Oncology drugs have long been protected from the restrictive payer controls common in therapeutic areas like diabetes, immunology and respiratory diseases. However, this trend appears to be changing. A recent analysis conducted by ZS has observed an uptick in payer controls in oncology across both pharmacy and medical benefit settings. We identified clear evidence of payers controlling the utilization of oncology medicines when certain market characteristics are met. The oncology landscape is changing, and with it, the outlook on payer management.
For our analysis, we first identified products that had multiple competitors with the same mechanism of action (MOA). Some products were perceived to be clinically differentiated or were approved by the FDA for different patient subgroups within therapeutic areas. However, others were competing in similar indications and potentially with limited perceived clinical differentiation. We specifically focused on these products and identified instances when they were managed by payer formulary controls in the last couple of years. We wanted to understand how effective these payer formulary controls were and find out if they actually moved the needle on shifting product utilization. By leveraging patient claims data from Symphony Health for eight quarters before and three quarters after the formulary control event, we were able to assess the impact of payer management on the market share of our selected oncology products.
Oncology products have been able to avoid aggressive payer controls much longer than other crowded therapeutic areas for three key reasons:
- Payers were hesitant to place controls on oncology drugs given their direct impact on improving the chances of cancer patients fighting their disease or extending their overall survival.
- Many oncology treatments are administered in a physician outpatient setting, which is referred to as a “medical benefit.” Under this setting, it’s common for providers to purchase drugs and bill payers for reimbursement after administering them to patients. This dynamic leads to greater provider control in oncology and limits payer influence compared to other therapeutic areas.
- Most importantly, drugs in oncology have been perceived to be clinically differentiated in the past with few alternatives. However, we’re now seeing multiple companies launching new oncology drugs with similar MOAs in overlapping indications and limited clinical differentiation. This crowding and competition provide an opportunity for payers to control utilization more actively.
Oncology drug costs are ballooning—the total oncology drug spend in the U.S. in 2020 was $80 billion—approximately two-and-a-half times as much as the next therapeutic area. The average cost of therapy with oncology drugs can exceed $10,000 per month, which is two to three times as much as multiple sclerosis, rheumatoid arthritis and ophthalmology drugs. The global oncology drug market size is expected to exhibit a compound annual growth rate of 9.1%. What’s more, oncology is witnessing more competition than other therapy areas. More than 75% of the current biosimilars launched in the U.S. market are used in curative and supportive care for oncology indications. Finally, the pipeline is full of immunotherapies and multiple cell and gene therapies that have high upfront R&D costs, which stand to increase the costs for payers.
To help manage these rising costs, there’s increasing willingness among payers and pharmacy benefit managers (PBMs) to place restrictions on oncology drug utilization. Payers and PBMs can take multiple approaches to control costs, and those approaches are typically classified as “hard” and “soft” controls. Formulary exclusions, step edits—or step therapy—are examples of hard controls. Soft controls can include tactics such as quantity and duration limits or “white bagging,” where payers leverage their specialty pharmacy networks to control costs. In general, the oncology space has witnessed an increase in both types of controls and we expect the trend to continue.
To quantify the impact of payer controls on product market share, we analyzed a large orally administered product with more than $500 million in annual revenue in the breast cancer space. This specific product, referred to here as “Product X,” has two other competitors with the same MOA treating breast cancer, with one of them being the more established market leader, having more than $4 billion in annual revenue.
In late 2019, a major national PBM preferred Product X on its formulary.
Upon being preferred by the PBM, Product X observed a clearly noticeable increase in its market share with respect to its projected trend. The shift in utilization was sharper among breast cancer patients newly initiated on this product. Patients already receiving a competitor were grandfathered in, but there was still some shift in market share observed in this population.
During roughly the same period, another national PBM did the opposite and excluded Product X from its formulary.
Although the exclusion had a much less dramatic effect in this case study, the decline in market share relative to Product X’s projected trend is sizeable. It’s worth noting the market share remained largely flat—while the growth trend was stunted, we didn’t observe a sharp decline. This implies that payer controls are effective but perhaps not as much as they are in other therapeutic areas. Like the prior example, we observed patients who were previously initiated on Product X were grandfathered in and allowed to continue their treatment without disruption.
Our analysis of observed market share trends for similar case studies across medical benefit and pharmacy benefit resulted in two key takeaways.
Payers have shown they can control both pharmacy and medical benefit drugs under certain market conditions, as shown in Figure 3.
The impact is greater on pharmacy benefit products, but the effect is meaningful for medical benefit case studies we analyzed.
Payers can manage newly launched drugs as well as established drugs in the market, as shown in Figure 4.
Payer management was also observed independent of the product’s life cycle. For example, one newly launched drug excluded by a large national payer experienced a decline similar to that of a drug excluded after being on the market for 10 years.
The impact we observed from these targeted products suggests that when certain market conditions are met, payers can manage utilization independent of a product’s revenue, length of time on the market or setting type. The launch of oncology biosimilars has also likely provided a catalyst for payers to flex their muscles, advance their capabilities and refine their approaches to controlling utilization in oncology.
Oncology drug manufacturers must develop a robust process to understand how payer perspectives on oncology are changing and actively build capabilities and strategies to adapt to evolving market dynamics. It’s critical for manufacturers to understand the underlying drivers payers are looking at to drive improved patient outcomes while lowering drug delivery costs.
Manufacturers can take several steps to effectively assess and develop strategies that will help them adapt to changing payer control in oncology. These strategies include:
- Continuously investing in strengthening the value story with real-world evidence to differentiate their product from those of their competitors—especially products with the same MOAs—and maintain patient access
- In last three to four years, we have seen significant investment by oncology drug manufacturers in deploying provider-focused key account management (KAM) roles. Now is the time to emphasize payer KAM and focus on both deploying the right roles and developing capabilities and value offerings to leverage increasing payer-provider partnerships in oncology.
- Investing in effective pull-through of patient access with providers as coverage becomes more dynamic; providers will need to know where products have access and KAM teams will not only need enhanced content but also more real-time data and better tools to support patient access and drive brand strategies
- Developing an ongoing process to gather the voice of the payer and monitor evolving payer trends in oncology, particularly if competitors with similar MOAs are present or expected to launch soon
- Conducting robust scenario planning on how oncology product classes of interest may develop suitable characteristics for increased controls in the short and long term by incorporating the latest observations and trends
- Exploring options beyond the traditional contracting approaches, such as innovative contracting (including value based) to offer a more compelling value proposition to key stakeholders manage risk and mitigate impact from payer management
- Developing capabilities to accurately estimate the impact of increasing competition, change in access and any contracting approaches, particularly for medical benefit assets where there’s a strong spillover effect on gross to net, such as that caused by average selling price erosion
Given the advances in oncology therapies and rising costs for stakeholders, we expect to see a continued increase in payer controls. If manufacturers fail to plan ahead and respond to these pressures, they run the risk of unsatisfactory patient access to treatments and loss of market share and revenue.