Four Key Questions About Payer Strategies in 2019

PM360 asked those with expertise in payer strategies how changes are impacting pharma’s relationship with payers and the keys to successfully engaging with payers, more specifically:

  • As increased drug pricing transparency is being pushed at both the federal and state levels, how could more transparency affect the pharma-payer relationship?
  • How would HHS’ proposed rule change that would end the practice of PBM rebates in Medicare and Medicaid programs in January 2020 impact pharma’s negotiations with PBMs and access of their brands?
  • What do you think will be the biggest change(s) to the dynamic between payers and pharma in 2019 and beyond? How would this change affect pharma’s dealings with payers?
  • What are the keys to a successful campaign or initiative targeted at reaching and engaging with payers? How must pharma alter its approach to resonate with payers as opposed to providers?

Daniel Sontupe

What really is drug pricing transparency? If you know the list price of a 30-day supply of drug X is $328.19, but every time you go to the pharmacy it costs $40, what number makes it transparent? Could publishing the price list create confusion and, in some cases, adherence issues as patients may decide they “can’t afford the drug”?

As an industry, placing price lists in ads and other marketing pieces opens up a Pandora’s box of confusion. Patients will not have the data and education to understand what the posted prices actually means, creating more issues for physicians, pharmacists, and other care providers.

A provider will now be mired in questions around price instead of providing the outcomes-based treatment that is necessary. A brand should be used rather than a generic for many reasons, but if all we do is position price, it makes healthcare about price and not outcomes.

The area where “price transparency” has impact is on drug contracting, and if we make the contracts public or more importantly do away with them, then drug companies and insurance companies can align on value and ensure that we put patient health first.

Asif Velani

A number of manufacturers have limited price increases to avoid being called out in state transparency reports (e.g., California). Some have shown a willingness to self-regulate by making outward pledges to limit price increases or share net pricing levels. These will have the following implications:

  • If not already in place with commercial plans, price protection clauses at levels similar at reporting thresholds with states will be terms offered by pharma in agreements.
  • Pharma will place greater emphasis on managing gross-to-net including judiciously scrutinizing commercial investments and contract payback.
  • As additional states introduce transparency measures, the complexity in reporting requirements of the disparate state-level policies will increase.

Another dynamic: Payers and pharma are on different sides of the transparency debate. Pharma points to the high-price/high-rebate business model of PBMs as the culprit for the escalation of pharma list price increases, and PBMs argue that excessive and unjustified price increases by manufacturers is the root cause. With this scrutiny, we are starting to see movement towards low-net price with some payers (e.g., CVS). Even some manufacturers (e.g., Amgen and Gilead) have encouraged the shift to a low-list/low-rebate model. How it plays out will be dictated by federal legislation or changes in the business model of payers and pharma companies.

Tony L. Gibson

Increased drug pricing transparency at the federal and state levels could affect pricing negotiations and other aspects of the pharma-payer relationship in significant ways across the landscape. Most notably, increased stakeholder awareness of drug prices (and price increases) will escalate the pressure on pharma manufacturers to quantify and evolve their brand value propositions more rapidly, and more succinctly.

Even without clinical comparative data, payers will be more inclined than ever to compare products and brands based on price and price history and leverage this insight during negotiations. It will be critical for manufacturers to monitor their competitors and to time their communications effectively to control the message and to manage public perception. As we have seen payers do with medical policy and clinical guidelines, health plans will use third-party price information to steer employer clients and health plan members, thereby shaping public opinion and physician behavior.

Additionally, transparency begets more transparency. Pressure will mount for manufacturers to clarify R&D costs, drug production and distribution efficiencies, sales and marketing expenses, and so on. As a counter force to price transparency, we may see outcomes-based contracts, data collection, and publication partnerships between payers and manufacturers gain more traction in the marketplace.

Kamini Anbil

In the current landscape, pharma negotiation tends to favor use of expensive medications, as manufacturers pay higher rebates to PBMs for high-cost drugs in exchange for favorable formulary status. By eliminating the rebating power of PBMs, the proposed rule would incentivize use of lower-cost alternatives and allow for greater price transparency.

