Pharmaceutical Pricing Practices Must Change to Reestablish Market Trust

Prescription drug prices are a major source of distrust, frustration, and irritation for everybody in the healthcare market except pharmaceutical industry executives.  Payers and insurers find it difficult to justify paying for expensive branded products when they know less expensive generic drugs would probably work just fine for many patients.  Physicians struggle to explain to their patients that despite the high price, the brand they have selected is the best product for their particular situation.  Patients struggle to pay for the biggest out-of-pocket healthcare expense they have, often deciding whether to buy food, split their pills, or go without their medication to make it through the month.  With unemployment hovering around 10%,  more people are without insurance, making prescription drugs even more unaffordable for many.

The pharmaceutical industry has been totally insensitive to these market /patient issues as they continue to raise prices on many of their most popular, highest volume drugs.  The Congress’ Government Accountability Office calling the increases “extraordinary” with prices for many brands doubling from 2000-2008 while some increased substantially higher yet.  A recent study also revealed that branded prescription drugs increased 9.3% when the CPI was running -0.3% during the same period (2008-2009).

The industry response to the market concerns about high drug prices hasn’t changed for as long as I can remember (at least 30 years I’ve been in the industry).  They continue to highlight the dismal research success rate (1 in 10,000 discovery compounds makes it to the market), blame the high cost of R & D, and the need to recover their high costs in a short period of time as the reasons for their high prices.  Nobody in the healthcare market has ever bought that rationale for high prices and I don’t think that is going to change.  More recently the the industry has tried to also deflect high price accusations with stories about lower overall drug prices (which includes over 70% of prescriptions being filled with less expensive generics), drug costs as a diminishing share of healthcare cost (also because of generic drugs use and the out of control other healthcare costs), and claiming their free samples and the industry’s token prescription assistance programs make the high prices more affordable for everybody.

“What the market will bear” pricing strategies have led to unsubstantiated initial high product launch prices (relative to other therapeutic options, adding little or no real clinical benefits) and subsequent price increases which often outpace inflation.

Pricing is a marketing responsibility with huge corporate financial implications.  The internal pressures to set the absolute highest possible price to achieve revenue and profit targets can be intense.  In many cases it becomes a very impersonal, quantitative spreadsheet modeling exercise providing executives with the comfort that forecast numbers (think quarterly revenues and profits) will be delivered.  More often than not, the price leader is the baseline metric against which new product pricing is evaluated, whether or not the new product has real clinical benefits over the price leader.

Price increases are taken as needed to make the financial numbers or to make the numbers look better?  You may even be able to do two small increases in the same year to get a bigger annual increase rather than taking it all at once.  With all the patients currently on a chronic product it is unlikely they will switch just because of the price increase and formularies are not likely to throw the product off just because of an increase,  so the thinking is ….go for it.

So what to do as a marketer?

The industry must start being more market sensitive and value based in its pricing practices.  Eventually, the market will force this issue as cost management becomes an increasing priority for the evolving new healthcare market.  But it shouldn’t take the market imposed price intoilerance to make this change.  Remember the idea is to reestablish market trust.

So, what is the real value and can you substantiate the value of your product against other therapeutic options?  This is not rationalizing small clinically meaningless differences.  It is time to “show me the data” and be more realistic about the value of your products relative to other therapeutic options.  If a generic drug can do the same as your product for most patients, how is it that you can charge 5 or 10 times the generic drug price and say you have “fairly priced” your product?  Can you really expect insurers or patients to pay the equivalent of the price of a new home in exchange for a drug that gives them merely a chance (not a guarantee) of maybe living a few more weeks or months?  Have you really priced your product “fairly” and consistent with its value…as perceived by the market?

For marketers with products that have clinically meaningful benefits that clearly exceed those of other therapeutic options, reestablishing trust comes by setting prices that are considered by the market to be consistent with the product value.  Product value should be proven if the benefits are real and meaningful.  So again, “show me the data” that patients will be able to relate to and appreciate.  Patients and insurers do not mind paying for what they value.  They mind feeling like they are being ripped off and don’t have a choice.

