As We Wait for the Final AMP Rule…

The AMP rule for implementing the Medicaid prescription drug provisions of the Patient Protection and Affordable Care Act (PPACA) was published by CMS on January 27, 2012. Guidelines with a wide-reaching financial impact on the life science industry were expected to create serious administrative and operational challenges needing to be addressed quickly. The goal of this rule was to lower costs for states and taxpayers by the following:

  • Aligning reimbursement rates to better reflect the actual price the pharmacy pays for the drug
  • By increasing rebates paid by drug manufacturers that participate in Medicaid
  • By providing rebates for drugs dispensed to individuals enrolled in a Medicaid managed care organization

Keeping these goals in mind, manufacturers were suggested to focus on major items in this rule that would ultimately change the way they do business.

  • U.S territories would be included in the AMP calculations.
  • Rebate agreements would include prescriptions paid by Medicaid managed care, as well as Fee-for-Service. This would require Medicaid managed care plans to capture utilization data and provide it to the states, and would only exempt prescriptions dispensed by a health maintenance organization (HMO.
  • OTC drugs would need to be considered covered drugs if they have a National Drug Code (NDC)
  • The Inclusion of sales to wholesales would be prohibited, unless a manufacturer has documented evidence that the drugs sold to the wholesalers were distributed to retail community pharmacies.
  • Specialty pharmacies and home healthcare distributors would be included within the definition of “retail community pharmacies”.
  • Manufacturers would be required to exclude from AMP rebates paid to insurers, but not the underlying sales to the pharmacies.
  • Best Price would be redefined to include discount and rebates “associated” with the sale of a drug to a customer, rather than the price available to that customer.
  • Inclusion of direct sales of an AG labeled drug to a manufacturer or distributor selling under its own NDC in AMP of the brand.

Two years later, Pharmaceutical manufacturers are still eagerly awaiting the release of the AMP Finale Rule. Some changes will require significant change across all aspects of the regulated pricing environment including policies, procedures, methodology, systems, and data. The final rule may include new provisions or nuances to proposed provisions that will not be known until the final release.

Going forward, performing gap and readiness assessments will help to identify the aspects of proposed or final regulations that apply to your business and the areas of your organization and infrastructure that will be impacted by the legislation. Preparing a plan outlining changes by business unit to each component of your GP infrastructure with aid in discovering the necessary resources needed to implement required changes and associated costs, and an overall project timeline identifying key work streams, contingencies, and project milestones. Along with this, it would be wise to assess implementation costs and potential changes to regulated reimbursement resulting from changes in regulation.

For more information: http://www.alscg.com/expertise/contract-strategy-operations-and-compliance/government-pricing

How will the New Marketplace Affect Pharmaceutical Companies? Part 2

The Marketplace Effect on Pharmaceutical Companies

A Need for Vigilance and Readiness

New rules and compliance requirements will continue to evolve and change likely at a greater pace than commercial or other managed markets. This will require expanded vigilance and new tools to help track and work with these changes. There will be greater cost control and pricing negotiation expectations on pharma each year in this segment, with spill over potential to the broader commercial market. The Marketplace will become a significant component of the managed markets segment, with strong ties to Medicaid. This becomes an opportunity, with an estimated $26 billion in additional retail drug spend anticipated because of expanded coverage through 2021.

Tweak to Optimize the Opportunities

The out-of-pocket cap on medical costs across new insurance plans as stipulated by ACA is a significant opportunity for Pharma. This creates the following opportunities for Pharma:

  • Validation of currently subsidized patients who were uninsured, to make sure they are not in the Marketplace and thus qualified for benefit coverage (no longer in financial need of the subsidy).
  • Build Marketplace enrollment questions, guidance, and referral into the application process
  • Consider approving subsidies for a limited time, contingent on Marketplace enrollment

For specialty drugs, we anticipate that most insurers will require use of their specialty pharmacy network. Identifying patients through Pharma-specialty pharmacy relationships may become an efficient first step. Pharma will need to structure its research, clinical studies, contracting, marketing, and operations to meet these new stakeholder requirements and expectations.

Marketplace Bottom Line

In 2015 many insurers are looking to expand into new Marketplaces, and national insurers are planning to expand their footprints as well, due to very limited 2014 participation. Medicaid enrollment will continue to grow, particularly in those states that expanded the qualification limits. Those benefits, formularies, and pharmaceutical management approaches that are successful within the Marketplace plans in 2014-2015 will expand to become the norm across most of the commercial business.

