Chapter 8
Strategic Payer Engagement
In any sector, knowing the customer is key to commercial success. While payers are not the end users of drugmakers' products, they are among their most important partners. That is because their coverage and reimbursement decisions determine which patients will have access to their medicines. Biopharma has traditionally viewed physicians as their customers, not payers or indeed patients. However, this is changing as the costs of medicines rise, and as patients' roles in drug discovery, development, and access grow as a result of new patient-centered digital tools (see Chapter 6). Smart, sensor-enabled devices, combined with behavioral reminders, make it possible for consumers to proactively manage their own health and they are increasingly trying to understand which tools provide the greatest return on investment. In this context, payers, as broadly defined, are the gatekeepers.
Payers Are Not All Alike
The challenge for biopharma is that there is a wide range of payer types, each with different structures, preferences, and priorities. Some of this variation is determined by the country or region in which they operate: a European state payer, for example, works differently than a national US commercial payer, which in turn functions differently from a regionally based employer that self-insures its workforce. But even within a single nation or region, no two payers will look the same. They may cover different demographics and vary in their economic incentives, budgetary flexibility, profit motives, and, for commercial payers, in the medical benefits they offer their customers. A US payer that offers prescription drug coverage to citizens that qualify for Medicare, for instance, is looking solely to minimize drug costs and not to curb other medical expenses, while a private insurer offering full medical coverage to a 40-year-old individual may be more open to paying slightly more for a drug that is shown to reduce downstream complications, such as surgery.
In Europe, governments are the principal payers: most countries have taxpayer-funded national or regional health systems covering all or most of the population. In the United States, in contrast, federal and state government health spending accounts for less than half of overall health expenditure [1]. A patchwork of private (mostly for-profit) payers, intermediaries, and households make up the rest.
Nongovernment US payers can be broadly grouped into commercial insurers, such as UnitedHealthcare and Aetna, which sell health insurance plans to employers or individuals; pharmacy benefit managers (PBMs) such as Express Scripts, which manage coverage of pharmaceuticals, including negotiating pricing and access on behalf of health plans; and integrated delivery networks such as Kaiser Permanente, which comprise hospitals, physician groups, an insurer, and (often) a prescription drug purchaser all-in-one. Large employers are also increasingly behaving as payers. As workers' health costs become a more significant budget item, more companies are running their own health insurance for employees, including contracting directly with certain providers, thereby gaining greater control and leverage over component costs (Figure 8-1).
Figure 8-1 Key US payer types
These players do not operate in isolation: they may interact in a variety of ways within a regional market that influences access to medicines. Moreover, any one payer may embrace multiple models simultaneously. For example, an insurer may administer only the medical claims for companies that prefer to manage their own drug spending (or negotiate with a PBM themselves), while managing both medical and drug benefit for other customers. Similarly, commercial insurers may manage Medicare/Medicaid-covered lives on behalf of the US government, as well as privately insured individuals or employees. The European payer landscape is somewhat less complex but also far from homogenous.
New Market Forces Increase Payer Power
This patchwork of payers, in addition to being complex, is constantly changing as the legislative, economic and competitive landscapes evolve. Escalating healthcare costs and the growth of high-priced, specialty drugs have driven aggressive drug price negotiations and coverage decisions among most payers in the United States, Europe, and beyond [2]. In the United States, the 2010 Affordable Care Act (ACA) catalyzed a shift toward paying for value, rather than volume, as well as expanding access to insurance across a wider portion of the population. This has forced payers to be more selective, focused on cost-effective care, and on therapies proven to deliver better outcomes. With increasing therapeutic competition in some areas—where several drugs with similar or identical mechanisms of action are approved within just weeks or months of one another—these dynamics have created a much more challenging commercial landscape for biopharmaceutical firms.
They have also driven widespread convergence and consolidation among payers, and between payers and providers, creating new kinds of customers for biopharmaceutical firms, not simply customers with more purchasing clout, but customers with different incentives, interests, and behaviors. These customers will each be driven to make different coverage decisions, based on their individual preferences and constraints as well as the geographies and competitive dynamics within which they operate.