The biggest challenge marketers will face trying to execute this market sensitive, value based pricing strategy is the organizational pressure from executives and senior managers who have expectations for continuing the financial windfalls of “what the market will bear “ pricing strategies.  Unfortunately, I don’t expect many pharmaceutical industry executives to embrace this concept until the market forces them to consider making the change.  It will take strong marketing managers to help organizations realize how important this painful but simple change can make a huge difference in how companies are perceived.    Regardess of whatever else companies do to improve market trust,  without a change in pricing practices, reestablishing market trust is not possible.

5 Step Assessment for Reestablishing Trust in Pharmaceutical Marketing

The residual effects of pharmaceutical industry indiscretions of the past will linger for some time but also make it all the more important for the industry to be more truthful and forthcoming in their marketing and corporate communications.  The recent disclosures and concerns about GSK’s handling of the potential for cardiovascular events associated with the use of Avandia® just further highlights the challenges facing the industry in reestablishing trust.

So what to do from a marketing perspective?  I fully appreciate the need to grow sales and deliver results but if the only way you feel you can do this is by not being truthful, not being fully truthful,  or not being forthcoming about risks, you can not expect to reestablish trust in the market. Trust requires truth and integrity and consistent behavior over time.

One way to get after this is to assess what you are doing and begin to make any necessary adjustments in your marketing planning to reflect truthful disclosures and integrity in marketing. You can’t expect people to trust you or what you say about your product if you can’t be truthful and honest with yourself in doing your own product assessment.

1)      Product Assessment (based on FDA approved label claims only)

  • What indications are approved for your product?
  • What limitations on use does your product have?
  • What patient population is most likely to benefit from your product? Do you know which patients will not respond well or as you might expect?
  • How would you describe this population within the confines of your approved label claims?
  • Does your product have two well controlled peer-reviewed published clinical data to support the patient populations you plan to market to? (this means the trial data used for the approved claims are available to clinicians for their own evaluations and interpretations)

2)      Market assessment (given your product profile and label claims as assessed above)

  • What market is available to you? How large or small is it?
  • What limitations are there on your market potential? (e.g., age constraints, drug interactions, etc.)
  • How much of the market is not available to you due to potential for side effects or adverse reactions?
  • How much of your current revenue is beyond the approved label claims? Are you actively or passively trying to increase sales beyond your approved label claims?

3)      Competitive assessment

  • What other products have similar label claims?
  • Is your product the best product on the market to treat the approved indications?  Why?  Why not?
  • Is your product risk profile (side effects and adverse reactions) better or worse than competitive products?
  • Do you have label claims or two well controlled peer review published trials to favorably differentiate your product from competitive products?
  • Do your competitors have label claims or two well controlled peer review published trials to favorably differentiate their product from your product?
  • If your product is the market leader, how did it get there?
    1. First to market?
    2. Definitive favorable product differentiation based on label claims
    3. Marketing presence (e.g., share of voice, spend, or execution)?
    4. Market expansion beyond approved claims
    5. Implied favorable product differentiation from competitors

4)      Marketing communications assessment

  • Is your messaging consistent with the patients identified in the product assessment above?
  • Are the claims you want to make, or are making, consistent with your label claims or two well controlled peer-reviewed published trial data?
  • Does your advertising imply or suggest a broader market than label claims might include?  Is this intentional?
  • Are adverse reaction and side effects an important part of your communications plan or are they merely a regulatory necessity?
  • Is your communications strategy inclusive of building trust in your advertising and promotion?

5)      Tactical plan assessment

  • Are programs consistent with label claims and the indicated patient populations
  • Are your tactics designed to capture patients beyond the label claims of the product?
  • Are your tactics designed to encourage market expansion through off-label use driven by “physician choice”
  • Are there veiled inducements (e.g., speaker fees, sponsorships, consulting fees, or promises of clinical trial participation) to encourage healthcare providers to espouse implied product differentiations or implied uses beyond label claims?
  • Are your medical education programs designed to capture patients identified in the product assessment above and to encourage appropriate product use or are they intended to expand use beyond that population.
  • Do you find yourself rationalizing why something is ok and consistent with labeling?  Are your activities defensible without rationalizing?
  • Do you have organizational controls to make certain execution of the tactical plan is consistent with the intended plan and can not stray  (e.g., no maverick sales promotions, no locally funded inducements)

As you go through assessing your own products you should have additional questions that make you stop and think about the intent of what you are doing verses what you say you are actually doing.  To reestablish trust in marketing, communications and actions must be truthful, must not be misleading, must be compliant (regulatory and legal), and must consistently support the best interest of patients over time.  No amount of revenue or profit opportunity can or should be able to change this.  Remember, trust and integrity are not a matter of convenience or circumstance.

