Exchanges: Shaping the Consumers of the Future

Although the exchanges have the potential to expand the market for some therapeutic areas, the way in which they are designed will likely have an impact on consumer purchasing behavior. Manufacturers need to understand how consumers are responding and what these changes mean for their business.



The individual and SHOP (small business health options program) exchanges are getting significant media attention these days.  When PPACA was enacted in 2010, one of its components was the creation of federal and state-based exchanges.  The intent of these new marketplaces was to give more Americans access to affordable, quality health insurance and to reduce the growth in healthcare spending in the US.  Broader eligibility offers the potential to increase pharma sales. However, manufacturers - particularly those facing generic competition - will need to make their case to consumers if they hope to benefit from this larger market. 

Background on the Exchanges

On January 1, 2014, exchanges were established in every state. The intent of these new marketplaces was to provide a centralized resource where consumers could comparison shop for affordable health insurance coverage. 

The Kaiser Family Foundation recently reported that slightly more than half of the 8 million enrolled were previously uninsured.  This creates a new market opportunity for those companies that have products that meet these consumer needs. 

However, to meet the challenge of providing coverage options at an affordable cost, payers are experimenting with plan design.  A majority of plans available on the exchanges are high deductible health plans with co-pays - and consumers are willing to take on more risk in return for lower premiums.  Approximately two-thirds of plans purchased on the exchanges are silver plans, which only cover 70% of total healthcare costs. 

In addition, plans on the exchanges are twice as likely as traditional commercial plans to require prior authorization and step therapy.  To further reduce premiums, these plans may also include narrow networks, more restrictive formularies and higher use of generics. 

Payers continue to look for more ways to ‘get creative’ with plan design and pricing.  For example, Blue Cross Blue Shield of Mississippi has proposed that patients receiving prescriptions from out-of-network physicians pay a higher price for those prescriptions than if they received them from an in-network physician.  Although this concept has not yet been adopted, it demonstrates payers’ recognition of the need to address market concerns about the cost of health insurance. 

As consumers bear a greater portion of treatment costs, it will have a direct impact on how they make decisions about their health care - and the products they use to treat their medical conditions.

The Consumer Response

Although many individuals who purchased plans on the exchanges have yet to use their coverage, it is expected that they will balk at the substantial out-of-pocket cost requirements.  As consumers put more skin in the game, they’ll demand better outcomes at the same or lower prices, as well as other improvements to the healthcare system.  This will result in an even louder demand for lower priced drugs and more interest in generics. 

In addition, they’ll look for information about treatments and services that help them decide if the proposed product or treatment regimen is appropriate for their needs.  This means they’ll seek information - from their physician, patient and professional societies, social media and personal networks, among other places - to determine if the expense of a branded product is worth it or not.  In the absence of any evidence to the contrary, they’ll assume all products are the same and select the one with the lowest cost, look for alternative or over-the-counter options, or elect to do nothing until their condition requires intervention. 

What Pharma Needs to Do

Consumers must have information made available that helps them understand a product’s value and why it’s worth the out-of-pocket expense.  As they’ve demonstrated in other industries, consumers don’t mind paying for something so long as they feel it’s worth the extra cost. 

Many companies have elected to use co-pay coupons, patient assistance programs or other incentives to encourage patient use.  Those methods might work for the initial trial, however, if patients don’t feel the product experience has been significantly different, they won’t be willing to pay the cost for ongoing treatment.  In order for manufacturers to continue to receive a premium for their products, they’ll need to ensure that consumers understand not only the clinical value of a treatment, but how it relates to its economic value. 

To provide consumers with the information they need, manufacturers will need to ensure they have sufficient data demonstrating how their product compares to current market leaders as well as other alternatives, like watchful waiting.  This will require ensuring that appropriate endpoints are built into clinical and post-market studies. 

In addition, manufacturers will need to be able to translate outcomes into meaningful benefits so that their message resonates with consumers.  Telling a consumer that ‘studies show an x% improvement’ will be meaningless unless consumers understand how that improvement impacts their day-to-day lives. 

Making these changes will require manufacturers to rethink their approach to product development and commercialization.  Those companies that are successful at doing so will reap the rewards that this growing market presents.  However, those that fail to make appropriate changes will find themselves viewed as commodities, competing with generics and only able to win by dropping prices. 


Numerof & Associates is a strategy consulting firm with more than 25 years of experience focused on industries in transition like healthcare.  Our unique perspective comes from working globally across the entire healthcare industry -- from pharmaceutical, device and diagnostics companies to payers and major healthcare delivery organizations.  


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