 

 

How will the New Marketplace Affect Pharmaceutical Companies? Part 1

With the emergence of a new national health insurance Marketplace, insurance shopping has a new level of accessibility that has resulted in a broad-spectrum shift of health insurance operations, new insurers, formularies, and an array of benefits designed to meet the actuarial expectations stipulated by the law. As of April 19, 2014, over 8 million people signed up for a Marketplace plan, exceeding the projected 6 to 7 million, with an additional 6 to 7 million enrolled in Medicaid. The majority being previously uninsured. The Marketplace is poised to grow to over 24 million members by 2016 with the potential of expansion beyond that by tens of millions.

Formularies and Benefits in the Marketplace

There are approximately 250 formularies that have been created by over 275 insurers. While these formularies had to meet state specific essential health benefit standards, there is a similarity between the 2014 formularies and their commercial counterparts.

In addition, the Marketplace appears to take a more transparent approach to a number of circumstances where the drug benefit would not apply, including:

  • Out of network drug purchases do not count toward deductible or out of pocket maximum, or may have a substantially higher set of deductibles that apply.
  • Drugs prescribed by an out of network physician – not covered.
  • Brand drugs purchased when a generic is available – not covered.
  • Drugs that require prior authorization but are obtained without going through this process – not covered.
  • Non-formulary drugs – not covered.

Drug Utilization

Current Marketplace enrollees, tending to be lower income, overwhelmingly selected the lowest cost premium plans available. We would expect the same type of pharmaceutical purchasing behavior. An initial 2-month snapshot review of approx. 650,000 claims for 25 insurers from January to February 2014 by Express Scripts showed:

  • Higher antidepressant (8% higher), pain medication (29% higher), seizure medication (19%) use vs commercial
  • Specialty Meds: 1.1% of Rx vs 0.75% in commercial
  • HIV: 55% of specialty claims vs 21% in commercial
  • Cancer and HIV higher in Exchanges based on claim cost

Going forward, we would expect to see that initial skewing of drug utilization patterns begin to normalize.

The Marketplace:  What to expect in 2015 and in the Years Ahead

Insurer Expectations

Over the next 1 to 3 years, we expect to see greater market segmentation by key insurers. With some gaining hundreds of thousands of new Marketplace enrollees, this could stimulate new selective and targeted contracting interest and arrangements with Pharma. Insurers will drive toward value and lower costs in this transparent and competitive market, and will request this through contractual concessions and migration to shared risk/outcome type contracts from Pharma. Pharma will need to evaluate the traditional contracting value in light of the emerging reality in this market.

There may be a greater emphasis on certain classes of drug vs others. Products with a lower perceived value to the insurer (i.e., ones that don’t demonstrate cost reductions or quality of care improvements) may struggle to gain preferred status. Bundling such products in rebate agreements with other drugs that do have stronger perceived value is one way in which this risk could be mitigated.

The New Cost-Reactive Stakeholders

The member, with cooperation from their prescriber, becomes the key product decision maker relative to their ability to afford the copay (or coinsurance) at any tier level or the full cost through the deductible. Simply gaining a preferred brand position on a formulary may not return the contract value, as even preferred brand positioning often is associated with a significantly higher copay or coinsurance compared to generics (or compared to traditional commercial coverage of preferred brands (See table 1 above). Physicians will be interested in complying with their patient’s affordability expectation.

The Marketplace Formulary and Benefits

The formulary rules in place for 2014 will continue through the 2015 season (i.e., same benchmark plan, formulary Essential Health Benefits). There will likely be a change for 2016, but insurers are awaiting formal guidance from CMS which is expected to be issued by the end of 2014.

In our next post, we explore the effect on pharmaceutical companies and their business models.

 

 

Gross-To-Net Survey Uncovers Challenges in Industry Maturity

Financial accruals have become a major headache for corporate finance teams in the Life Sciences industry as they are increasingly difficult to manage, and can lead to major business issues if calculated incorrectly. These accruals are an important part of compliance with Generally Accepted Accounting Principles (GAAP). Funds are set aside to cover the financial obligations associated with sales, from promotional programs, rebates and discounts. The data associated with these programs, must be gathered and then amounts to set aside must be determined based on past and future projections.  Often times, the data for each type of program is captured in different places within an organization making it hard to manage.

Any calculation errors can have a significant impact. If the accrual percentage is too high for rebates and promotions, funds are essentially being taken away from other areas of the business, such as research and product development, which can help grow revenue. But if enough isn’t reserved, manufacturers could find themselves in a cash crunch, and money will need to be borrowed to cover obligations. If the amounts get to be too large, it can also be considered a “material impact” item for earnings reports.

