In last week’s blog, I argued that the pharmaceutical industry needs to take action to address recent drastic changes in the environment. Here’s a closer look at these underlying changes:


1. Price scrutiny: Healthcare costs have continued to rise at a faster pace than most other products. The mortgage-crisis-induced global recession and the Euro-crisis highlighted rapidly growing healthcare budgets as an unsustainable problem. While rises in costs are primarily caused by insufficient planning for the increased healthcare needs of an aging population—often with unhealthy lifestyles—European governments have held a tough stance on pharmaceutical spending. In the United States, drug pricing and price increases have come under unprecedented scrutiny. Price increase outliers—such as by “pharma bro” Martin Shkreli for Turing Pharmaceuticals’ Daraprim and Mylan’s Epipen—have sensitized the public beyond an ongoing critique on pharma price increases for prescription drugs in oncology and hematology indications, such as multiple myeloma.


2. Payer empowerment: Concerns over the high cost of new drugs and perceived excessive price increases for drugs in the United States have been widely communicated through the media and have upset the public worldwide. Politicians across the political spectrum and the medical community have undertaken various initiatives to address the issue. Examples include many U.S. state legislative initiatives, recent proposals for international price referencing, and European price negotiation alliances.


In this environment, we have seen an increasing confidence from payers in making tough decisions. In the United States, Express Scripts set a precedent through its inclusion of one of two hepatitis C drugs in its drug exclusion list, thus extracting significant discounts from AbbVie but denying access to Gilead’s Sovaldi to its members. CVS’s successive exclusive choice of Sovaldi in its drug list further marked the market power of pharmacy benefit managers (PBMs) and the empowerment of this payer category that has often been accused of not adding value and being overly focused on extracting rebates rather than patient benefit versus societal cost.


The launch of PCSK9’s Repatha (evolocumab, Amgen) and Praluent (alirocumab, Regeneron/Sanofi) posed a challenge to payers as the use of this highly efficacious new treatment at a relatively high cost was not clearly defined in the eligible patient population. The medical community did not strongly support a broad use within label, thus offering opportunities for payers to impose effective prescribing hurdles to physicians without any serious backlash.


3. The growing influence of the medical community: Treating physicians increasingly find themselves in a position where they feel conflicted between bringing the medically most appropriate treatment to patients and the impact that its cost may have on patient affordability and the broader healthcare budget. Over the past few years, we have seen a higher willingness of physicians to take treatment cost into active consideration in both formal treatment guidelines and in individual patient prescribing decisions. The actual impact will vary across the payer systems and degree of patient cost-sharing.


In Europe, payer coverage decision-making has always involved guidance by the medical community, albeit by specifically recruited individuals for review committees rather than by independent medical associations. Tightening of requirements and scrutiny on high-budget impact drugs has been a more gradual further evolution from what was already a very restricted access environment.


The oncologist community has been very vocal over their concerns regarding “financial toxicity”: the impact of substantial patient co-payments on patient ability to afford the treatments that they need. Value frameworks, such as by ASCO, NCCN and ESMO, as well as Memorial Sloan Kettering’s Drug Pricing Lab, have added to the debate on oncology drug value and pricing, although it has been hard to specifically measure impact on payer management and physician prescribing behaviors. In the future, these could become more important when used as a basis for treatment pathways and other payer management techniques.


4. The evolving role of provider organizations: Particularly in the United States, there has been a strong push to shift payment models from traditional fee-for-service payments to value-based payments (payments that are linked more to clinical outcomes and less to individual services provided). Payment schedules between health insurance and provider groups, such as integrated delivery networks, increasingly include performance-based elements as payers want to shift risk to providers.


Under this push for value-based payment reforms, provider organizations have focused to organize themselves to take advantage of ACO and similar payment incentives and adjust their business model to optimally align with the new payment structures. In addition, as local healthcare markets increased in their significance, provider organizations have further increased scale to gain a competitive edge over local competition, further drive efficiencies and attract patients to their practices. For prescription drugs, the impact of provider organizations is most prominent in therapy areas where outcomes metrics are included in payment models, such as for cardiovascular disease and diabetes.


5. The voice of the patient: Patient centricity is a hot topic, and what matters to the patient is a large part of “pharma talk.” While the patient treatment outcomes are deemed highly important, that does not mean that the patient “voice” is always directly considered. We need to distinguish between decisions where the patient interest is central from the ones where they make the actual decision.


Patient outcomes are central in decision-making on pricing, market access, clinical guidelines and provider formularies, but patients tend to not be at the table in many of these decisions. As a typical example, European pricing and reimbursement decision bodies, such as the Joint Federal Committee (G-BA) in Germany, have a single patient representative who has no vote. Payers and regulators are highly critical of patient opinions and patient preference studies unless they are carefully designed and validated. At the same time, however, payers are increasingly interested in the demonstrated impact of drug treatments on the patient’s quality of life in an unbiased way. Patient-reported outcomes (PROs) that are obtained through carefully designed and validated patient questionnaires are increasingly used by regulatory and payer agencies worldwide to validate patient outcomes claims for use in label and market access discussions with payers. Therefore, it’s crucial to consider PRO studies in every case where patient outcomes are highly valued by payers and providers.


What are the implications of payer empowerment—and the evolving role of the medical community, provider organizations and patients—on pharma strategy? I will address that in more depth next week.