Implications of Massive Healthcare Consolidation

As payers and providers consolidate and use their market share to enhance negotiations with manufacturers, what can pharma do to protect their business and capture value for their products? This month, I explore the serious implications associated with this trend of healthcare consolidation.



In a previous column, I discussed the likelihood of provider organizations such as hospitals and physician groups seeking safety in size through mergers and acquisitions in response to the changing healthcare environment.

Indeed, not only have we seen an increase in the number of hospitals that are acquiring other hospitals and physician practices to become entire health systems, payers are also becoming more involved by creating partnerships with hospitals. 

It’s no surprise that size brings greater purchasing power. Thus, as hospitals and payers continue to align themselves by formingpartnerships, one could argue that the implications for pharma are what they’ve always been – give us more for less. In this environment, accelerated pricing pressures are a given. 

However, what manufacturers must realize is that as providers integrate into larger organizations, decision-making responsibilities will move to small groups comprised of senior executives and hospital administrators who will influence the recommended treatment decisions of their physicians. Consequently, pharmaceutical companies will no longer need as many sales representatives to promote their products. Furthermore, as healthcare systems continue to develop standardized care paths as a means of controlling quality and costs, manufacturers must understand thedata these decision makers value and how this information can be communicated to them in an effective manner.

“While randomized controlled trials are still essential for regulatory approval and market entry, payers and healthcare administrators are becoming more focused on measuring outcomes in the broader population”

Payers are already demanding data from manufacturers that demonstrates a product’s economic and clinical value in guiding reimbursement decisions. Moving forward, hospital administrations with decision-making power will rely on published evidence as well as the experience of their clinical teams todetermine a product’s value. To this end, clinical studies must continue to become more comparative by design – not just to the “gold standard”, but also to non-pharmaceutical comparators and watchful waiting. Similarly, while randomized controlled trials are still essential for regulatory approval and market entry, payers and healthcare administrators are becoming more focused on measuring outcomes in the broader population. Manufacturers will need to place a greater emphasis on post-market surveillance studies to ensure their product’s claims of efficacy are being met. If manufacturers fail to conduct this research, rest assured that key decision-makers will gather the evidence to determine how competing products at different price points compare.

As I pointed out earlier, as healthcare consolidation continues, payers and administrative decision-makers along with physicians will actively take over the once exclusive role of the physician in treatment decisions. For example, with cost as a significant driver, payers already place pressure on physicians to use generics. In fact, it’s built into CPOE.Clear differentiation in terms of clinical outcomes and economic value will be a primary way for manufacturers to tackle this issue. Success will rest on having sufficient data to support your case.

Pharmaceutical companies must adopt business strategies that consider the interests of all key stakeholders who can influence medical plan design, treatment, and other related decisions including physicians, patients, payers and policymakers.Every sector of an organization, from business development and R&D to market access, pricing and reimbursement, will have to play a role in making sure the company is set for success in this evolving environment:

  • Business Development will need to broaden the competitive set as they look at potential opportunities and make sure they are identifying opportunities where differentiation can be developed and sustained over the product’s lifecycle.
  • R&D will need to define the competitive set, determine the requirements needed to demonstrate differentiation and build studies to incorporate these data points – including an identification of what’s really important to stakeholders.
  • Sales & Marketing will have to develop messages, including economic messages, targeted to the specific needs of various stakeholders in their promotional efforts. They’ll also need a broader group of strategic marketing capabilities as they interface in new ways with a broader group of internal and external constituents.
  • Quality and Regulatory functions will also need to be prepared to meet new hurdles both before products get approved and once they’re in the market. With an increasing emphasis on post-market safety surveillance and real world evidence, companies must have the appropriate measures put in-place to capture this information. 
  • Clinical groups will need to broaden their approach to collecting data and how they look at research design. They’ll need to work closely with Health Economics, Market Access and Managed Market teams. As observational and non-traditional studies play a more prominent role in defining what the specific comparators should be, companies will need to look at how they use in-market data to influence new study design and provide insights to guide future product development.
  • Market Access will become increasingly important as they’re called upon to translate the implications of what’s happening in the external environment for their internal partners. They’ll need to take on a more strategic role as they interpret market dynamics and sort out where new thinking needs to be integrated within their current structure.
  • Pricing and reimbursement will need to clearly demonstrate how they established their price, specifically the comparators used, the data that supports it, and the particular patient population that will benefit from their product.

Successful market access is already challenging for manufacturers due to a confluence of factors including the need to contain rising costs. While pharma is about 10-11% of overall healthcare spend in the U.S., there’s a perception among some stakeholders that it’s because of pharma that prices are accelerating, not because of delivery. As healthcare consolidation continues among payers and providers, there is greater pressure on manufacturers to generate the appropriate data that demonstrates both the clinical value and economic value of their products. This requires that economic and clinical value becomes a consideration as early as new product development decisions, and calls for a broader range of functional participation in strategic product portfolio decision-making.


If you've got any questions for Rita on this topic, you can email her at info@nai-consulting.com.


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