PM360 February 2010

COVER STORY

Winning Sales in the Hospital Arena
BY BRIAN REISETTER

Launching, marketing, and supporting products primarily used in the hospital setting can be a daunting task—seemingly foreign territory for those with experience in the outpatient or physician-administered arena. With a few key concepts, however, you can develop marketing plans and design market research to drastically improve your success rate.

OVER THE PAST 20 YEARS, I HAVE HAD experience in hospital pharmaceutical marketing from three sides of the table. I have called on hospitals with injectable products “in the bag” as a former pharmaceutical sales representative, have been the recipient of those same sales pitches as a former Director of Pharmacy at a hospital, and have qualitatively and quantitatively researched virtually every “buying group” member in hospitals in my current role as a researcher and consultant. As with any market, it is imperative to understand your customer to best frame your product’s value, and the hospital market is no different in that respect. The key is in understanding what the differences and similarities are in the hospital compared to other markets or channels of distribution. Words used in the outpatient market, like “reimbursement,” “formulary,” and “clinical outcomes,” are also used in the hospital, but the application of those concepts in the hospital environment requires a vastly different approach for marketers and researchers.

Recently, we had the opportunity to conduct a survey of hospital clinicians from various backgrounds to discuss pharmaceutical marketing within their institutions. Using our experience in this area to inform our analysis of the results, we uncovered several themes in the research, and those themes are not surprising. Basically, clinicians within hospitals want marketers to better understand their business and their work lives. Through understanding how clinicians make their clinical and financial decisions, pharmaceutical marketers themselves can make better decisions regarding their products.

REIMBURSEMENT
A common complaint from our hospital customers during interviews is that pharmaceutical marketers do not understand, among other things, the hospital reimbursement system. There is no “buy-and-bill” system like that existing for physician-administered products, nor is there individual reimbursement by payers to pharmacy for products dispensed. Hospitals are simply reimbursed for most services based on the diagnosis of the patient through a diagnosis-related group (DRG) system that pays a flat fee for that specific diagnosis. Every item used for that patient while admitted, whether a drug or a pair of slippers, is a cost that is deducted from a flat reimbursement fee—eating into valuable net margins. In this world, pharmacy and pharmaceuticals are a cost center, not a profit center, and those costs must be minimized for the hospital to remain competitive.

It is no wonder, then, that hospitals are the most cost-conscious sector of our business for most products. When a competing product provides the same or similar clinical outcomes, cost will likely become the deciding factor.

FORMULARY SYSTEM
To help minimize costs, hospitals have drug formularies—not completely unlike those familiar to most pharmaceutical marketers within outpatient managed care. By definition, formularies “represent the objective and unbiased clinical judgment of physicians, pharmacists, and other specialists in terms of the appropriate use and selection of pharmaceuticals for the prevention and treatment of disease in patients within healthcare
organizations” that some argue have been around since the 18th century.1 Regardless of the exact date of inception, hospital formularies predate those used within managed care by many decades. A major difference is that hospital formularies often have far more teeth than those in the outpatient setting in terms of controlling product utilization. Physicians admitting patients to a hospital must agree to adhere to the approved formulary within that institution to maintain admission rights. As a result, there are usually far fewer products “approved for use” within hospitals than in the outpatient health plans that serve those same patients. This is particularly true for products in crowded drug classes where product differentiation is somewhat limited, such as PPIs, statins, and certain classes of antibiotics. Within these highly competitive markets with limited product differentiation, the availability of agents can be restricted to one or two products within that drug class. Less desired drugs are not just moved to a “non-preferred” status to minimize use, either. They are simply rejected for use altogether.

CLINICAL EVIDENCE
Clinical evidence is key, but that doesn’t mean drugs with therapeutic advances are given a pass just because they are new or different. Each product is scrutinized by the Pharmacy and Therapeutics (P&T) Committee based on its clinical relevance for that institution’s specific patient population. Each product must not only be safe and effective—the standard for FDA approval—but must also provide a measurable improvement over existing therapies. That is a level of clinical rigor that may not be available for new products, and (much to the chagrin of marketers) hospitals often have the patience to wait for the evidence to make final formulary decisions. Let’s consider a typical process for a hospital when evaluating a new pharmaceutical product. We know that a product must be reviewed and approved by the P&T Committee before it can be used. There are a couple of ways that can happen: 1) Pharmacy can recommend the product to the P&T Committee for approval—a process that is likely to happen only for
innovative products with a clear clinical advantage, or 2) a physician recommends a drug he or she would like to prescribe for approval, which usually involves filling out a formulary request for the product and submitting it to Pharmacy. The latter process is more common and often done online within the hospital’s computer system.

Once a product has been requested for formulary inclusion, the drug is reviewed by Pharmacy, usually by being assigned to a clinical pharmacist with that particular clinical expertise. Marketers might hope hat the review process is limited to the “formulary kit” provided, but that is unlikely. The opposite is often the case, where some of the company-provided studies might be reviewed, but the rest of the materials might be completely ignored. In fact, a recent publication by the American Society of Health-System Pharmacists (ASHP) states that, “The P&T committee should use formulary packets and dossiers prepared by pharmaceutical manufacturers with the utmost caution, since the objectivity of these documents may be challenged.” 2 Instead, external sources, libraries of clinical information, and peer-reviewed studies will be scoured before the final recommendations are made to the P&T Committee for review and final decisions regarding acceptance or rejection are made.