Biopharmaceutical firms must therefore define and understand the key payer archetypes. They must segment them according to their structure and profit motive, the demographics and disease incidence within their covered population, their behavior and attitude to risk, and environmental factors such as consolidation and legislation. Then they must tailor their offerings to best meet the needs of each. This may involve prioritizing certain payers over others, at least in some therapy areas or for some types of product (Figure 8-2). “Smart payer segmentation strategies will soon be as important as smart physician and patient segmentation,” writes Roger Longman, chief executive officer (CEO) of Real Endpoints, which has developed a drug valuation tool called RxScorecard. “Payers are the new powerbrokers. But they don't all make decisions in the same way” [3].
Figure 8-2 Payer segmentation
Segmenting this complex and rapidly changing payer environment is not easy. But it is increasingly necessary and also represents an important opportunity. For example, some integrated payer-provider networks may be open to engage in longer-term outcomes-based deals that link the price of a drug to the clinical results delivered, potentially supporting higher drug prices. And at the highest level, payers are, increasingly, driven by a common goal: demonstrable value and cost effectiveness. In that sense, European and US payers are becoming more alike: whether they are a government, an employer-employee sick fund, a commercial insurer, or an integrated delivery network, all want the best care at the lowest cost. That requires biopharma firms to show robust proof of value.
The Increasing Importance of the Consumerin the United States
As part of the expanded coverage under the Affordable Care Act (ACA), the legislation ushered in more competition among insurers. This happened primarily via the introduction of health exchanges—online marketplaces where individuals (without employee coverage) could shop for the most affordable (non-Medicare or Medicaid) health insurance (see text box, “Health Exchanges: Online Shopping for Health Plans”). By giving individuals more choice and more transparency about the kinds of health plans available to them, consumers are empowered to make better decisions about their care coverage, at a time when those already paying for coverage face increasing premiums as health plans struggle with higher costs. All of this, plus more widespread information on treatment cost and quality (outside of the exchanges), has made patients more discriminating, too. It has forced insurers to balance the more traditional business-to-business (B to B) model, toward selling directly to consumers (B to C).
These dynamics—the quest for value and the impact of health reform laws—are driving payer consolidation. In order to offer the most competitive health plans and secure the most business, insurers are seeking greater economies of scale in their contracting with hospitals and other providers. Although a number of large insurance mergers were announced, anti-trust concerns have limited the number that have been finalized [7].
Large insurers are also strengthening their in-house PBM businesses to help drive down prices in negotiations with biopharma firms: UnitedHealth's $12.8 billion purchase of PBM Catamaran Corp. is one example [8]. PBMs themselves have consolidated, as their business model is threatened by payers and providers seeking to cut out the middleman, whose incentives are not always aligned with those of all its customers [9–11]. For instance, PBMs purport to lower drug acquisition costs for their clients. But they also generate a significant part of their drug-related profits from a complex system of rebates, negotiated with manufacturers. These rebates are calculated as a percentage of drug prices, meaning that PBM profitability is sometimes better served by higher, not lower, manufacturer drug prices [12]. Meanwhile, the fact that PBMs deal only in drugs, not other aspects of healthcare, runs counter to the trend toward more integrated (and, thus, cost-effective) care.
There are further examples of perverse incentives resulting from this complex web of payer types and intermediaries.
Providers Are Now Payers
The value-focused dynamics have also changed how providers (hospitals and physician groups) operate. Some are becoming payers in their own right. As such, the boundaries between payer and provider are blurring, creating new classes of payers—and more of them.
Many providers are now financially at-risk as a result of ACA-linked changes to how they are reimbursed for their services. Increasing numbers now receive a fixed fee (from a commercial insurer or from Medicare) for certain kinds of care, or for certain outcomes, rather than being paid per service or intervention. Many are organized into Accountable Care Organizations (ACOs), reimbursed (via one of a range of payment models, including capitation) according to care quality metrics and reductions in the total cost of care. Some ACOs get to share in any resulting savings.
This financial accountability means that providers need to control the entire continuum of care, rather than just one component of it. As a result they do not want to, for example, only deliver hip replacement operations. They want to ensure appropriate, coordinated follow-up care to avoid expensive hospital readmissions. This bid to deliver more cost-effective care across inpatient and outpatient settings requires reliable access to data generated at various steps along patients' care journey. Yet these data sets will often remain within independent providers with, until recently, little incentive to cooperate (not to mention the lack of interoperability among data systems).