Next we will discuss pricing practices and their impact on reestablishing trust.

Reestablishing Pharmaceutical Industry Trust starts with Integrity at the Top

The single most important step a company can take in reestablishing market trust is for the CEO and C-level executives to make a definitive personal and corporate commitment to integrity.  This has to be a visible organizational declaration and become inherent in the corporate culture.  You and your company will either have integrity and can be trusted or not.

This renewed commitment should be reinforced in mission and vision statements and even considered for goals and objectives.  Repetitive corporate communications should reinforce what this renewed commitment means and what the expectations are for compliance.  The desired behaviors and responses to potentially compromising situations should be clearly defined with examples of what is expected and what past behaviors, actions, and decisions are no longer going to be acceptable.  Clear instructions for what individuals should do if they are aware of, are about to be a part of, or feel there is going to be a compromise to integrity.   Managers and executives must be vigilant to intervene before breaches occur or have the potential to compromise trust.

Most importantly, executives and senior managers must set the example with their own behaviors, actions, and decisions.  Compliance should be mandated (zero tolerance) with significant consequences including letters of reprimand in personnel files, reduced or complete denial of incentive compensation, and even loss of job depending upon the seriousness of the breach.  Managers and executives should be held personally accountable (including suffering consequences) for breaches in their areas of responsibility.

Having integrity can also not be a matter of circumstance or convenience where it is expected if it doesn’t hurt the revenue, if it doesn’t impact the stock price, or if there is no potential for litigation.  Integrity is expected even if it means being put at a competitive disadvantage or involves upsetting an important KOL. The industry has gotten quite good at rationalizing and finding excuses (CEO’s who claim they didn’t know what was going on?)  to mitigate integrity implications of their questionable behavior and actions.

While you might think integrity should just come naturally and that compliance to the organizational expectation should just happen, in reality, it must be managed. As most good managers know, “you can’t expect what you don’t inspect.”  If you don’t believe integrity needs to be managed …how many companies do you think could go a full year with no breaches in their organizational expectations for integrity?

Assuming your organization is committed to reestablishing trust with a strong culture that supports integrity, we’ll next look at marketing’s role in reestablishing trust.  Stay tuned.

5 Steps to Restoring Trust in the Pharmaceutical Industry

Like developing a tactical plan without a strategy is not advisable, before we get to specific actions, it is critical to understand the basis for reestablishing trust.  First, completely restoring trust may not always be possible but that doesn’t mean you shouldn’t try.  Without reestablishing trust, the pharmaceutical industry will find the evolving healthcare market even more challenging as it disregards the industry as a credible source of product information. This will make new product introductions and market adoption more difficult, slower, and more expensive.  To reestablish trust one must:

  1. Acknowledge the wrong doing and take responsibility for the distrustful actions
  2. Commit to never do it again and to never betray the trust again
  3. Establish practices that ensure trust is never breached again. Trust can not be broken just because the circumstances at the time will benefit you.
  4. Demonstrate commitment to the relationship with supportive goodwill gestures
  5. Have consistent positive behavior (no breaches) over time

The industry has plenty to do and decades of distrusting behavior to mend.  No single act of goodwill or launch of a miraculous drug will put the industry back in good graces.  There is no amount of advertising, eloquent speeches, or contributions to charitable organizations that can replace consistent good behavior.  Making this increasingly difficult is the fact that any breach, by any company, can quickly negate the progress the industry might have made to that point.  So what specifically can the industry do and more importantly, what can pharmaceutical companies and individuals at companies do to reestablish market trust?   Stay tuned.

