Avoid the Price Crisis


Feature Articles by on February 24th, 2017

Reputational crisis. This is the best expression to describe the worsening relationship between the biopharmaceutical industry and the very people it seeks to serve. Today, companies that make medicines to save or improve peoples’ lives are less respected than law firms and oil companies.1 One study even shows that the number of Americans who believe prescription drugs have made lives better has decreased 21%.2 A decoder ring isn’t needed to appreciate that this is a concerning state of affairs for today’s drug makers.

How has this trust chasm formed between medicines makers and those they seek to serve? Why is it deepening during a period when drug makers are achieving therapeutic advances equivalent to medicinal silver bullets?

Many pundits will say the answers lie, in part, on shifting insurance tectonics, increased cost sharing, and previous bad actors. While true, this explanation alone is insufficient. In fact, part of the culpability is shared by none other than us. As an industry at large, biopharmaceuticals have not reformulated approaches to pricing strategies and the communications supporting those decisions as swiftly as they should.

Gone are the days when we drop a medicine on the market and people cheer. Now, price is the question asked before you even get to the market. In helping pharmaceutical CEOs avert crises, I argue developers must proactively build stakeholders’ expectations of value, long before a PDUFA announcement.

How We Arrived Here—and Why it Matters

Debates about the cost of medicine have been part of the national discourse for two decades, but it’s seemingly become worse in the last two years. In fact, our own data shows the volume of media scrutiny on drug prices tripled in 2016, year on year.3

Under the Affordable Care Act (ACA) we witnessed insurance design changes that exposed Americans to the cost of care in the form of higher co-insurance, premiums, and deductibles. As commercial healthcare coverage became available to approximately six to seven million previously uninsured patients on the state exchanges, it forced payers to take on costs—which were subsequently passed down to millions more Americans.4 Co-insurance rates on average rose from 15% to a whopping 28% in the last decade.5 The average ACA Silver plan in 2015 had a deductible rate of about $3,000.6 For the first time in many decades, lower and middle class consumers are now paying more in monthly premiums and feeling the impact of prescription costs at the pharmacy counter. In some cases, they are walking away without buying the drugs.

President Trump tapped into this vein of populist frustration, as polling on drug pricing shows.7 At a victory rally in Pennsylvania in late December, Trump questioned why the government isn’t negotiating drug prices directly with manufacturers.

To avoid being the next company shamed via Twitter, follow these tips for what does and does not work.

Models That No Longer Work

No matter how good your marketers are, there are some situations you can’t communicate your way out of. These situations are politically untenable—and may result in public shaming—if not a front row seat to a Congressional hearing. Best avoid the following three pricing strategies:

“Penetration pricing strategies.” This means maneuvering medicines into a “crowded” disease category, undercutting competitors on price to gain market share, and then raising prices. Yes, it may help you maintain a drug’s formulary status, aided by rebates and discounts. But the press and payers are turning attention to these subsequent increases that lack meaningful innovation.

“Buy, then hike.” Valeant and Turing have taught us to steer clear of this tactic, not because they don’t work, but because the public can’t abide it. You’ll end up with a target on your back. If companies are looking to purchase and increase prices on existing medicines, the increase must reflect investment and better outcomes.

“Promoting first-in-class, novel medicines with huge therapeutic impact but limited economic substantiation.” Miracle drugs shouldn’t have to defend their value, but they do. Counter-intuitively, these drugs must do so more than any other. First-in-class drugs in a high-need category are often seen as a panacea and public health imperative, so communities desperately want them, but payers may not be able to absorb the immediate cost to treat everyone. Payers want to see a solid economic case. It’s simply not enough that patient communities are sold on the clinical benefits. In recent years, we’ve seen a virtual cure for hepatitis C and the launch of super-drugs for those with severely high cholesterol. Yet, those drugs met widespread backlash. Why? Manufacturers failed to prepare payers and health systems for the initial costs by explaining long-term savings thanks to reduced hospitalizations. In today’s world, if you don’t build your own economic case, third-party value frameworks, such as the Institute for Clinical and Economic Review (ICER), may build one that’s less favorable.