The drive for better operational efficiency and more comprehensive data is leading to provider consolidation—and raising further questions about the role of entities such as PBMs that deal with only one component of care. Hospitals have also been acquiring medical groups, including physician practices [13]. When provider groups become part of larger health systems, this organizational change reduces physician freedom to prescribe and creates new customers for biopharma firms elsewhere within provider management.
Vertical integration is also manifest in the growth and evolution of integrated delivery networks (IDNs). Organizations such as Kaiser Permanente and Intermountain Healthcare have until recently accounted for only a small, albeit high-profile, share of US health providers. Now, as providers reorganize, more IDNs—and new variations of these systems—are emerging. Some are embracing a broader range of collaborative partnerships and more patient involvement [14].
The next logical step for these growing providers is to sponsor or set up their own insurance plans, using internal metrics based on their participant populations rather than performance criteria tied to a far wider range of providers. Many are doing just that, effectively evolving into payers [15].
Employers Are Payers, Too
Employers are also becoming more important players in healthcare, as they, too, seek to curb growing costs. Already, some are teaming up with health plans and providers in more creative ways, often leveraging digital tools to help motivate their workers to stay healthy. Policies that allow individuals (and employers) to reduce their premiums by engaging in more daily physical activity, for example, as measured by a wearable tracking device, are gaining popularity. These policies shift responsibility and risk to consumers (employees). But employers, especially larger ones, may be able to drive a harder bargain with PBMs and payers, too, encouraging them to take on more risk around the cost and usage of certain drug classes [16]. After all, the choice of health benefits that employers offer is an important factor in workplace decisions [17]. Employers will not want to remain entirely at the mercy of traditional payers in the scope and nature of plans they can afford to offer their workers. If employers do step up with tougher demands from PBMs and payers, this will also affect how payers negotiate with drug companies.
These rapidly changing organizational dynamics, and the delivery of healthcare more generally, also vary considerably by geography. This variance is partly a function of local demographics, disease prevalence, local provider system setups, and state laws. Massachusetts, for instance, passed its own healthcare reform law in 2006, mandating that all citizens have minimum coverage. The ACA has strengthened the federal government's role in healthcare (Massachusetts' laws have been amended to be consistent with ACA), but it also left individual states with considerable autonomy in how they implement health reform. As such, the states are choosing to expand health insurance coverage in different ways (and some not at all).
The upshot of all this complexity is that, even within one country or region, biopharmaceutical firms need to assess their drugs' value and consider their pricing and product strategies, “not from the point of view of a mythical, unitary insurer,” warns Real Endpoints' Roger Longman [18]. Instead, they must understand and respond in a more targeted fashion to a range of different payer types, with different priorities, constraints, and behaviors. Vertical integration theoretically means more openness to long-term cost savings, but, in reality, annual (or short-term) budget cycles can still dominate decision making.
European Payers: High-Level Unity, Low-Level Fragmentation
Europe's payers appear far more homogenous than their US counterparts, comprised of governments, or “sickness funds” working on behalf of governments, using general or specifically identified tax revenues to fund healthcare for the entire population. In part because of these budgetary constraints, Europe's payers have long been more cost-conscious than their US counterparts. Many are strongly influenced by national health technology assessment (HTA) agencies, which use a variety of tools to determine relative clinical and/or cost-effectiveness of drugs and medical devices.
These HTA agencies do not all assess new drugs in exactly the same way. Some, like the UK's National Institute for Health and Care Excellence (NICE), use the manufacturer's given price to calculate whether a drug exceeds a defined cost-effectiveness threshold. In Germany and France, the focus is on added clinical benefit relative to existing treatments, and the result feeds into subsequent pricing decisions. A common thread across all the systems, however, is the need for evidence of superior outcomes relative to existing treatments.
Beneath this degree of surface uniformity lies an increasingly complex network of regional and local payers and prescribers, all seeking to meet patients' needs within tightening budgetary constraints. The UK's National Health Service, for example, is free to all legal citizens. NICE, a public body, determines which medicines are cost effective and should be funded by the NHS. But actual drug purchasing decisions are made at the local level, by Clinical Commissioning Groups. Since reforms introduced in 2013, more than 200 of these statutory NHS bodies, made up of physicians and other clinicians, are responsible for planning and commissioning health services for their local area [19]. Thus, even though it may seem that NICE is the primary agency biopharmaceutical firms must convince of a drug's value, these companies also have to engage with local payer-prescribers as they determine care priorities. Market access in Spain and Italy is also highly decentralized; both markets have national gatekeepers as well as about 20 regional, semiautonomous payer committees, responsible for local formularies (Figure 8-3).