The goal of the proposed rule is for patients to see the benefit of rebating by having PBM rebates passed along to consumers as upfront point-of-sale discounts. The rule also aims to increase access to generic drugs and biosimilars, which are expected to be made more competitive by the replacement of rebates. This rule is part of the greater effort to lower drug prices and reduce Part D spending for Medicare beneficiaries as a whole. This proposal mainly applies to Medicare and other government health plans but may eventually extend to employer-sponsored health plans.

Mike Motto

The targets of the proposed rule are clearly biopharma manufacturers and PBMs. Contractual relationships between these healthcare players have traditionally been financially focused, with discounts at the core, in the form of retrospective rebates. To gain access to favorable formulary positions or avoid the wrath of PBM annual exclusion lists, biopharma has “anted up.”

In these scenarios, high WAC prices have been an advantage for biopharma manufacturers and channel partners including PBMs and drug wholesalers.

As the PBM business model has been centered on rebate revenue, it’s abundantly clear why PCMA, the PBM industry group, has been lobbying against proposed rule changes. If the proposed rule is ratified, PBMs would be faced with reinventing their current business models and service offerings. Vertical integration in the industry, as evidenced by mergers such as CVS-Aetna and Cigna-Express Scripts, provide a glimpse of such evolution.

Biopharma on the other hand, would be challenged to responsibly price therapies in a world where there will be full price transparency for all stakeholders and increased focus on real-world evidence and comparative effectiveness from organizations such as ICER.

Clint Burrus

The proposed new safe harbor under anti-kickback statutes (AKS) would encourage discounts to directly reach patients who are government beneficiaries, rather than current practice in which PBMs/Plans use them to off-set patient premiums. Many times, Medicare patients, often on fixed incomes, have higher out-of-pocket costs than their commercially insured counterparts, frequently creating hardships. Further, commercially insured patients often receive access to many pharma products at a cost lower than their copay through direct patient assistance programs. These are not available to government beneficiary patients under Medicare and Medicaid because they were not a safe harbor under the AKS.

If this new rule goes through as proposed, pharma and PBMs will be forced to develop a new dynamic in their working relationship. The situation is complicated and will challenge those organizations whose interests are not always aligned to work together to ultimately benefit the patient. The key questions are: Will the government’s intent to lower drug cost actually be realized (is the trade-off for lower point-of-sale cost at the expense of a higher monthly premium)? At what pre-discount patient (copay) cost will the pharma products be covered, and exactly how much will pharma be willing to negotiate to buy down the cost for these patients?

Kathy Bellitti

In 2019 and beyond, we expect the biggest changes to occur in the specialty environment as the industry moves more toward biosimilars and generics. Lack of clarity around where these drugs are reimbursed, on the medical or pharmacy benefit, is particularly difficult for pharma. A shift is likely in how specialty drugs are defined by payers and how they fall within benefit structures. Pharma may expect a more “formulary-like” structure of drug management within the medical space as payers continue to shift cost to their members.

It will become increasingly challenging for pharma to keep their patients on their specialty drug, due to the cost. This will result in a change in the pharma-payer relationship as pharma looks closely at who they will contract with, where they will offer members help, and how the patient is getting the drug. Fortunately, real-world evidence allows pharma to see where a drug is being given and how that is affecting the benefit it is being covered under. What a pharma company needs to know is exactly where their drug is being covered. If most of that usage is in one area or the other, that is where they should focus their contracting strategy.

Chris Abtahi

The industry has experienced multiple pendulum swings in the past. In the process, marginal changes occurred with the expectation that business will revert back to “normal,” in which pricing remains elastic and drug rebates buy formulary access. This time around, I believe the change the market is experiencing will be around longer as stakeholders (i.e., payers, providers, health systems, pharmacists) embrace a total cost-of-care approach and select pharmaceuticals that offer a value proposition with a true partnership model through clinically relevant resources, data, insights and, most importantly, improvements in health outcomes.

Pharma is becoming more thoughtful about prospective outcomes data and total cost budgetary impact. Brand marketers should embrace risk-share models and must provide meaningful clinical support tools that help with diagnosis, treatment, and patient follow-ups rather than simply looking to drive Rx volume. Additionally, the CMS threat to change the status of Part D plans to cover the six classes (i.e., anticonvulsants, antidepressants, antineoplastics, antipsychotics, antiretrovirals, and immunosuppressants) may remove the access protection that brands have enjoyed. Brands will need to translate value specifically as it pertains to the Part D population or be forced to a lower price point.

