together if companies are to not only optimize their rebating expenditures, but also improve the pull-through of existing contracts at a local level.

ABOUT THE AUTHORS

Chris Leibfreid, Practice Leader, Consulting and Business Development, Managed Markets Services, IMS Health, has more than 25 years of consulting experience, 16 of those concentrating on the life sciences industry. Chris can be reached at [email protected].

Suzanne Sullivan, Senior Principal, Managed Markets Services, IMS Health, leads a team supporting customers with the development of market access strategy. Suzanne can be reached at [email protected].