FORMULARY ENFORCEMENT
Hospitals have some additional mechanisms designed to control product utilization not available to their outpatient counterparts. Hospitals can develop strict usage guidelines for products, clinical protocols for specific conditions or procedures (e.g., treatment algorithms). With highly integrated, sophisticated computers installed in most large hospitals, clinicians have access to all evidence in real time to make patient-specific decisions. And hospitals have an existing staff of qualified personnel to make and monitor the protocols as an integrated part of patient care. For example, we recently worked with a client that had a new alternative formulation of an existing drug, an older agent that was available on virtually every hospital formulary in the nation. The new formulation certainly added value to a subset of patients, but it also added costs. The solution for hospitals based on our research was clear: simply limit use of the new formulation to specific patients, and the rest of the patients would receive the older, less costly agent.

These types of product restrictions are relatively simple for hospitals to employ and monitor, too. A staff of physicians and clinical pharmacists can review the evidence, design the protocols, get system-wide protocol approval through the P&T Committee, incorporate the protocols into hospital ordering systems, and instruct the dispensing pharmacists to “police” use to comply with these limitations. Non-formulary approval typically involves verbal approval from administrative physicians, and those calls are not made without a considerable amount of forethought, if the prescribing resident or dispensing pharmacists want to stay in the good graces of those physicians. These types of use limitations can be based on hospital unit (e.g., only approved for Surgery or ICU), physician specialty (e.g., only approved for use by neurologists or oncologists), or certain patient conditions (e.g., fail-first on previous therapy) that are monitored by the Pharmacy Department—all with relative ease through automation and systems management.

IMPLICATIONS
The first mandate that becomes quite clear within this environment is that marketers need to fully understand how their products will be viewed, accepted, and used by their hospital customers, and that includes all members of the hospital clinical and administrative teams. This involves understanding how the product will be billed and reimbursed, too. A hospital process is in place to analyze your products, and predicting how that process will unfold is imperative for marketing plans. In other words, whether you like it or not, your products will be positioned by your hospital customers as a natural institutional process. Getting ahead of that process to attempt to steer the ultimate positioning of your products is imperative.

Marketers who have not thoroughly qualitatively or quantitatively researched their products before the hospital-focused aspects of a product launch may find some costly surprises because they unconsciously overlooked or consciously skipped this important step. We typically recommend comprehensive research not only with physicians and pharmacy directors, but also with the clinical pharmacists who are an integral part of the formulary and protocol development team. There are certified subspecialties of clinical pharmacists (e.g., neurology, oncology, transplant, psychiatry), and some of these have become valuable members of our panel of hospital specialists we regularly interview. An additional research option is to see the interdisciplinary teams in action through mock P&T Committee meetings, an experience that is very valuable for launching innovative drugs or creating new therapeutic markets.

Based on our recent and past research with hospital clinicians, here are some key marketing tips to keep in mind when entering a hospital market with your product:

• Hospital clinicians are open to new therapies that will help them within their practice, but the level of clinical scrutiny will typically be higher than normal.
• Cost decisions can often be made on a patient-by-patient basis, so expect discussions around appropriate use within specific patient populations.
• Whether relying on issues of clinical effectiveness or cost-effectiveness, have the studies to support your claim, and make sure they are well designed and relevant to the patient populations of concern.
• Avoid marketing fluff in the formulary kits, and provide as much information on peer-reviewed, head-to-head clinical trials as possible.
• Make sure the sales team respects the process and does not attempt to circumvent hospital team members (physicians, pharmacists, or administration) for the sake of expedience.

By understanding the ways hospitals work, as well as the people who work in those hospitals, marketers can build much more effective programs to ensure success. Failing to really get to know these important customers and how they differ from the outpatient market will likely lead to some disappointing launches and missed forecasts.

REFERENCES
1. Balu S, O’Connor P, Vogenberg FR. Contemporary Issues Affecting P&T Committees: Part 1: The Evolution. P&T. 2004; 29(11):709-11. http://www.ptcommunity.com/ptjournal/fulltext/29/11/PTJ2911709.pdf (accessed 18 Jan 2010)1.
2. American Society of Health-System Pharmacists. ASHP guidelines on the pharmacy and therapeutics committee and the formulary system. Am J Health-Syst Pharm. 2008; 65:1272-83. http://www.ashp.org/DocLibrary/BestPractices/FormGdlPTCommFormSyst.aspx (accessed 18 Jan 2010).

Brian Reisetter is a Vice President and Partner at Medical Marketing Economics (MME, www.m2econ.com). MME specializes in marketing and pricing strategy for the pharmaceutical industry. Reisetter holds a PhD from University of Mississippi and both Pharmacy and MBA degrees from Drake University. He can be reached at brian@m2econ.com.