Figure 8-3 Europe's top five payers: key characteristics
HTAs also feature in other developed markets, including Australia and Canada, both of which have government-funded systems covering the entire population. The Australian Pharmaceutical Benefits Advisory Committee (PBAC), rather like NICE, assesses proposed prices based on cost-effectiveness analyses and may deny reimbursement or restrict the target population [20]. HTA bodies are also being established across emerging economies in Asia and South America, despite challenges around a shortage of expertise and poor-quality local data in some markets [21].
United States Adopts European-Stylecost-Effectiveness Hurdles
As the US market evolves from the fee-for-service model to a fee-for-value framework, value-assessment bodies similar to Europe's HTAs are emerging. One example is the not-for-profit Institute for Clinical and Economic Review (ICER), which has published analyses of high-profile new medicines such as Novartis' heart drug Entresto (sacubitril/valsartan), the PCSK-9 inhibitors, and multiple myeloma drugs. As discussed in Chapter 7, other drug valuation tools designed to help clinicians, payers, and patients compare the clinical and cost effectiveness of drugs include the American Society of Clinical Oncologists' (ASCO) Value Framework, Memorial Sloan Kettering's Drug Abacus, Avalere/Faster Cures' Patient Perspective Value Framework, and the National Comprehensive Cancer Network's Evidence Blocks [22].
Unlike in some European markets, US payers are not bound by the findings of these organizations (though many providers follow evidence-based guidelines developed by professional societies such as ASCO). Many of the larger payers also perform their own cost-effectiveness analyses. But the influence of cost-effectiveness analyses is growing as payers seek to validate coverage restrictions. Budgetary constraints and the flurry of novel, high-priced therapies in the market mean that payers simply cannot afford to cover all drugs, even if shown to be effective—and, in some cases, even if shown to be cost effective (see text box, “Value-Focused Price Not Enough for Entresto”). Indeed, the up-front costs of even a reasonably priced therapy may be too high, depending on the prevalence of the disease in the covered population (and, thus, the total costs to the payer) and the relative cost of existing treatment.
Payer Engagement Strategies Must be Tailored, Scalable, and Flexible
To effectively engage with payers and achieve the best possible access for their products, biopharmaceutical firms require a more tailored approach, built on an understanding of each customer's preferences, restrictions, and ways of working. Even beyond the relatively clear-cut differences between, say, a US prescription drug plan seeking to purchase drugs at the lowest possible cost for its customers, an integrated delivery network working to reduce overall healthcare bills, and a European tax-funded state payer, there will be further variation in attitudes.
Value is in the eye of the beholder, even within Europe's HTA landscape: most payers like head-to-head trial evidence, but may seek comparisons with different standards of care. Many say they will consider patient-reported data supporting drug efficacy claims, but not all have established processes allowing them to weigh such evidence in their decision. Attitudes may vary by therapy area, in line with the characteristics of the covered population. Payers covering a high proportion of patients with chronic diseases may be more open to (and prepared to pay for) solutions offering proven support with medication adherence, for example. And while some payers have the resources and mindset to experiment with new payment models, others remain more conservative and focused on cost.
Faced with this complex, fragmented payer marketplace—multiple payer types and behaviors plus a fast-changing environment—biopharmaceutical firms need a payer engagement strategy that is systematic, manageable, and scalable, yet that can be adapted to optimally address the priorities of each payer. A logical approach to developing such a strategy is to rapidly identify the most relevant payers for any product or service. This could involve using basic data around disease incidence in a given region or regions, for example, and overlaying it with information on the payers and/or provider systems in those areas with the most covered lives for this disease. As the prevalence and sophistication of data sources grows, this exercise is becoming easier to do.
Geospatial mapping tools can also help: these overlay several types of data, including sociodemographic, payer, and provider data, for instance, on a geographical map to identify where the most critical payers are located. Structural information on whether and how specialists and other healthcare stakeholders such as pharmacies are interconnected can also be included to generate a more detailed picture of relevant targets [25].
