The Scrutiny on Rebates and Prices Will Change the Pharma-Payer Relationship

The government is the largest payer in the U.S. through Medicare and Medicaid, and the current administration has made no secret that they aren’t happy about the high prices of drugs. This isn’t a particularly new issue for elected officials, but it is one both sides of the aisle actually agree on and they are making sure people know they want changes.

In late February, top executives from Merck, Pfizer, AstraZeneca, Johnson & Johnson, AbbVie, Sanofi, and Bristol-Myers Squibb were called to testify before Congress about drug prices. For the most part, they put the blame on insurance companies and pharmacy benefit managers (PBMs) due to the need to set high prices in order to pay the big rebates these payers negotiate. In their view, the path to lower prices is by eliminating those rebates. Many members of Congress did not appreciate the finger pointing. However, executives from PBMs will get a chance to tell their side of the story as Congress has called them in to testify in early April, which will occur after press time.

The Rebate Debate

The question, as always, is whether all of this talk will amount to anything. The Trump administration first announced its blueprint to lower drug prices in May 2018 and one of the items included was dealing with Medicare and Medicaid rebates. And in early February, HHS Secretary Alex Azar proposed a plan that would remove the Safe Harbor Protection for rebates in Medicare Part D and in Medicaid managed care plans in January 2020.

“The rule proposed by HHS seeks to end the current rebate system but allow discounts to Medicare Part D and Medicaid Managed Care Organizations,” explains John Seay, VP, Managed Markets Content Expert of Managed Markets Communications, Syneos Health. “If the proposed changes are implemented, PBMs and manufacturers would no longer be able to rely on the discount safe harbor. Instead, negotiations would need to be structured to offer price reductions and ensure that discounts are predetermined and realized by patients at the pharmacy.”

Even though HHS’ proposed plan would not impact commercial insurance companies, we are already seeing some insurers and PBMs make changes. For one, OptumRx, a PBM owned by UnitedHealthcare, will expand a plan introduced last year that passes drug rebates directly to consumers in the form of discounts at the point of sale for their prescription. Starting in January 2020, this plan will be required for all new employer-sponsored plans, but existing employers will be able to continue under the older system. According to UnitedHealthcare, this first-of-its-kind point-of-sale discount program has already lowered prescription drug costs for consumers by an average of $130 per eligible prescription over the first two months of this year.

One key difference between this plan and the proposed changes to Medicare—other than the fact UnitedHealthcare would still be paid rebates—is around administrative fees, according to Andy Cournoyer, VP at Precision for Value. Under the proposal for Medicare, manufacturers would pay PBMs fixed fees rather than administrative fees based off of a percentage of WAC price or a percentage of sales. But UnitedHealthcare can still charge administrative fees, which can be used as a point of negotiation—possibly as a way to recoup lost revenues if the insurance company chooses not to raise premiums.

“Pharma may now need to expand their tool box of contract opportunities when dealing with UnitedHealthcare,” Cournoyer adds. “One thing we’re seeing in the Medicare space as a result of the HHS proposal is the potential for leaner formularies with increasing utilization management. Therefore, in the absence of rebates, tighter formularies that drive overall lower costs and generic utilization may require additional contracting options to meet payer business objectives. Along these lines, contract overlays (or deal sweeteners, if you will) that help to promote greater predictability or longer contract durations (i.e., > 1 year) may be helpful.”

Real-World Evidence Becomes King

Megan Jones, General Manager, Managed Markets Agency, EVERSANA, believes that another result of this increased pressure on rebates and price transparency could be that evidence of overall value—both clinical and economic—will carry more weight with payers, patients, and prescribers.

“Value propositions based on an understanding of why these stakeholders are motivated to use a specific treatment and what supportive clinical-trial and real-world evidence (RWE) is required will resonate more,” Jones says. “Manufacturers should consider increased investment in generating evidence, such as impact on total cost of care, patient experience, reduction in ER visits, and improvement in patient journey. Manufacturers can drive appropriate utilization by reducing patient costs and supporting value-add programs that improve continuity of care, medication adherence, and patient support.”

Sarah Alwardt, VP, Data, Evidence and Insights Operations, McKesson Life Sciences says that the definition of value today revolves around the collision of two hot topics: Big data and RWE.

“In the realm of big data, we are no longer limited to the patient’s interaction with a health system through administrative data,” Alwardt explains. “Patient-reported outcomes captured through care technology, interactions on social media, and even wearable devices will provide further insight into how the patient feels about therapy. Couple these advances with the growing acceptance of RWE for regulatory decision-making, and we have a new data frontier. To succeed, both manufacturers and payers must embrace these new sources of data and explore alternate strategies to realize the potential trapped within these data, including deep collaboration in the design and execution of real-world studies.”

All of this only scratches the surface of an evolving payer landscape that is becoming increasingly more complex. But that only makes it even more important that pharma is able to effectively engage with payers.

“It’s crucial that pharma’s payer initiatives be tailored to their customers’ needs,” says Casey McCann, Director of Value, Access, and Reimbursement, Klick Health. “Account executives (AEs) must be equipped with the agile resources that can effectively communicate relevant messaging to each respective stakeholder at various stages of the relationship continuum. Non-personal campaigns can be a great way to extend AE reach, particularly for a smaller sales force, and are ideal for communicating content, like disease information or campaigns that generate leads for the AE. Integrating these efforts through planning and analytics will optimize the payer marketing mix.”

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