5 Major Sources of Market Distrust of the Pharmaceutical Industry

No single event, single offense, issue, or individual company can be identified as the source of or considered responsible for the market distrust of the pharmaceutical industry.  This has been a cumulative affect over the past 30 years or so of modern day Pharma.  It is important to identify, recognize, and acknowledge the sources of distrust before solutions can credibly and effectively be formulated.  Here are the 5 major sources of market distrust of the pharmaceutical industry:

  1. Lack of honesty and full disclosure about product information (Corporate, Marketing, Sales, and Scientific integrity issues)
    1. Not disclosing, not acknowledging or downplaying potential serious adverse reactions and side effects (e.g., many including  Fen-Phen, Vioxx®, OxyContin® , Ketek®)
    2. Exaggerated product claims in marketing or in sales presentations…especially comparative claims
    3. Scientific data manipulation to highlight benefits, exaggerate efficacy while carefully downplaying side effects and adverse reactions
    4. Deception in advertising (paid actors or celebrities to project credibility as they play healthcare providers or miraculously recovered or satisfied patients)
  2. “Off-label” promotion (e.g., many such as Neurontin® and Bextra®)
    1. Companies not willing to spend the money to prove the claims but willing to encourage physicians to subject patients to uncontrolled experimental use
  3. Questionable physician payments, inducements, and “conflicts of interest”
    1. Extraordinary Speaking fees and resort location training programs
    2. Excessive consulting fees, including suspect clinical study payments
    3. Board of Director fees (hundreds of thousands of dollars)
    4. Office practice meals, tchotchkes, and other perks
    5. Expensive meals, cultural or sporting events (e.g., Broadway shows, golf outings) for physicians and other healthcare providers who can influence prescribing
  4. Pervasiveness of industry influence on scientific and medical communications
    1. Promotional programs presented as CME
    2. CME program development and sponsorship
    3. Medical Science Liaisons as safe harbors for scientific exchange of product information
    4. Publications, including sponsoring ghostwritten articles and books
    5. Journal advertising in medical journals
    6. Scientific and medical conference participation and exhibits
    7. Internet medical information sites
  5. Pricing practices
    1. Pricing fraud (especially as it relates to Medicare and Medicaid)
    2. Unsubstantiated high prices (lacking credible rationale or cost benefit data)
    3. High price increases (recent 9.3% increase compared to -0.3% for general inflation (CPI-U)

This is now a complex, multifaceted, and time entrenched distrust. Can the industry afford to ignore it?  If the industry or a company decides to work on this, what should they do?  What can they do?  Stay tuned.

Marketing and sales challenges in the evolving new healthcare market

Companies continue to feel investor pressure and struggle to deliver revenue growth as they downsize and restructure.

An increasingly “managed market” is becoming less tolerant of marketing and sales tactics. Physicians and patients alike, while seek more product information, are becoming less responsive to advertising.  Legislators continue to probe and publicly imply impropriety regarding marketing tactics.  States attorneys general have formulated a process for consistently identifying, filing and winning fraud and false claims actions to recover money from settlements and fines for their ailing state budgets.  And regulators are committed to be increasingly aggressive with reining in compliance violators.

The market, legislative, and regulatory expectation is to stick to the product label claims and drop the “hype”.  Comply with these expectations and you almost certainly put your product at a competitive disadvantage against those companies, and their products, that choose not to conform.  And even if you play up the side effects and adverse reactions, it probably won’t be sufficient to satisfy regulators and certainly won’t prevent the thousands of product liability attorneys waiting to prove you didn’t do enough for their clients.

Despite what their  spreadsheet models might suggest, products in many company portfolios don’t have the differentiation or market opportunities to deliver the revenue forecasts and growth expectations being proposed.  Many products are no longer or never were the best treatment option.  Many that made blockbuster status are or will soon go off patent.  Many company forecasts ignore or mitigate the realities of therapeutic substitutions with generic drugs.

Yet the demands for growth continue to put marketing and sales people in a difficult and often unfair position of producing the revenue growth that may not be achievable with the products they have in this increasingly difficult and demanding market.  Aggressive revenue forecasts without strong product label claims that can help differentiate products gives way to aggressive sales and marketing tactics that go beyond expertise, creativity, and skill.

I don’t believe there are very  many C-level executives or senior managers who are going to be  receptive or empathetic to this reality.  I can hear it now.  “If you can’t get the numbers we need….we’ll find somebody who can.”  And,  I guess based on previous history of questionable ethics, “pushing the regulatory envelop”, and even illegal marketing and sales activities, including “off-label” promotion, that means “do whatever it takes…just try not to get caught”.   It may seem unrealistic and very idealistic to believe that this could stop, but I believe, for the industry’s  sake,  it must.