Big Spenders Part 2

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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.

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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.


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

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.

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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.

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.

To the Cloud Part 2

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Cost studies once again topped the list making up 33.55% of all studies. There was less of an even distribution in the International meeting as the top four types of studies made up 83.42% of all studies as opposed to the European meeting were the top four studies made up 72.90% of all studies.

Regulation of healthcare studies saw a significant increase in the International meeting making up 1.60% of all studies while only making up 0.42% in the European meeting. Lastly, there were zero risk-sharing posters in the International meeting and five in the European meeting. This may be reflective of the lack of uptake in these types of contracts outside of Europe.

Workshops and Issue Panels

Another way to identify trends in the industry are through the issue panels and workshops. Since ISPOR members submit their own ideas for issues panels and workshops, it can provide a good beat of where things are heading. Unlike posters which often reflect completed studies, workshops and issues panels may provide better insight on the direction of the field.

We compiled a word cloud for both the panels and workshops. The issue panel’s cloud is found below.

Issue Panels

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For the most part, the most popular words contained in the titles are predictable as health care, new, technology and time. A few interesting trends emerged with real world, personalized data, personalizing, and risk-sharing.

There seems to be a good amount of focus being put around the new personalized medicines and available data along with risk-sharing and, of course, all of the new real world data becoming available.

Below we have done the same thing for the workshops.


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The workshops seem to be a bit more directed as a “how to” instead of issue panels, which are directed more so at understand the issue and its implications. These “how to” workshops are mostly involved with outcomes, data, and research which are all fully expected and not out of the ordinary.

A couple of the more interesting words being used in the workshops was electronic and EMR. There were two workshops having electronic medical records as their focus:


We expect more of these types of workshops in the future as EMR data becomes more widespread. This data will eventually become another asset to health economists.

To the Cloud Part 1

After another successful ISPOR International meeting we look back at the trends associated with the European and International poster presentations. We also explore the trends in workshops and issue panels.

Comparing the poster presentation word clouds of the European and International meetings, there seemed to be more posters in Montreal centered on diabetes, risk, cancer, and patterns. There was also a significant increase in diabetes studies for the International meeting (9.48%) in comparison with the European meeting (7.33%).

Regulation of healthcare studies saw a significant increase in the International meeting and accounted for 1.60% of all studies compared with only 0.42% in the European meeting.

The workshops and issue panels saw trends around the key words of personalized medicine, risk-sharing and electronic medical records.

Assessing the trends in ISPOR Europe and ISPOR International

Every ISPOR event has a different theme. The 2013 European meeting’s theme was “The Patients and Health Technology Assessment,” and the 2014 International meeting’s was “Big Data.” The real themes of the events, however, were determined by the poster presentations, issue panels and workshops. These items were submitted by people working in the field and showed the actual trends within pharmacoeconomics and outcomes research.

We dissected the titles of all the posters, issue panels and workshops at the 2014 ISPOR International Meeting in Montreal. The image below is a word cloud comprised of all 1,562 poster titles.

All Posters

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Compared with the word cloud of poster titles from the European meeting in Dublin, there were a lot of the same words such as patients, cost-effectiveness, treatment, analysis, and health. The words that seem to stand out more from the International meeting are diabetes, risk, cancer, and patterns.

In addition to the type of study, we also tracked the disease areas covered by the posters. The sectors and types of study distributions were compared with the European meeting. The sector of the study refers to the disease area or if there is no specific disease area it refers to the focus of the study (research on methods or health care use and policy studies).

Sector Distribution

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Compared with the European meeting, the International meeting had a more even distribution of sectors. In the European meeting the highest concentration of posters were research on methods posters (14.18%). For the International meeting the highest concentration of posters was in cancer (11.84%).

There was also a significant increase in diabetes studies for the International meeting (9.48%) in comparison with the European meeting (7.33%).

Check out our next blog post to see our look at the types of studies, which included cost studies, PRO studies, clinical outcomes studies, etc.

Emerging Global Pharmaceutical Trends for 2014-2020

The landscape for pharmaceutical research and development is shrinking, resulting in reduced revenue possibilities and tougher competition. New regulatory and pricing trends emerging this decade bring a paradigm shift that the industry must respond to and embrace to ensure success. The future will bring increased responsibilities to pharmaceutical manufacturers, but will also open the door for new opportunities.

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Smaller Launches

As broad-spectrum pharmaceuticals become increasingly available, the industry begins shifting towards a more specialized focus. Orphan drugs are becoming the focus of development efforts as the specialized area harbors the most opportunity. New patents are being awarded primarily to prescription pharmaceuticals that can address previously untreated – or under-treated – diseases. As a result, the quickest way to an exclusive marketable drug is filling these niche markets.

In 2013 the number of FDA-approved new molecular entities (NMEs) met an industry average of 27, although this number dropped from the 39 approved in 2012. Most of the NMEs approved last year are targeted toward rare diseases or highly-specific medical conditions, proving that Orphan Drugs are becoming the focus for future growth. With such a niche target, large blockbuster releases are entirely impractical. Instead, pharmaceutical manufacturers have favored smaller, more strategically precise launches and as the trend continues into 2014, smaller but more frequent product launches are likely to continue.

