CBI 13th Annual Commercial Contract & Chargeback Excellence Parsippany, NJ June 21-22, 2017
Changing Dynamics Impacting the Commercial Pricing and Contracting Landscape 13 th Annual Commercial Contract & Chargeback Excellence June 21-22, 2017
Key Objectives Changing Dynamics Impacting the Commercial Pricing and Contracting Landscape Marketplace consolidation and the effect on data management Best practices to handle consolidation of contracts following mergers and acquisitions Considering impending changes to the ACA and impact to manufacturers Evaluate current pricing dynamics and the blending of class of trade
Disclaimer The information, statements, opinions and material presented by the speaker are those of the speaker and may differ from those of the speaker s employer.
Changing Dynamics - Policy 1990s Unnecessary R&D spending for needless Me-Too drugs pushes high prices
Changing Dynamics - Policy 1990s Unnecessary R&D spending for needless Me-Too drugs pushes high prices 2016 Faster FDA approval would put more competing drugs into the market sooner to create price competition
Changing Dynamics - Legislation 2017 13 men locked in a room in secrecy deciding America s health care future. (paraphrase of Elizabeth Warren)
Changing Dynamics - Legislation 2017 13 men locked in a room in secrecy deciding America s health care future. (paraphrase of Elizabeth Warren) 2010 You have to first pass the ACA bill to see what s in it. (paraphrase of Nancy Pelosi)
Changing Dynamics - Payers 1990s Contracted customers were GPOs, a few big PBMs, a few plans, and the government
Changing Dynamics - Payers 1990s Contracted customers were GPOs, a few big PBMs, a few plans, and the government 2017 Big PBMs even fewer, plans still change, and add MMA, ACOs, IDNs, HIXs, managed Medicaid and hospital control
Changing Dynamics - Consumerism Early 2000s Lower cost impact on consumers in drug deductibles, co-pay, and simple generic, preferred and non-preferred tiers
Changing Dynamics Early 2000s Lower cost impact on consumers in drug deductibles, co-pay, and simple generic, preferred and non-preferred tiers 2017 Big deductibles, high co-insurance rates, and five-tiers with two-tier generics; increased and subsidized beneficiaries
Changing Dynamics Public perception, political outrage, investor impact - Potential pharma increased role in reducing beneficiary out-of-pocket costs - In conflict with PBM beneficiary drug choice management - Impact on PBMs of new scrutiny and assessment of their contribution and role in beneficiary drug costs (aka fiduciary responsibility)
Changing Dynamics Disfavor in traditional revenue growth tools: -Price increases as revenue fillers -Through product acquisition price changes - Price protected impact on payers (9% for 6% or less) -Complexities in forecasting net revenue due to complexities and variances in contracting price protection rates, timing, and subsequent payer/client consolidation or changes
Changing Dynamics Changes in R&D focus - Small molecule to combination drugs - Rise of anti-virals, biologics and gene-based therapy -Growth in targeted orphan disease states Related emerging successes in oncology and virology create new value challenges Accompanying high list prices incent renewed interest in non-traditional net pricing and contracting (aka value and outcomes)
Changing Dynamics Increased client plan-level carve-outs as price and value intersect in contracting for hightouch or high cost therapeutic areas Increased financial pressure and enterprise sophistication of client/plans - Specialty pharmacy-related initiatives - Pharmacy with high cross-over in medical policy, benefit and costs Multiyear initiatives with disproportionate risk schedule
Changing Dynamics Success and attempts in payer consolidation Increased client movement and retention pressures Renewed charge for pass-through transparency may lead to new price concession arrangements or fees
Payer Consolidation and Data Risks Increased data volume per business decision Increased data complexity requires payer hierarchy alignment of sources and application No data commonality or integrity rules Customer master integrity, maintenance and history (restatement, contract view, field view) Maintaining customer valuation and discount rationalization data; summary level risks Changes in costs in service arrangements or in ramping internal IT and analytics resources
Merger and Acquisition Impact Best practices to handle consolidation of contracts before and following mergers Exposure to discounts, terms, other concessions Selectively and strategically bid to protect price concessions in anticipation of a merger Establish acceptable windows within to merge Review term overlap, termination, and mutuality Chargeback and 340b impacts/hidden impacts
Merger and Acquisition Impact Best practices to handle consolidation of contracts before and following product acquisitions Exposure to discounts, terms, other concessions different than current portfolio Review term overlap, termination, and mutuality Consider differences in legal terms and obligations Selectively and strategically retain agreements Assign agreements, or re-negotiate, or run parallel #1 best practice is for contracting and pricing leads to be engaged in Due Diligence
ACA version 2.0 impact Will HIX be saved or evolve? No change under PBMs Will legislation address manufacturer discounts to beneficiaries? Will ACA v2.0 fortify role of price-value oversight and resulting price or access controls? What is state-level initiative impacts toward singlepayer and price transparency in contracting? Will quality-driven goals continue to support valuebased initiatives? Will ACOs survive?
Blending of Class of Trade Impact Class of Trade remains a GP mechanism COT continues as an approach to rationalize price concessions across similar or dissimilar customer segments Evolving customer segments and COT provide new opportunities to manage price concessions Evolution of customers, such as ACOs and IDNs, will continue to challenge customer segregation and rationalization As government price influences grow, COT will by necessity collapse or solidify
Value-based pricing or value-based contracting? Value-based pricing Establishing value in the payer mindset on which to base price using perceived or demonstrated value A way for payers to select from purchase options based on perceived or demonstrated worth Value-based pricing positions a brand in keeping with the results a payer reasonably expects based on similar or direct experience with its population in real-world prescribing
Value-based pricing is not a universal price but a choice of perspective in viewing price on selected metric(s) Patient PRICE Appropriate Use Reduced ER Visits Quality Benchmarks Payer Provider(s)
Value establishes value-price perception; but net price will always vary by payer.
Discussion Leonard Fairfield len.fairfield@gmail.com