Alliance conducted a survey in which various Pharmaceutical companies were asked four questions to gain a deeper understanding of the majority in their Gross-To-Net processes.  After reviewing the results, few organizations have fully automated Gross-To-Net solutions which can be leveraged for strategic pricing and trend analysis.  Organizations focus the bulk of their time on aggregating data to provide basic forecast and accrual information, restraining their ability to use this data for strategic analysis around pricing and other areas.

While automation of the fundamental processes is still in its infancy, the primary goal by those pursuing it, is the reduction of cycle time. But accuracy must not be sacrificed for speed, meaning any automated solutions must maintain or improve forecast and accrual accuracy.  Currently, companies are focusing on improving the underlying models, which proves to be an important step on the path to automation. Leading companies are recognizing the strategic value of this data and making the investment in its strategic use, even in the absence of automated solutions. The key objectives found in this survey are depicted in the image below.

image 1

Beyond the need for automation, the number one priority is to assess the readiness and rationale for automation in analytical capabilities. This acts as the key driver for generating business insights in the following areas:

  • Revenue growth through WAC price optimization
  • Impact of contracting especially price protections on the net revenue
  • Insights of contracting strategy on Medicaid & PHS liabilities
  • Insights from deep dive diagnostics

Following this as second priority is the desire to get full time employees focused on deriving business insights from the data, rather than spending all their time crunching it. Many organizations are spending more time and money on the mechanics of the accruals – the number crunching – than on understanding what the data is telling them. They’re missing an opportunity to analyze the accruals to see what promotions and programs are really driving the business, helping them expand market share and drive revenue.

 

 

Big Spenders Part 2

Image 1

Population is not the best variable to control for since Medicare covers the senior population mostly. If there is a state that has a large population of younger people, the per capita Medicare spending may be artificially deflated. Florida seems to present this case here; the per capita Medicare payouts are much higher than average, but Florida has the highest percentage of senior citizens at 17.3% compared with the national average of 13.29%.

To gauge the efficiency of the Medicare funds we plotted the per capita Medicare payout against the percentage of senior citizens (65+) for each state.

Image 2

While Florida spent only $10 less per capita than New Jersey, Florida was much more efficient as it had to care for more senior citizens. New Jersey had the worst efficiency as it spent the most per capita while having only .21% more senior citizens than the average state distribution.

Hawaii was a very efficient spender as it had a relatively high distribution of senior citizens compared with the national average (14.3% vs. 13.29%) while spending only $117 per capita, which was the third least amount of any state.

Continued releases of datasets such as this provide a great insight into the efficiency of the United States’ programs.

Big Spenders Part 1

With the Obama administration making more data available to the public, we analyzed the CMS dataset containing information on the services and charges performed by physicians and other suppliers to Medicare beneficiaries.

The top 5 states made up 39% of all Medicare charges while the combined 45 other states plus Washington D.C. made up the other 61%. New Jersey and Florida had the highest Medicare spending per capita at $398 and $388, respectively.

We also judged the efficiency of the spending by controlling for the population over 65. New Jersey had the worst efficiency as it spent the most per capita while having only .21% more senior citizens than the average state distribution. Hawaii was a very efficient spender, with a relatively high distribution of senior citizens and spending only $117 per capita.

Transparency

What does the state by state Medicare spending look like?

Due to a new policy put forth by the Obama administration, CMS (Centers for Medicare and Medicaid Services) has released a dataset, which contains Medicare payment information from 2012. The data contains information on the services and charges performed by physicians and other suppliers to Medicare beneficiaries.

We analyzed the dataset and looked at the aggregate Medicare payout for each state. The top 5 states made up 39% of all Medicare charges while the combined 45 other states plus Washington D.C. made up the other 61%.

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The top 5 states in addition to making up 39% of the total Medicare payouts also hold about 36% of the total population. When we adjust for the population in the dataset by calculating Medicare payouts per capita, we find which states are spending more or less than the average per capita. Texas and California spent less than the average of the other states, while New York, Florida and New Jersey spent quite a bit higher than the average, on a per capita basis.

In our next post, we will take a closer look at Per Capita Medicare Payouts by each state.

International Reference Pricing

International Reference Pricing is a complex issue faced by Pharmaceutical companies which has a large effect on a drug’s lifecycle. The price for a drug is often set by referencing the price of a similar drug in various countries. In a reference pricing system, equivalent medicines are put together in a reference group which are defined by either active substance, pharmacological class, or therapeutic class. This system puts pressure on pharmaceutical companies to compete with the reference priced product but also reduces competition.

