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Going Through the Motions
Both pharma and payers say they need to talk more, but are they really listening?
If the pharma industry got a dollar for every time it talked about improving relationships with payers, it probably wouldn’t have a grave pricing challenge on its hands.
Looking at it rationally, there is a clear win-win from greater harmony – pharma understands in advance the concerns of payers and can adjust its strategy to ensure effective market access, while payers get a heads-up on drugs are coming through and what impact they will have, and can plan budgets ahead.
Yet, the reality is somewhat different. Collaboration – the word de jour for pharma in this decade – does not come easily, and many in the industry feel it is time that pharma got real with their relationships with payers. In these time of a crisis in the affordability of healthcare, only by working together is there any hope that patients will get the drugs they need, pharma will see return on its investment and healthcare systems will deliver effective health services.
However much sense the argument makes, pharma literally cannot afford not to engage payers, says Ed Pezalla, former VP at Aetna, now CEO of consultancy firm Enlightenment Bioconsult. “There are two factors. Firstly, payers are increasingly able to block drugs or make them more difficult to access. You see more plans that don’t automatically pay for a drug when it first comes out, it doesn’t just get on the formulary.”
The second factor is that payers are looking at the data more closely. “The FDA tends to give a broad label for new treatments in rare diseases such as spinal atrophy, for example, but payers may limit the use of it. They are asking. “Was this patient type in the clinical trial?” and where patients don’t meet the criteria for inclusion in the clinical trial, or where they are above a certain age or below a certain age, then some payers won’t cover it,” says Pezalla.
While advocating that companies engage payers as early as possible, he recognizes the limitations. “You need to establish relationships and develop a framework to discuss aspects like how to find patients, how many patients will be in the appropriate population, how much it will cost, etc. however, payers don’t really want to talk about that until about 18 months ahead of time.”
Understanding payers’ annual cycle is vitally important, he adds. “Payers’ cycles are not tied to how many months before a drug launches, more around the time of year. In the first quarter, [payers] start planning for the following year in terms of what you think the medical benefit ratio is going to be, setting your premiums, etc. So, you want to give information several months ahead of that to help payers plan ahead. With Medicare, they can’t put the drug on a Part D formulary if it isn’t on the market yet, but they can try to leave room in the budget, but there is a need to talk to some payers to get what many people call early scientific advice.”
This is around the time companies embark on a pivotal trial, he says. “You don’t have to talk to every payer, but talking to a number of different kinds of payers gives you an idea of what to put into the trial. There are certain kinds of healthcare utilization measures that are important to look at, because a lot of manufacturers try to measure everything and end up with gaps in terms of utilization. By getting guidance from payers early on, you don’t need as much from the payers until you’re getting ready to submit to the FDA for approval.”
From his pan-industry perspective, how well is pharma doing in engaging payers? “It varies considerably,” he says. “Some larger, even medium-sized pharma companies, have ongoing relationships with payers, as they conduct advisory boards or panels etc. However, the question is how well they are incorporating this advice and insight into their clinical trial. Some smaller companies, especially those with more expensive therapies, really understand the need to have discussions with payers early on because there’s so much complexity in delivering care and they need to find out how that might get done. They also often have very small amounts of data so, it’s not just the matter of how much they want to charge for it.”
The key point for Pezalla is that companies need to engage before everything is set in stone. “You need to get in there at a time when you can actually change the development plan because you may not be on the right track or you might have picked the wrong comparator.
There are a lot of questions to answer. “While it clearly makes sense to engage payers, there are challenges on both sides, he says. “On the pharma side, there’s often not money set aside for these sorts of discussions and many smaller firms may not have the people. On the payer side, they get a lot of questions from pharmaceutical firms and, even though it’s a good idea to have these discussions, payers rarely have someone dedicated to answering these questions, someone who is clued-up on how clinical trials are conducted or around regulatory issues. As a result, they may not be able to answer questions for pharma. Payers have pretty lean organizations these days.”
It’s the value, stupid
For Karthik Ramakrishnan, Associate Director, Global HEOR, at Teva Pharmaceuticals, product value should be established as early as possible. “You’ve got to start by defining, ‘what is the clinical, economic and patient-centered value that your product brings?’, which provides a roadmap to further develop evidence generation strategies for optimal drug access.”
Teva has developed a clear approach to defining and shaping the value story (see below for Teva’s stepwise approach). In this process it is important to keep the customer in mind. “Product value should be defined by the stakeholder. For payers, the value drivers include economic outcomes such as cost-effectiveness, budget impact and other economic endpoints. For providers, you need to establish clinical value, efficacy, safety, patient-reported outcomes, and data on quality measures. Finally, for patients, value drivers may include quality of life or ease of use with devices, for example.”