Value-Based Pricing

This year we will see the regulations for pharmaceutical pricing reach full effect in the UK. The primary factor behind pricing pressure is a push toward value pricing, a pricing model based upon what customers are willing to pay and the perceived benefits one drug may have over another. The shift toward buyer-focused modeling brings increased pressure for pharmaceutical companies to bring lower-priced or higher-impact drugs to the market. While the regulation is currently localized to the UK, it is likely other European countries will follow suit. With proof of customer benefits, the trend is likely to spread throughout global markets, shifting the burden of affordable healthcare to pharmaceutical manufacturers rather than healthcare providers or insurance companies.


Increased global communication will effect pricing models even further. As international transparency increases, customers gain better ability to compare drug prices across various markets for themselves. Greater technological assessments of new drugs will move the power into the buyer’s hands, putting increased pressure on drug manufacturers to lean toward a buyer-friendly market. A pricing paradigm shift throughout 2014 may be seen that could continue to control pharmaceutical pricing through the remainder of the decade.

Increased Collaboration

2013 represented a rather calm year for pharmaceutical acquisitions and mergers. The relaxed atmosphere is expected to dissipate in the coming years as trends shift towards more aggressive marketing. As previously stated, the pharmaceutical industry is moving toward more specialized medicines, and the race to be the first to bring a targeted drug to the market will cause an increase in company acquisitions. Smaller manufacturers can expect to face increased pressure for mergers or collaborative efforts from bigger companies in the interest of protecting margins for emerging prescription drugs.

In situations where acquisitions are impractical, collaboration efforts from major pharmaceutical companies in producing new research and launching new drugs may be the only option for ensuring a return on investment. However, by its very nature, collaboration means smaller margins for each party involved, splitting profits between each functioning entity and while it could mean smaller profits per drug, the speed and technology of collaborative efforts could increase a company’s overall production. The shifting terrain only better serves the anticipation of smaller, more frequent product launches.

Social Media and Digital Marketing

In the past, the pharmaceutical industry by nature had a resistance to social media and digital marketing techniques. With built-in safety concerns, social media marketing brought a higher risk for the company and the potential for a large-scale fallout from aggressive marketing or what may be perceived as negligence. Opening a drug to social platforms carried a responsibility to customer experiences that extended beyond standard health-effect research. The topic shifted into an open forum where individuals can express concerns or negative experiences directly to the marketing branch as well as other customers.


However, the time has come to embrace social marketing. Cultural trends are leading societies around the globe toward internet-based shopping and product research. As society becomes more closely integrated, social media emerges as the cornerstone for successful marketing campaigns. Admittedly, the concept is not entirely new for pharmaceutical companies, and many manufacturers have been testing the social media waters over the last few years. But as we move into the latter half of the decade, pharmaceutical companies may have to abandon their reluctance and dive head-first into social media marketing, as it will increase their marketing range and establish them as a more socially relevant entity.

Revenue Enhancement through Rebate Process Improvement: Part 2

Optimal Stage

The most common issue experienced is overbilling with many industry factors being the cause. The most prevalent form of overbilling comes from incorrect invoice data. Performing manual and automated validations are the most effective way to find, reject, and correct these errors.

A typical checklist of validations might proceed as follows:

  • Import into a revenue management system
  • Evaluate detail data to find ineligible plans, incorrect NDCs, ad outdated products.
  • Discard and exclude the above data from rebate payment.
  • Conduct aberrant quantity check.
  • Cross-examine the units against the Rebate Days’ supply.
  • Send request to customer to make the appropriate changes to units not consistent with the correct unit of measure (UOM).
  • Check submitted Prescription ID for validity and run against a list of all valid pharmacies.
  • Evaluate the formularies to determine whether plans are matched to the correct tier.
  • Run a duplicate check to identify data that appears more than once in the current file or any preceding quarters.

Figure 2 below depicts a real example of how a manufacturer appropriately optimized their invoice validation and rebate payments. Although invalid lines can be corrected and resubmitted, the manufacturer has visibility to the rejections and can estimate submissions based on behavior patterns of their customers.  This process allows utilizing dollars for an additional quarter to their advantage rather than prematurely paying an inflated rebate amount.

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Savings and Continuous Improvement

Quarterly trackers and dashboards, for example, allow data to be collected and measured against performance metrics in real time. Data from submissions and settlements provide useful statistics when properly leveraged. The fuel for continuous process improvement is to properly manage company growth; the insight gained from the available data provides the needed tools.

New contracts, products, and revised payment terms can significantly alter the way a company operates. Successful adaptation to these changes means continuous savings. Failure results in substantial and often unrealized losses.

Figure 3 below presents another real example of validating incoming invoice data excluding a large sum from a quarter of paid rebates. Manufacturers can preserve revenue on a continuous basis each quarter by employing these process techniques.

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Effective revenue management is about ensuring that optimal controls are in place. Maintaining status quo is easy, but it comes at the expense of ignoring process shortcomings that erode Organizations often miss the opportunities to improve their processes and incur revenue leakage. Therefore, it is critical to determine its place in the rebate processing lifecycle. Exploring the associated optimization strategies initiates growth in a way that is both measured and proactive, augmenting efficiency while yielding significant bottom line results.

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