Adrienne Lee

The payer-pharma relationship is becoming more complicated due to rising customer expectations. Payers are imposing cost constraints and more carefully scrutinizing the value of medicines. They want therapies that are clinically and economically better than current alternatives and real-world outcomes data to back any claims of superiority. Pharma will be increasingly challenged to create more value for payers—and must either offer more value without charging more or prove its products can remove other costs from the healthcare system. Successful companies will shift the payer-pharma interaction from a transactional, rebate-based contracting relationship towards an integrated, value-based, total cost of care relationship.

With the super-mergers of CVS-Aetna and Cigna-Express Scripts, we already see disruption in the payer-pharma dynamic. These organizations now have greater ability to influence drug pricing and tighten access to higher-cost drugs. Also, with access to both pharmacy and medical claims data, they will be better able to manage the total healthcare cost as they move towards payer-aligned medical-pharmacy. This will accelerate the push for outcomes-based or value-based contracting with pharma and require customer-facing teams to develop the skills to negotiate with payers equipped to perform their own sophisticated analyses.

Michael Zilligen

The FDA guidance on communications with payers, which was designed to help payers better forecast and budget for future reimbursement decisions, has shifted pharma’s approach to its engagement with formulary decision-makers. By eliminating some legal and regulatory barriers that create risk for manufacturers when discussing drugs with health plans pre-FDA approval, pharma is capitalizing on pre-approval information exchange (PIE). However, to really make brands better and communicate their value, manufacturers need to expand who, how, and what they are communicating. Extending beyond the traditional stakeholders (pharmacy and medical directors) to include health plan clinical pharmacists is more important than ever.

These key individuals are critically assessing all the clinical evidence, but pharma has mostly been unable to reach them. Reimagining how clinical pharmacy (as well as pharmacy directors and medical directors) are engaged, through nonpersonal channels, with content relevant to them presents an opportunity. Companies should focus on developing an enhanced, multidimensional profile of stakeholders (such as clinical pharmacists) with their specific needs, interests, and real-time intent data to create enriched engagement opportunities to deliver content that meets their precise needs. This contemporary approach would reduce dependence on the account executive or MSL, expanding and deepening value communications.

Ellen Brett

Key interconnected elements of a successful payer engagement include:

  1. A shift from a disease perspective (Rx market) to a well-defined patient population perspective (real-world outcomes market): Product labels and disease indications can span very diverse populations with varying risks, drug and healthcare utilization, concomitant conditions, patient experiences, and values. When engaging with payers in a real-world outcomes market, organizations need to provide better defined patient populations as well as hypotheses of how to create value as opposed to very broad burden of disease narratives.
  2. Integration of many sources of insight: It will require integration of internal insight and expertise across many areas of the pharma organization to build a deeper, more holistic understanding of a patient population—clinically, economically, and behaviorally. Colleagues should work together to illuminate and fully characterize unmet needs and barriers to valued outcomes in well-defined patient populations.
  3. Patient-centered design and collaboration to address barriers to real-world outcomes: An empathetic “whole” patient view can align diverse, fragmented perspectives and functions across organizations and departments. This focus enables the collaboration to strategically assemble, focus, and deploy the right resources from each party in service of identifying and addressing key barriers to valued outcomes.

Paula Bickley

As payer vertical integrations continue and therapeutic areas become more competitive, pharma must re-think payer engagement that focuses primarily on rebate and formulary negotiations. It’s time to understand and leverage the rapidly evolving healthcare ecosystem to drive strategies focused on value and patient outcomes. Can you articulate outcomes-driven performance guarantees within your pharmacy channel? Are those performance expectations aligned with quality and cost-effective treatment?

Additionally, payer-PBM integrations signal an intense interest by payers in breaking down the medical-pharmacy benefit silos to affect more influence over complex care from diagnosis to clinical endpoint. Does your brand replace the legacy, higher-cost standard of care? Will it allow the patient to receive treatment in a more cost-effective care setting? Could it help the patient avoid surgery? Will it eliminate concurrent modalities of treatment? Payers will engage in data-driven conversations that provide a longitudinal view of episodic cost or cost-avoidance.

Ultimately, your ability to drive aligned and collaborative patient care across the provider channel is tantamount to effective payer engagement.


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