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How to effectively navigate the US payer landscape

The payer landscape is complex and fragmented across geographies. And in the ever-changing world of healthcare, it can be difficult to stay up to date and properly informed. In this two-part blog series, we speak with subject matter experts on how to effectively navigate the US payer landscape to make operating in this rocky terrain a little smoother.

Below, a Director of Pharmacy at a privately held pharmacy benefit manager company – companies that manage prescription drug benefits on behalf of health insurers, Medicare Part D drug plans, large employers, and other payers – shares their views with us. 


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What is the current structure of the payer landscape in the US?

Over the last decade and going forward, the US healthcare landscape will continue to be changing and fragmented. Generally, drug costs have tended to grow slower than overall medical costs; however, due to the high cost of new pharmaceuticals, payers will carry on focusing on decreasing and managing their overall drug spend. Both Managed Care Organisations (MCOs) and Pharmacy Benefit Managers (PBMs) will continue to initiate various safeguards against rising drug costs such as restricted formularies, formulary exclusion guidelines, and products, National Drug Code (NDC) blocks, generic only products, higher patient out-of-pocket costs, focus on specialty pharmacy distribution channels, value-based payment agreements, and new approaches to rebates and discounts. 


What are your top tips on how pharma can improve its relationship with payers? 

Trends in the healthcare payer sector continue towards greater fragmentation in terms of coverage across all payer sectors. Due to the higher cost of new products and their narrow specialization, uptake of new products will be considerably slowed going forward. In the future, pharma will have to change their model of engagement with payers. Pharma will need to develop teams dedicated to payers that focus on engaging health plans and PBMs earlier, increase negotiations with providers for better access, and ensure that new products can address issues of cost-effectiveness and provide robust evidence of clinical efficacy on a global level.


What are some payer pressures/restrictions pharma companies should be aware of?

Pharmaceutical companies will have to find new approaches to gain market access from payers, stop focusing simply on the overall cost of the drug but develop value and economic evidence for their products. There are two main goals that pharmaceutical companies must address in the future that payers require answers to for any new drug entering the market:

  • Ensuring that costs are put on a sustainable trajectory so that over time the drug provides value in reducing overall medical costs.
  • Evidence of real-world outcomes that address a positive response post RCT (random clinical trials). 

What are the main guidelines for interacting with pharma companies? 

When pharma companies engage payers, they must understand the needs of the payer. Although the cost of the drug is an important measure, it is not sufficient in understanding the total risk the new drug poses to the payer’s bottom line. Pharma must include data that addresses the total economic impact of the use of the drug on the payer’s specific covered population (not just a general modeling population exercise). Payers want to know how the new drug will affect the overall cost of drug utilization and the total cost of resources saved from using the drug on both the pharmacy and medical benefit. Generally, payers want to see a net positive effect such that the use of the agent ideally exceeds the cost of the product and any additional costs of administration.


How do these guidelines impact the payer-pharma relationship?

They serve as the basis for interaction. As a payer, the goal is to establish value in novel therapies, specialty therapies, and targeted therapies beyond just pricing of the drug. The economic and global impact of the therapy in terms of potential effects on complete patient care outcomes are what is valued by payers. Pharma companies should keep this in mind when engaging with payers.


What approaches do you use to achieve value in pharmaceutical decision-making?

Payers are increasingly looking to control costs through:

  • Value utilization management - pharmacy formulary coverage, prior authorization, quantity limits, and step therapy.
  • Network design - physician contracting and prescription medication distribution.
  • Benefit design - tiered consumer cost-sharing and payment limits.

All these listed control costs are part of a value-based system that payers utilize to control cost and access pharmaceuticals. These systems can be viewed as gate control.

The goal of value-based decision-making is not about controlling volume but basing decisions on measurable outcomes. We use value-based insurance design to maximize the value of payer dollars spent on healthcare rather than just focusing on lower costs in the short term. This goal is accomplished through disease management, medication utilization, patient quality of life measures, and gatekeeping through clinical pathways that target use to indications only.

Furthermore, pharmaceuticals are reviewed for overall global cost-effectiveness in controlling a specific disease. Real time outcomes are becoming important as a major consideration in value-based pharmaceutical decision-making to show overall net positive costs to the payer. We must have access to valid, real-time data for value metric assessments of how a drug will affect the overall risk of formulary inclusion. 


What are some common misconceptions about US payers?

The most common misconception is that every decision is driven by the price of a drug. As therapies become more complex, payers are looking for a global approach to drug therapy that takes into consideration all aspects of the care model. Also, payers are under extreme pressure to curtail cost for clients and government-based insurers. Therefore, a complete approach that is data driven is the most effective. 


Do you use pay-for-performance tie-ups? If yes, please briefly describe what they are and how you use them.

We currently do not use pay-for-performance tie-ups except when required by Medicare. In Medicare, pay-for-performance is based on delivering positive outcomes that lead to value and cost-effectiveness. All stakeholders (providers, delivery systems, and payers) are measured on endpoints that provide value to the program (i.e., reduction of re-hospitalizations, patient satisfaction, limited provider networks to reduce the program cost, chronic disease outcome management, etc.).


When and how do you use value assessment frameworks?

This is still an emerging area. Our most common use of value assessment networks is the National Comprehensive Cancer Network (NCCN) model in oncology. Value assessment modeling follows guidelines established by various expert panels such as the NCCN. Payers use these guidelines to determine how a product is covered. This helps to reduce off-label use, wrong dosing, and inappropriate regimens. Also, valued frameworks assessments of drugs and healthcare services shift from cost-based only to value-based outcomes. For example, value-based frameworks must address the following issues and provide evidence of positive response:

  • It is meaningful therapeutic value to the patient – where quantity of life, productivity, and fundamentals of the disease state are all positively affected.
  • It is a change in the cost, quality, and predictability for the health provider.

In Medicare, providers, hospitals, and payers are measured on delivery of positive outcomes. There are financial incentives for all stakeholders to achieve positive measurable outcomes as defined above. Value-based frameworks must deliver these outcomes. 


How important are cost-effectiveness/cost-utility analyses in US payer decision-making? 

They are very important to understanding the complete cost of a drug outside of only its direct cost. The goal is to see the complete impact on the use of the drug from a patient-centric model. 


What impact do you think healthcare vertical mergers will have on the US payer landscape and the payer-pharma relationship?

Vertical mergers mean that payers will control the complete health delivery system from Health Plan to PBM to direct patient delivery, such as retail and integrated delivery systems. This will give them immense buying power in terms of controlling both price and distribution. The impact of such changes will put massive pressure on pharma to show value-based models for their products in order to receive access across the entire healthcare chain. 


What factors do you think will have the biggest impact on the US payer landscape in the upcoming years?

MCOs and PBM companies are developing more restricted medical benefit management. This is in response to the proliferation of specialty drugs and the high cost of specialty drugs with an increase in spending for these agents. Generally, more than half of all specialty drugs fall under the medical benefit, and this trend will continue for the foreseeable decade due to major spending and research of pharma in this area.

Payers will impose dispensing restrictions on providers for these agents, eliminate the “Buy and Bill” model used by providers, invest into new programs and partnerships to control and manage medical benefits, shift drugs from medical benefits to pharmacy benefits, and integrating vertically into the healthcare delivery system. Pharma will need to adjust by developing global outcome-based models that are patient plan specific to address cost and value. Payers will continue to extract price reductions on specialty drugs and put extensive downward pressure on the prices of products. 


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