An optimal price management strategy for a marketed product must constantly look at pricing trends of competing products within the market. Access to authentic, current, and historical prices for competing products empowers companies with the information necessary to ensure that their own strategies are headed in the right direction and allows them to make adjustments when necessary. They also need to monitor responses by competitors to price actions taken for their own products. In addition, competitor drug pricing data is needed for a multitude of modeling exercises such as pharmaco-economic and budget impact exercises.

International Reference Pricing best practices allow pharmaceutical companies to:

  • Assist in defining an optimal global pricing strategy through the identification of pricing trends for competing products in key markets
  • Stay ahead of austerity measures across key markets by tracking changes such as price cuts, margin changes and more
  • Maintain the most current, as well as historical, exchange rates to facilitate conversions to standard currencies

For more information please visit http://www.alscg.com/products/global-pricing-reimbursement-market-access/priceright-global-lifecycle-price-management.

Market Access Survey on Challenges and Key Success Factors

While market access is the ultimate goal for medical device and pharmaceutical companies it remains one of the biggest current and future challenges for the industry. Spiraling R&D and drug development costs around $4-5 billion per a successful drug launch make effective launch planning and implementation more critical than ever to a company’s success.

To uncover the specifics on the challenges and key success factors, Alliance conducted a survey with stakeholders from 38 pharmaceutical companies, each holding positions in pricing, reimbursement, market access, health economics, and policy.  The challenges and key success factors that emerged are depicted below.

picture 1

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The key findings from this study are as follows:

  1. Know your customer: You must identify and prioritize your customers. You must understand their values and beliefs. Understand their constraints and limitations. Understand what motivates them to take action.
  2. Develop your evidence: What truly makes an impact on their values and beliefs? What trial design and endpoints will help them move into action? What data design and evaluations best support the evidence? What format should the data be in to be most relevant to them?
  3. Be crystal clear internally on strategy and execution: What is your plan? Who has the experience to execute them? When will they do it? How will they do it? What’s the contingency plan when something goes wrong?

For more information on the specifics around the challenges and key success factors, a white paper is available for download at the following link.

http://www.alscg.com/thought-leadership/white-papers/transformational-market-access-survey-results

Drug Life Cycle Pricing Challenges

Pharmaceutical manufacturers face challenges during all the phases of the drug life cycle in accurately pricing their products. When launching a product, many companies struggle to answer questions around optimizing launch sequence by country, collecting the necessary insights into the impact of launch pricing, and ways of dealing with unexpected changes in plans.  When dealing with price maintenance and compliance, the concerns heighten as millions of dollars can be lost annually in unnecessary price erosion. The risk of fees and penalties arise as an issue in government pricing, and forecasting reference price quickly and accurately becomes difficult.  Advancement of the product’s maturity through its lifecycle raises similar questions when loss of exclusivity occurs.

Launch sequence is a complex analytic problem typically “solved” in a
simpler Excel model, but a better algorithm can yield better results. Automated
price optimization processes can create 0.1% to 0.2% increases in your main
portfolio, 1% to 2% improvements in product maturity, and 1% improvement in
launch planning. Automation of the maturity phase of your products can add as
much value as your top sellers and be as profitable as a blockbuster, but is
inefficient to manage in the same manner because of many more products and
pricing decisions.

Pricing, Reimbursement & Market Access is historically under invested in IT Spend relative to its impact when compared to other departments such as Sales & Marketing. The following issues are typical within the department:

  • Excel-driven processes are the standard for calculations.
  • No commercial software available causing large development efforts necessary for advanced analytics.
  • Business rules were dynamic and expensive for IT for support in a system.
  • Historical year-over-year IT budgeting remains relatively stagnant.

Why it’s time to change:

  • Accessible analytics are now on the market and are end-user friendly.
  • Successful pricing optimization software implementations have been completed in other industries, i.e. Retail and commercial airlines
  • Payer influence is much greater than 15 years ago, and they are driving the need for optimization causing a shift away from the traditional promotional model.

Alliance’s PriceRight solution has some of the most sophisticated and innovative price analytic features, accompanied by unique capabilities from planning to launch, through operational price and tender management, into generic erosion and loss-of-exclusivity. The capabilities ensure that we don’t just address your needs, but invent better pricing approaches.

PriceRight offers more accurate, insightful analytics that reduce erosion and drive more to the bottom line. The open platform is critical to adapting to change because of the regulatory environment that spans at least 50+ major markets for most pharmaceutical companies. PriceRight helps companies manage their pricing throughout its lifecycle, and enables global market access, all in a single integrated suite.