He makes the point that obtaining drug access was simpler in the past; drug evaluations mostly focused on clinical aspects about drug product. But now, with more actors (payers, patient, and provider networks) involved in the evaluation process, the scope for the value story should be expanded.
An offer you can’t refuse
The good news for payer-pharma relations, is that both payers and pharma agree on many points, says Peter Juhn, VP, Head of Global Value-based Partnerships at Amgen.
“There is a consensus that we all want to improve the health of populations, we want to pay for what works and stop paying for things that don’t work and we want to pay for interventions in a way that is linked to their value – the impact they are actually having.”
Adding to the positive side, the entire pharma industry is keen to move from a “purely transactional supplier of medicines” to a genuine healthcare collaborator.
For Juhn, the solution to many of pharma’s issues with payers can be resolved with value-based contracts. His pitch to payers is crisp and succinct — if we have any shot at controlling the rising cost of chronic diseases, we must all work together.
“Cardiovascular disease is the number-one killer in the US; every 40 seconds there’s a death attributed to cardiovascular disease. Cancer is the second-leading cause of death in the US, and then there’s Alzheimer’s disease – which impacts 5.5 million people today and is projected to cost more than a trillion dollars by 2050.”
The size of the problem demands concerted action and innovative drugs that address unmet needs will reduce costs to the healthcare system – a win-win proposition. As such, risk-sharing, pay-for-performance schemes will accelerate the frequency and speed of innovative new drugs reaching the market, as payers get a tangible return on investment and urgent patient needs is met affordably.
Yet, when it comes to risk-sharing, companies often fail to factor in three payer considerations, says Juhn. The first is that payers have been taking risks for years – every time they fund a new medicine. In effect, they take a punt that the real-world outcomes will match the clinical trial results.
Manufacturers come to payers and say, ‘Here’s our evidence dossier, this is the impact that our drug is going to have’, but it is only in a very well-defined population that may not reflect the actual patient population, nor does it reflect other factors such as adherence. Pharma needs to understand that there is substantial risk on the side of the payer.
The second dimension is that we have different perspectives on time. While pharma companies think and plan in years, even decades, payers exist in “a very artificial annual budgeting cycle,” says Juhn. “There are a handful of diseases where you can find a patient, treat them and see an outcome within 12 months, but many other diseases don’t really operate on a 12-month cycle. Because of this artificial imposition of a 12-month timeframe, it makes it challenging to find a common definition of value.”
The third consideration is the thorny issue of investment. “Manufacturers tend to say, ‘Let’s not talk about drugs as a cost, let’s talk about drugs as an investment in that disease process’. [We see it as] an investment in making someone better, so that a) they’ll get better but also b) that whoever’s paying for their care will see a return on that investment,” he says.
Teva’s stepwise approach
How do you start building a value proposition for a product? Karthik Ramakrishnan outlines the approach Teva has adopted in recent years.“
We start off with a value team; it’s not one department’s job, it’s a collaborative process. Many internal stakeholders are involved in creating the value,” he says.
“Commercial, Medical Affairs, Pricing, etc. all sit together and define the value proposition in a very high-level way, with four or five short paragraphs that talk about the unmet need and where your product fits in terms of addressing that need. It has to be very clear and succinct. Once you’ve defined that, then you get into defining the value messages and build the story,” says Ramakrishnan.
This process happens as early as the development of the target product profile, he says. “It needs to get started as early as possible; initially, it’s hypothesis-based, because you don’t have all the data, but as you start getting trial results, you start refining, increasing the specificity of your value prop.”
Once the value proposition has been formulated, the Teva team breaks it down by audience. “Typically, you break it down into the clinical benefit, the economic benefit, and the patient benefit of your product. You also cover disease burden and unmet need, then you try to build your evidence around it. Start engaging your market access teams early on. It’s really important to understand your stakeholder, to understand what endpoints they are looking for and using their input in developing your evidence strategy.”
He offers an example. “With a biologic recently approved by the FDA, we followed these steps – we engaged payers and tried to understand what’s important. We didn’t focus on the whole universe, but a very targeted subpopulation, which is where our drug really has an effect. We did a disease-burden study and a study looking at unmet need, and we found the costs are a lot higher with these patients, even among those with high adherence, so there is a clear unmet need.”
The next step was product differentiation, he says. “What does your product bring? Our phase III results – it’s not real-world data but it’s still meaningful – show that patients did really well, especially in a specific outcome that most physicians and payers looked for.”
Payers wanted to know what it meant versus standard care, says Ramakrishnan. “Again, because of lack in real-world data, we did a network analysis that looked at our drug versus a competitor. Finally, we packaged it all together and presented it as a budget impact, which, again, is really relevant for payers as they want to know if the medication provided any cost savings.”
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