Once this screening has identified a more manageable subset of high-opportunity payers, including their exposure to a particular demographic and/or therapy area, this smaller group can be segmented according to more specific measures associated with behavior and resources. These may include sensitivity to up-front drug costs versus downstream cost savings and outcomes, attitude to risk and to new approaches, strength of information technology (IT) infrastructure, and data access and expertise (Figure 8-4). Further, more detailed parameters around particular resource strengths or constraints, characteristics of care provision and patient pathways, and other budgetary pressure points may also be mapped at this stage (Figure 8-5). This mapping will generate a good understanding of which payers are most likely to be interested in a particular offering, as well as how best to position that offering.
Figure 8-4 Strategic payer segmentation and engagement
Figure 8-5 Mapping payers based on behaviors and preferences
A basic example is a stand-alone pharmacy benefit manager, which manages utilization of prescription medicines for health plans; this manager is likely to focus entirely on cost, specifically on procuring medicines as cheaply as possible on behalf of its health plan customers. That is because it is not responsible for downstream care outcomes (though it may soon be forced to consider them, as discussed in the text box, “The PBM Problem: Drug Costs Cannot Be Considered in Isolation”). Priorities may be somewhat different at a well-funded research hospital group, with established value-based payment systems and incentives, which is in charge of its own drug purchasing (as part of a group purchasing organization, for instance). Such an organization may be more interested in the data supporting a drug's value proposition—including any evidence of downstream savings—and its positioning within the treatment pathway.
In Europe, certain individual national or regional payers may, as a function of their experience, risk attitude, and data capabilities, be more willing to consider deals that tie drug pricing to outcomes. Italy, for example, has had outcomes-linked arrangements around certain cancer drugs; the Spanish region of Catalonia has recently engaged in similar deals for high-cost, specialist treatments. Reimbursement priorities of regional payers will also be strongly dictated by local budgets and money flow, despite national HTA guidelines. Some may not want or understand the complex cost-effectiveness models sought nationally. Biopharmaceutical firms must understand those budgetary dynamics and resource and expertise constraints. They may find that certain regional payers in different countries share similarities that allow a common approach and shared learnings.
Changing Biopharma-Payer Relationships: From Transactional to Collaborative
Whatever a payer's particular priorities at any given time, biopharmaceutical firms need to engage with them in a more collaborative, ongoing fashion than has previously been the case. Rather than a series of transactions typically focused on pricing in isolation, both sides could benefit from greater engagement with the others' needs and concerns (and those of other stakeholders elsewhere in the value chain). Many large pharmaceutical firms are expanding their R & D efforts to include services and other “beyond the pill” offerings; these should feature in discussions around how to improve outcomes and thus reduce overall costs.
Such offerings may support appropriate adherence to a particular product. As noted in Chapter 5, however, consumers are most interested in information and services that are product-agnostic and payers would like to apply them across a range of patients with a given disease. Biopharma needs to show that it understands that supporting cost-effective outcomes is ultimately in its own interest, even if these are not directly tied to increased prescriptions of proprietary drugs. The hard truth is that payers on the brink of bankruptcy will not be able to buy any new drugs, even if those medicines are effective.
A more collaborative relationship with payers would serve biopharma in several ways. Most importantly, it would help build trust. Without that foundation, a biopharma is unlikely to be able to convince payers that it is willing to engage beyond maximizing sales, and is thus unlikely to find receptivity for the often-expensive outcomes and/or patient-relevant data that prove value. Absent a relationship built on trust, payers are unlikely to believe any evidence supporting the oft-cited argument that paying for drugs upfront can generate significant savings downstream (see text box, “Trust: The Heart of the Matter).
New Biopharma Organizational Models Needed
As drug-buying decisions shift from individual doctors to teams within larger care networks, hospital committees, or payers, many biopharma firms have already refocused their commercial sales efforts. They have moved away from the traditional sales representative, typically focused on maximizing short-term sales of a single product, toward key account managers. These are individuals with strong interpersonal skills whose responsibility is to establish longer-term relationships with physicians and other payer budget-holders and decision makers, taking a portfolio rather than single-product approach.