Building Expectations for Value

Value is in the eye of the beholder. For example, I value going to a fancy gym to stay healthy. My husband appreciates that, but does not value the price point. Pricing communication is similarly nuanced across stakeholders. How a patient perceives value is vastly different from a payer. If we do not lay the right groundwork to help all players understand the benefits they receive in terms that matter to them, we’re not doing our medicines justice.

When CEOs ask me how to avoid being in front of the next pricing firing line, I present them with the following imperatives:

1. Start early. Developers must begin by communicating a new product’s value to patient advocates, caregivers, and physicians, during the late stages of clinical development, 9 to 12 months before approval. The days of releasing pricing at launch are gone. Under the FDA’s definition of pre-approval promotion, it’s illegal to communicate the planned list price of an investigational drug. However, manufacturers can reference expectations relative to other therapies available on the market and indicate the types of contracts they might explore to ensure a medicine is accessible through insurance.

2. Recognize value is different to different audiences. Value is a perception unique to each of us. Cookie cutter approaches won’t do. For example, a patient with a very rare condition may see access to a therapy as the greatest value, particularly if there are no medicinal alternatives. Better diagnostic and scientific insights about a disease’s progression may matter for a physician. Payers care about how much the drug will impact their actuarial planning and costs.

To help understand what value looks like “beyond the drug,” to every stakeholder, I conduct primary research for my clients. This helps us understand what they desire in terms of access, assistance services, and medical understanding. Then, we help brands design their assistance services surrounding these stakeholder needs. After all, registries, disease education, and medical grants all carry a value that benefits different parts of a community. The key is capturing these services and communicating them routinely as the medicine moves closer the market. Of course, no messages will help you if the medicine is ineffective.

3. Speak the same language. Words matter. Health insurance design is complex and with Republicans promising to make sweeping changes to ACA, it will become even more complex. Therefore, marketers must embrace nuanced audience-specific communications. Most patients are less alarmed by the list price of a medicine when they hear assistance programs will cover most out-of-pocket costs. Marketers should communicate about the average co-pay range most patients will bear in every instance where the list price is disclosed. Advocacy groups can inform patients and caregivers about good and bad insurance plans relative to the care needed for their condition.

4. Practice makes perfect. To test our explanation of the value behind a drug’s price, we often run the rationale by members of the community (confidentially). Sounds obvious, but our research indicates many executives don’t do this. Instead, they default rhetoric aimed at investors, which makes it seem as though they care more about profits than people—which is not the case.

5. Don’t blame others. Follow the lesson most of us learned in grammar school. To many stakeholders, blaming middlemen and other parts of the system makes you look defensive. The reality is, manufacturers set the list price. They must own that, and explain it.

6. Hire more health economists, today. Economists may not have always been considered the “cool kids” in the marketing crowd, but they will be now. Increasingly, payers and external value frameworks, such as ICER, are making companies proactively demonstrate the value they bring to the healthcare system in terms of economic savings. Today, phrases like WAC, budget impact, and value-based price benchmarks are becoming part of the media discussion. Brands must be prepared to define and defend the benefit they deliver.

7. Listen and catch affordability issues early. In every major pricing case that has landed before Congress, there were early warning signs. Maybe hospitals complained about costs, or caregivers posted unkind words on their blogs. If your brand conducts good primary research, you’ll see it coming and can do something about it. Marketers should routinely check in with advocacy, government relations, and communications teams to ensure affordability and access concerns are escalated quickly. It’s not just about sparing your company embarrassment. You may be able to help improve patient lives and save your company from public embarrassment.

For executives who desire to launch life-saving medicines, make the return needed to pursue new innovation, and avoid unwarranted scrutiny in today’s populist world, adhering to these tips may be just the right prescription!

References:

1. http://www.gallup.com/poll/194570/restaurants-again-voted-popular-industry.aspx.

2. http://kff.org/health-costs/report/kaiser-health-tracking-poll-september-2016.

3. Proprietary iVH research.

4. http://acasignups.net/16/03/03/20-million.

5. Publicis Touchpoint Solutions Report: Orphan Drug Success, page 8.

6. http://www.cnbc.com/2014/11/21/using-your-obamacare-plan-can-come-at-a-great-cost.html.

7. https://www.bloomberg.com/news/articles/2016-12-07/trump-says-he-ll-bring-down-drug-prices-biotech-stocks-fall.

Back to top