Reflecting recently on my 30 year career in the pharmaceutical industry, I have begun to assimilate an assessment of recent industry performance and recommendations for changes that pharmaceutical companies should make in light of the inevitable new market dynamics implicit in healthcare reform. Despite the uncertainties of what healthcare reform means and the potential implications for Pharma, there are several certainties of the new evolving market that are clearly being signaled to the industry as healthcare delivery options are considered and debated.
Here are 5 certainties of healthcare reform:
- Healthcare reform is inevitable with some form of coverage for all US citizens
- Pricing pressure will intensify as rising costs continue to jeopardize affordability
- Delivery of care will be very “managed” with increasingly restrictive and limited ability for Pharma to directly influence prescribing at the physician level
- Traditional Pharma sales and marketing tactics are becoming obsolete and will be ineffective
- Branded prescription drugs expecting premium pricing will require data supported cost-benefit and clinically relevant, proven “superiority” to other less expensive treatment options
Regardless of the political wranglings going on in Washington to hammer out the details of how healthcare reform should be implemented, most everybody is supportive of reform to help control the seemingly endless increases in healthcare costs. The Obama Administration has made healthcare reform a priority and has Congress working feverishly to get at least a foundation of a plan in place by the end of this year. The general public sees the personal benefits and security of more affordable and accessible quality healthcare for all. At the same time, the economics of covering more people and the continuously rising costs of healthcare are not sustainable. Unlike attempts in the past, the inertia today surrounding healthcare reform and the generally accepted need for and commitment to reform make it a certainty.
While much of the debate has focused early on how and who will pay for this new healthcare venture, in the end it will be expensive. Current estimates put healthcare reform at more than $1.0 trillion over 10 years with US healthcare spending going from $2.5 billion in 2009 to over $4.0 billion by 2018.
Once the details of how it will work (single payer, private insurance vs. government plan) get ironed out, the focus will quickly turn to cost controls to ensure affordability and sustainability. And, despite accounting for less than 10% of healthcare costs, prescription drugs have always been a target and in the forefront of discussions about controlling the rising cost of healthcare. Pharmaceutical companies have historically incited a very negative visceral response from the market with seemingly unsubstantiated (little supportive data for the value proposition) high introductory prices, double digit price increases, or even high single digit price increases that frequently exceeded the rate of inflation. As an easy, tangible target to control and with significant market (physician and patient) support you can expect those negotiating price with pharmaceutical companies to be increasingly demanding in the evolving new healthcare market.
The delivery of healthcare will become increasingly “managed” with proposals already for increased use of electronic medical records to reduce administrative burden but also to help standardize therapy to best practices, and to control the cost of care. Expect the increased use of restricted formularies, aggressive generic and therapeutic substitutions, and best practice treatment guidelines reinforced by proactive electronic prescribing interventions. In this scenario, a pharmaceutical manufacturer’s ability to directly influence physician prescribing diminishes significantly. Influence on prescribing will have to take place at a much higher level than the physician in the yet to be defined delivery system. Influence will come mostly from ensuring products are on formularies with minimal restrictions. The hurdles for encouraging prescribing will be more challenging as products that are not included in “best practice” treatment guidelines and promoted through electronic prescribing reminders and interventions will be significantly disadvantaged.
Most of traditional pharmaceutical marketing and sales tactics are designed to influence physician prescribing, including direct sales and indirect, patient to physician, Direct to Consumer (DTC) advertising. These tactics and programs will be mostly obsolete as the market becomes increasingly managed with limited access to prescribers and diminishing flexibility of prescriber treatment choice.
Perhaps one of the most significant market expectations with healthcare reform will be what has already been termed “comparative effectiveness”. While posed as a scientific method for establishing best treatment practices, this expectation also implies a potential for therapeutic substitution with generic pharmaceuticals. It also potentially mitigates the value of product differentiation through ease of use (simplicity of dosing), quality of life, and longer term cost benefit implications. “Comparative effectiveness” studies are conceptually easy to design but very difficult to execute with the necessary statistical power and validity to claim superiority. In other words, it will be easier, more practical, and more cost effective to conclude similarity than to demonstrate statistical superiority.
These certainties and other, yet to be determined, changes have dramatic and far reaching implications for the pharmaceutical industry. Pharmaceutical companies need to be strategically planning and changing their business practices to better meet or exceed these evolving new healthcare market dynamics and expectations.
Objective strategic planning and organizational change is hard work and especially difficult for large pharmaceutical companies trying to manage day to day operations and deliver short term financial performance in an already complex and challenging healthcare environment.
Over the course of our discussions I will provide suggestions and recommendations as to how to start planning and making the necessary changes to address these and other issues that will arise as healthcare reform becomes better defined. Before we get to the answers, we’ll next take a baseline look at pharmaceutical companies, so stay tuned.