This is a step in the right direction, but challenges remain. Key account managers require specific and broad skill sets and are often in short supply [31]. Their success depends on a degree of cross-functionality across different departments (e.g., medical affairs, account management, sales, and even R & D) that is still lacking in many current organizational models. Key account managers must also operate within a broader strategic and structural framework that recognizes not just individual customer concerns but also those of broader customer segments, including within specific regions. Furthermore, biopharma organizations must be sufficiently informed and flexible to not only understand and meet the current needs of payers but also to forecast how these might evolve, given health reform trends and competitive pressures. This forward-thinking perspective is also necessary to allow certain approaches to be efficiently scaled-up to a wider range of payers with similar interests.
In sum, biopharma must adopt more flexible, cross-disciplinary organizational models with longer-term incentive structures in order to make strategic and commercial sense of a rapidly shifting landscape (Figure 8-7).
Figure 8-7 Understanding and engaging with payers
Biopharma-Payer Engagement Must Move Beyond Experimentation
For now, some biopharma firms and an evolving cohort of US and European payers are experimenting around new, more collaborative pricing and access strategies that better support improved outcomes. Shifting payment models from volume to value, as is happening in the United States, will take time to evolve. Such a change requires a host of organizational, infrastructure, and cultural changes. Accountable Care Organizations are growing in number and reach, but data on how well they are improving care and saving costs remains mixed [32]. Health exchanges only opened for business in late 2013, and their effects on the insurance sector have not been fully realized [33].
The European payer market also continues to evolve. Established HTAs such as NICE, facing criticism from patients and the public and greater demands from the government health department, have called for a broad overhaul of how medicines are accessed and paid for, as well as how they are developed [34]. In France, efforts are being made to tie clinical effectiveness decisions more closely to pricing, another indirect bid to find value-focused prices. The German government is considering shutting off the single remaining free-pricing window in Europe by capping the prices that manufacturers can charge during the year before their products are subject to a stringent added-benefit assessment [35]. There have been whispers—though little more—about setting up a pan-European buying group for certain drugs.
Adjustments notwithstanding, the future direction for the healthcare market is clear. The resistance of payers to high drug pricing is here to stay in all markets; so is a focus on cost-effective outcomes, whatever the precise methods used to encourage them. The US government's aim is for 50 percent of all Medicare provider payments to be based on quality/value by 2018. In 2016, the Centers for Medicare and Medicaid Services proposed a range of new value-based payment pilots around drugs administered by physicians or in hospitals and even opened the door to outcomes-based risk-sharing deals with manufacturers [36]. Meanwhile, the data and digital revolutions are unstoppable and are providing new health data sources and novel data capture and analytics techniques. These technologies and the underlying data are challenging R & D strategies as well as commercial models. They also present unprecedented opportunities, for example, in enabling and driving greater patient-centricity, and in generating and supporting biopharma's value arguments, for instance, by allowing easier and more widespread outcomes-data capture.
Therefore, almost a decade after ACA, it is time for biopharma firms to start moving beyond experimentation. Those biopharmas that are in a position to expand payer engagement strategies may gain a competitive advantage over others that are slower to do so. Identifying and building relationships with long-term partners will create commercial advantages in some therapy areas, markets, and across some kinds of solutions.
Scaling-Up New Partnership Models
Expanding new partnership models will happen most easily—and fruitfully—with those payers that are open to change. As with any major market shifts, there will be early movers whose experiences can inform and reassure others. Thus, biopharma's payer segmentation exercise should include an assessment of willingness to engage in new pricing models or, in other words, their appetite for risk.
The US private payer market provides the most fertile ground. Some European payers, such as in Italy, have engaged in a handful of drug-specific outcomes-based deals but recent analysis suggests limited returns for the payers. For the most part, European and US state payers, covering large populations with taxpayer funds, are unlikely to take meaningful risks without seeing some evidence of workability. US commercial payers vary in size, number, and focus, providing a pool of potential partners for a range of models. Several have already begun to engage in outcomes-based deals (also known as risk-sharing arrangements) around particular drugs. These tie the price or discount given on a specific product to an agreed measure of the outcomes generated.
