Innovation and competition are constantly influencing commercial drug decisions worldwide in the life sciences industry. This is evident by years of record drug approvals by the FDA and EMA, followed by a sharp decline in new therapies in 2016. Additional factors affecting commercial decisions include the advent of Biosimilars, the passage of the U.S. Affordable Care Act and recent proposed changes, financial constraints in Europe and emerging markets, and pressures from governing bodies, such as HTAs requesting further evidence of innovation and value adds to gain patient access.
In this environment, manufacturers in the industry are seeking a global view of pricing, contracting, and tendering information in order to make more educated commercial decisions. Internal and external drivers are pushing companies to look at global platforms.
Here are the top five drivers:
- Increased Need for Pricing Visibility. Unlike most consumer markets, healthcare generally lacks transparent market-based pricing. Patients usually cannot compare medical service prices, as medical service providers do not typically disclose prices prior to service. However, recent significant price increases in a number of therapy classes have forced pharmaceutical manufacturers to provide greater transparency toward their list prices (which isn’t typically a transactional price point), as well as their net/contract prices so customers truly know what they are paying for their products. Consider the case of Mylan: media reports criticized the company for increasing prices of its EpiPen product from $100 to $600 in just a few short years. Although not confirmed, Mylan’s perspective is that 85% of EpiPen patients pay less than $100 per script and stress the lack of importance of a list price increase and the desire to focus on net prices. Johnson and Johnson released a report in February that revealed relatively small net price increases year over year since 2012.
Determining a net price sounds simple, but imagine a product that is distributed to a wholesaler, a retail chain, and ultimately to the provider or patient. The trail of dollars can take numerous paths, especially if the product is a retail product with pricing negotiated with group purchasing organizations, PBMS, or other 3rd parties. In addition, a variety of discounts may be offered across various channels. And it’s not always clear which entity actually realizes the discount. For example, if a wholesaler/distributor is awarded a prompt payment discount, is this discount also passed on to the consumer, the PBM, and the GPO? If a manufacturer offers a discount to any middle man, does this affect the net price that the consumer on the street pays? What happens with bundled scenarios?
Without standardized data and systems to support the various contracting channels, calculating these prices is not easy. In the U.S., these systems emerged with the advent of best price, and more recently, gross to net calculations. In other international markets, these same systems are being adopted to provide similar analytics.
- Increased Role of Tenders in International Markets. With the increased competition in various therapeutic classes and generics, as well as budget constraints in many markets, it’s logical that tendering (a heavily regulated form of procurement vis-à-vis national, regional, or local authorities) has become standard in many regions, including Europe, Asia, and Northern Africa, particularly with public payers.
But tendering processes are quite tedious, manually intensive, and often very different in each country. These processes are oftentimes best left in the hands of a local operations team that supports the process and understands regulations. However, the nature of tendering drives the need to better understand trends and opportunities within a given market. Most often, companies don’t have the bandwidth or ability to respond to all tenders. That said, companies are making tender decisions at regional and global levels. But making informed decisions on opportunities and ROI requires global data that can be presented to global teams.
- Complexity in Innovative and Specialty Pricing Strategies. Trends clearly indicate fee-for-service is being replaced by value-based models across many of the public and private channels. This can be seen in the formation of outcome or risk-based agreements, which guarantee quality and efficacy. There are many flavors of this type of contracting — or pricing —and it’s dependent on measuring outcomes whether they are related to patient adherence, product effectiveness, or patient value.
In other models, such as “buy and bill” where a physician administers and manages treatment of specialty medicines in the doctor’s office, the physician must purchase the drug, manage the inventory, and then request reimbursement for both the drug prescribed and professional services offered. This model creates additional complexity for manufacturer to manage new data sources and new rebate strategies.
No matter what the strategy, they tend to be different in most markets and are often driven by regulators, HTA organizations, and the payers themselves. The ability of a multi-national manufacturer to understand the various market dynamics and be able to make commercial decisions at a global level can provide a competitive edge. Although strategies might differ at the local level, a proper price guidance framework can provide necessary controls to ensure consistent pricing and contracting compliance and tracking.
- Centralized Pricing Functions. Until a few years ago, many pharmaceutical manufacturers considered pricing to be mostly a local function. That made sense given the need to understand local regulations and payers within a specific market. But the challenges with this approach are the dependencies that exist across various markets, as well as the danger of prices eroding in one market when it changes in another market through reference pricing, launch sequence optimization, and parallel trade. Consider the UK, which only accounts for a small proportion of global pharmaceutical sales. However, the UK is the single most referenced country worldwide and pricing decisions made at the local UK level will likely impact other countries throughout Europe and beyond.
To acquire a greater understanding of net prices in each country, many companies are shifting global pricing (governance and guidance) to a central function within the global business team. It’s critical they have full visibility into pricing, contracting, tendering, and channel data to set the framework for global decisions.
- Technology Platform Maturity. In the U.S., the need for robust pricing and contracting systems were driven primarily by government regulations such as Medicaid, Medicare, and VA special pricing. The risk of non-compliance was so high that manufacturers could justify robust systems to provide auditable calculations, price resolution, and proper approvals to ensure manufacturers comply with regulations. These measures also ensure they’re not leaving revenue on the table through an overly conservative approach, data challenges, or transactional errors.
Outside the U.S., where government compliance wasn’t front and center, processes were relatively manual or an extension of an ERP process. Price list management was typically performed in the ERP system. IRP/LSO functions were done manually, and tender processes were very country specific with no emphasis on global needs. But due to market drivers and other changes, the vendor landscape has changed: regional and global units perform some or all of the functions. With the advent and subsequent maturity of the “cloud,” these solutions are becoming more cost effective and more widely adopted in Europe and other internationally.