The escalating cost of medicines is forcing tough decisions on payers in Europe who are struggling to ensure drug availability while staying within government-dictated healthcare budgets. The resulting austerity measures and related drug price cuts have increased the pressure on pharmaceutical executives to sustain prices and avoid the problems associated with international price differences. However, these events are just the tip of the larger changes happening in healthcare globally.
In Germany, the AMNOG price control legislation is increasing evidentiary needs for new drugs at launch. This decision leaves local pharmaceutical company affiliates and payers scrambling to understand and adjust to these politically inspired changes. In the UK, healthcare reform-mandated changes include 'value-based pricing' and the abolishment of primary care trusts. The impact of this change is still uncertain. The US and Europe continue to discuss comparative or relative effectiveness research. Other countries have tightened drug budgets and related national and regional market access requirements.
This profound change presents drug makers with a challenge and an opportunity. To improve the financial success of a branded drug, manufacturers must embrace the needs of payers at every stage in a new drug's development and commercialisation process. Unfortunately, the industry's longstanding order of developing and launching drugs makes adopting such change an almost Sisyphean task.
Drug development is expensive, time consuming and risky. Today, clinical and regulatory experts in pharmaceutical companies design drug development programmes and clinical trials to meet European Medicines Agency (EMA) and US Food and Drug Administration (FDA) requirements. The payer's perspective typically takes a back seat to EMA/FDA approval criteria. Yet meeting country-specific market access and pricing approval rules and committees is critical for commercial success. Furthermore, payer perspectives on the relevance of certain drug benefits can be different from EMA/FDA stipulations.
For example, while the EMA may accept a placebo-controlled trial or direct comparison with non-inferiority claims, payers usually reject them. These payers generally demand evidence that a new drug is better than current treatment options and therefore worth any incremental expense. In some cases that can pose a real challenge. Since the publication of ENHANCE trial data for Vytorin in January 2008, favourable data for low-density lipoprotein is less likely to be accepted to honour drug efficacy claims. Showing statistically significant mortality reduction data, however, takes many years. This provision is probably seen as cost-prohibitive for many drug companies, particularly when the remaining patent life beyond launch does not provide an adequate risk-adjusted return on investment.
To remain competitive in this changing dynamic, pharmaceutical companies must build a strong understanding of benefits that resonate with payers, namely, public health benefits, economic benefits and breakthrough clinical benefits, while incorporating payer requirements into each stage of their drug development process.
Payers must provide coverage to their customers while staying within their medical or drug budget. Payer behaviour and daily actions are guided by their breadth of responsibility, healthcare system rules and public health priorities. A payer who is only responsible for the drug budget will care less about the reduced hospitalisation claims of a more expensive drug than a colleague who is responsible for total healthcare costs.
The general analytical process for a typical payer is exemplified by this series of questions:
• Medical need: How strong is the need for a new drug treatment?
• Effectiveness: Does the new treatment address the unmet medical need in a substantial way?
• Evidence: Is the evidence of effectiveness and safety compelling?
• Economic impact: How will the approval impact the budget?
• Ability to control: Can the payer control prescribing volume once pricing and reimbursement is approved?
• Political importance: Would a negative decision have public repercussions?
Considering the payer perspective and evidentiary needs for all payers in countries worldwide would be a complex undertaking. Figure 1 helps make sense of the global patchwork of healthcare systems and their requirements by classifying the world into four key global payer segments that represent different cost management philosophies.
1. Therapeutic referencing systems include most European markets and Japan. These systems limit pricing and reimbursement on the basis of an assessed innovation value relative to an assigned comparator drug.
2. In the US competitive insurance based system, private insurance plans provide drug coverage for private employer-sponsored plans and Medicare Part D. Formulary tier driven (rising) patient co-pays and restrictions are increasingly driving prescribing behaviour.
3. Health economics driven systems primarily use cost-effectiveness as a basis for coverage decision making. The key markets include Australia, Canada, the UK, Sweden and South Korea.
4. In emerging cash systems such as China and India, only a small portion of the population benefits from any meaningful health coverage. As a result, most patients pay out-of-pocket for drugs.
Taking account of the evidence requirements for each of the four global payer segments and their key countries provides a solid basis to evaluate payer needs and requirements for a pharmaceutical company's drug development programme. Its relative simplicity also enhances cross-functional understanding and consensus building on critical trade-off decisions.
For example, cost-effectiveness is often touted as the prime payer requirement for market access. However, health economics driven markets only comprise about 8 per cent of global pharmaceutical sales. Therapeutic referencing markets and the US competitive insurance-based system, on the other hand, cover about 45 per cent each.
It is important for pharmaceutical executives to consider the therapeutic referencing systems and their requirements to provide evidence of outcomes improvements over the relevant comparator, particularly when the standard of care is generically available. Emerging cash systems are also important future markets, but these systems may change if their governments institute universal healthcare coverage.
While many understand the need to incorporate the payer perspective into drug development decisions, changing the companies' decision-making processes is not easy. This is because:
• Many pharmaceutical company executives and employees are relatively unfamiliar with the payer environment and its implications for drug development needs
• Adding the payer perspective to the decision-making process requires an intense, complex collaboration and trade-off analysis between multiple company disciplines
• Development programmes with an increased focus on payer value messages are often more expensive, time-consuming and risky
• Research and Development incentives encourage rapid development progression, irrespective of the commercial value of the drugs. This makes the clinical and regulatory teams hesitant to change drug development goals and work processes.
Meeting payer requirements may pose tough financial trade-offs and require significant changes to a company's ways of doing business. Phase III data forms the basis for regulatory- and market access-related submissions, therefore it needs to offer compelling evidence of meaningful and payer-relevant benefits over existing treatment options. As such it is critical to add the payer perspective into the drug development process (Figure 2) and the critical phase III trial design decisions such as choice of indication(s) and clinical trial end points.
Pharmaceutical companies should ask themselves three questions:
1. In which clinical trials and other evidentiary techniques should we invest?
2. How can we ensure that we prove important comparative claims linked with the most important benefits?
3. Will this evidence meet requirements in key payer systems?
Payers dictate global pharmaceutical pricing and market access today. While there are critical costs and resource trade-offs to consider, companies should focus on the payer perspective throughout the drug development and commercialization processes. Those that build the payer perspective into phase III drug trials and ensure the availability of supportive evidence for all key claims will create a strong payer value case. This will be critical in determining global market access and, in turn, commercial success.
Ed Schoonveld is principal and practice lead for the market access and pricing research and consulting practice at ZS Associates. He is also the author of a new book, entitled The Price of Global Health, covering drug pricing strategies to balance patient access and the funding of innovation.
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