Thus, in November 2015, Massachusetts-based Harvard Pilgrim Health Care, a small, not-for-profit payer, entered into a pay-for-performance deal with Amgen around cholesterol-lowering Repatha (evolocumab). The deal promised greater discounts if the drug did not deliver the same cholesterol-lowering effect seen in clinical trials, and if usage exceeded a certain volume [37]. For Amgen, the deal helped Repatha gain a formulary head start over competitor Praluent, from Sanofi/Regeneron. Both are PCSK9 inhibitors, a novel class priced significantly higher than existing cholesterol treatments. For Harvard Pilgrim, the arrangement demonstrated a proactive approach to granting its customers access to novel therapies, differentiating the payer in a competitive marketplace where plans are competing for market share with individuals as well as employers.
In 2016, biopharmas collaborated with several larger payers, including Cigna, Aetna, and Express Scripts, on similar novel outcomes-based contracts. Harvard Pilgrim itself signed two other pay-for-performance contracts around Eli Lilly's diabetes drug Trulicity and Novartis' heart failure treatment Entresto. In the case of Trulicity, the drug, a GLP-1 agonist, is a late entrant into a crowded marketplace. In exchange for a formulary upgrade, Lilly has offered rebates if fewer Trulicity patients reach their blood sugar targets than those on other drugs [38]. For Entresto, Harvard Pilgrim gets a discount if the drug does not reduce hospitalization rates by a set amount [39].
The early examples of collaborations are focused on treatments entering highly competitive, price-sensitive indications, where traditional access models would likely fail. These arrangements require agreement on what outcomes to measure, a sufficiently robust IT infrastructure, and a willingness to invest in data analytics. For now, they are mostly limited to metrics, like cholesterol or blood sugar levels, that are reliable surrogate markers of outcomes and relatively easy to track via claims data.
Most payers rely on claims data; few but the most integrated payer-providers can access the clinical information held in electronic health records at hospitals and doctors' offices. Hospitalization rates and related cost offsets are less straightforward to track, but again feasible for integrated payer-providers. Says Michael Sherman, CMO at Harvard Pilgrim, “if the up-front drug cost is sufficiently high, I'm willing to dedicate internal resources to manually collect the data to determine if the success criteria have been met”.
Because of these operational hurdles, it has been difficult to scale new value-based payment models beyond the pilot phase. Such performance-linked contacts will only become mainstream if biopharma and payers are able to come together in a safe forum to develop solutions to common hurdles related to defining and measuring outcomes and safe data sharing. In 2017, multiple consortia of biopharma, advocacy groups, policy makers, and payers emerged. These included the formation of a Learning Lab by UnitedHealth Group's Optum and Merck & Co. Inc. to learn how to design and conduct feasible, high quality outcome-based agreements that will be acceptable to all stakeholders [40].
Integrated Payers and Chronic, High-Cost Diseases Ripe for Outcomes-Based Deals
The challenges associated with managing outcomes-based contracts help identify payers most likely to engage in them. Payers that are optimally suited have tight links to, or are fully integrated with, hospital and physician networks, with robust IT systems for data gathering. This group is likely to include larger commercial insurers working with providers that have established electronic health records, integrated payer-provider networks, and perhaps some leading hospital systems with particular interest in new pricing models. (The US Department of Veterans Affairs, with its large, highly integrated system and data support, is another possible contender.) The behavior of groups such as these is, in turn, likely to influence others.
Payers must be willing to engage and invest. This is more likely if the products in question fall into the costliest therapy areas where there are many competing therapeutic options, including highly prevalent chronic diseases such as cardiovascular conditions and diabetes. These are, in any case, the areas where some biopharma companies are starting to invest in beyond-the-pill services or add-on technologies, including medication adherence tools, providing further avenues to track and improve long-term outcomes. Cancer is another high-cost area with, in some subcategories, several relatively undifferentiated medicines; prolonged survival rates mean some cancers are effectively chronic conditions. Payers have yet to tightly manage access to oncology medicines. However, budgetary pressures mean they may pilot indication-specific pricing or other models in the not-too-distant future. By segmenting payers according to their degree of integration, IT advancement, attitudes to risk, and the disease areas most pertinent to them, biopharma firms will be strongly placed to hone in on those most likely to engage on an ongoing basis.
