Taking a Value Approach to Payer Marketing

The opening "Executive Summary of the Academy of Managed Care Pharmacy’s Format for Formulary Submissions 3.0" must include the value statement of the pharmaceutical or biologic agent being discussed. What does that mean? This is not the dollar result of a pharmaceutical company-supplied budget impact model, which few payers will find credible. It is not the pricing of the medication, with discounts and rebates considered. It also is not a vague measure of how using this medication will avoid costs down the road.

The value proposition is becoming much more important for payers today, including health plans, pharmacy benefit managers, and insurers. They want to see it in most forms of product launch materials (e.g., formulary kits) and even later in the lifecycle, particularly in comparison to other, newer agents. A highly visible value proposition cuts to the chase—why should my organization cover this product and for whom? The product’s value proposition may be related to how well the drug is targeted to specific populations. It may be tied to specific reductions in long-term complications and associated hospital stays.

Seem a bit obvious? The importance of rationally expressing the value of a product cannot be overemphasized at every possible opportunity, whether it is an overt statement of economic value, clinical value, or other inherent value, because not everyone has an open formulary. Not every product approved by the Food and Drug Administration (FDA) will be placed on the third copayment tier. Even if it is placed on tier 3, pharmacy executives are making liberal use of prior authorization, step therapy, and quantity limits to manage these open formulary models. The formulary decision may well be a payer referendum on the value proposition.

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Why the emphasis on value, and why now? The majority of the products in today’s R&D pipeline are oncologic agents or biologics (Pharmaceutical Research and Manufacturers of America. Biopharmaceuticals in perspective [chart pack]. 2010. http://www.phrma.org/sites/default/files/159/phrma_chart_pack.pdfAccessed 11-2-2011),and the cost of treatment with these products will be subject to increasing scrutiny. The value proposition gives them a common reference or starting point for the complex evaluation of a product or drug class.

The point is that whether we are talking about value-based insurance/benefit design, cost per quality-adjusted life-year, or good old-fashioned lower medical cost offsets, payer executives are focused on value. And there are many more reasons for this. The conversation about blockbuster brands being replaced by generics is beginning to quiet down. Novartis’ annual survey of managed care organizations found that 66% of all medications dispensed in 2009 were generics and the number of branded prescriptions continues to decline (Emigh R (ed). The Novartis Pharmacy Benefit Report: 2010-2011 Facts, Figures, & Forecasts. 18th Ed. 2010. East Hanover, NJ, Novartis Pharmaceuticals Corporation). However, the discussion of biosimilars is just under way. New chemical entities that are being reviewed by the FDA are often used in combination with existing therapies to treat chronic disease, rather than substituting for or eliminating another form of therapy. Of course, there are exceptions. Finally, health reform is expected to provide nearly immediate access to drug coverage for more than 15 million people as of 2014.

Interestingly, when financial investment houses try to predict the market potential of a pipeline agent, they often do so without the benefit of (1) an understanding of the payer value proposition and (2) an understanding of whether managed care organizations will cover it. Based on the value of the dollars they control, wouldn’t it make for a more accurate prediction to have the value proposition first?