Biopharma's attitudes must evolve, too, however. As Michael Sherman of Harvard Pilgrim notes, “most drug makers still view risk-sharing as a defensive strategy.” The shift toward fee-for-value across healthcare means more providers and physicians are having to take on financial risk for delivering certain outcomes. With the vast majority of new drugs today entering competitive and/or highly price-sensitive therapy areas, biopharma firms will be required to do the same. Rather than viewing risk-sharing arrangements as a last resort, Sherman argues that biopharma should instead view them as an opportunity to enable greater patient access—and, for first movers, an opportunity to gain advantage over rivals, “as paying for outcomes becomes institutionalized across the country” [41].
Data Co-creation with Payers Leads to Greater Trust and Better Data
The success of some or all of these early deals will help build trust and, hopefully, transform a traditionally adversarial relationship into one that is more collaborative and mutually beneficial. Both sides have much to give to and learn from each other in order to enable more cost-effective, high-quality healthcare. By co-investing with biopharma in data collection and infrastructure to support outcomes tracking across multiple treatments, payers would gain a tool to help them understand relative treatment efficacy, learning from a partner with deep knowledge of data systems and data handling. Importantly, payers would also be able to offer their members potentially life-changing medicines. Biopharma, meanwhile, would gain real-world comparative data in a relevant therapy area, potentially supporting product access and pricing in other markets. Biopharma firms could also, depending on their portfolios, engage with a payer across more than one therapy or even indication, underlining their willingness to support care, not just drive prescriptions.
The right payer relationship could also encompass new digital tools and data sources already being investigated within biopharma R & D and provider settings, such as wearable technologies. Insights gained would allow both biopharma and payer to optimize their technology investments. For biopharma, that is critical in highly competitive fields where results-focused differentiation is key.
Reliable, meaningful, and accessible data are core to the achievement of value-based healthcare. Payers are, in any case, investing in systems and databases that may enable more proactive population health management, including more effective prevention [42]. Providers, with the burden of greater financial risk, are trying to evolve more integrated systems to better track the effectiveness and costs of patient journeys. Working with biopharmaceutical firms to optimize treatment targeting and usage is entirely consistent with these goals.
Strategic Payer Engagement Comes in Many Forms
Not every biopharmaceutical firm can engage collaboratively with every payer. Even those payers that are willing to embrace new payment models and have the capabilities to do so will lack the resources to engage on multiple fronts. Hence, biopharma should spread its net widely and creatively across select partners, ideally gaining familiarity across a range of payment models.
Once collaborations are underway and trust begins to build, solutions are more likely to be found as hurdles are, inevitably, met. Both sides by then have a vested interest in success. And those early successes will encourage others. Michael Sherman of Harvard Pilgrim says, “Risk sharing with pharma will only gain traction if there are some wins. That means taking small steps with the right partners” [43].
By definition, there are risks involved with these new access and payment models. Some will scale up well, others less so. Some will work in one market or therapy area, but not so well in another. But the risks of not engaging are greater. At its core, the new healthcare world order is simple: biopharma must develop patient-relevant, effective solutions whose prices reflect the value they deliver. Engaging effectively and consistently with those paying for and administering these solutions is paramount.
Summary Points
- Payers are among the most important partners for biopharma; their coverage decisions are a key determinant of a product's commercial success at a time when new digital technologies create other business pressures for biopharma companies.
- Not all payers are alike: government payers differ from commercial payers; payers who buy only drugs differ from those who fund a broader range of health services.
- This fragmented landscape is changing fast: as healthcare reimbursement shifts from volume to value, payers are consolidating and new kinds of payers are emerging.
- All payers are more selective about what therapies they buy, and at what price. In this regard, US payers are beginning to look more similar to Europe's cost-conscious government payers.
- All payers are looking for value, but value may mean lower up-front prices for one, and long-term cost offsets for another.
- Biopharma firms need smart segmentation strategies to determine which approach best suits which kind of payer, and to stay abreast of the evolving needs of different payers.
- That means building more collaborative relationships, built on a stronger foundation of trust. Agreements such as outcomes-based deals, which tie the price (or rebate level) of a drug to the outcomes delivered, are challenging to create, but an option different stakeholders want to explore.
- Such deals require an investment in data infrastructure and other digital tools; they are most likely to succeed within more integrated payer systems, around high-cost chronic diseases with outcomes that can be measured in the near term.
- Outcomes-linked deals also demand and enable the kinds of data collection that will ultimately serve all healthcare stakeholders.