OR WAIT null SECS
Attendees of a variety of industry meetings on commercialization and pharmacy distribution are accustomed to sitting back and watching the fireworks when Bill Roth takes the stage. Roth, founding partner of a growing consulting company with associates across the US, Blue Fin Group, has been focused on the intricacies of commercial operations for most of his career—and is not shy about making his views known. “Commercial Operations” itself has a fairly amorphous identity, ranging from the sales and distribution agreements between manufacturers and wholesalers, and extending into the market access issues driving many of the highly competitive interactions between manufacturers, pharmacy benefit managers, payers and government programs. This arena also happens to be the source of much turmoil in healthcare today, with legislators looking more closely at the relations between manufacturers and specialty pharmacies, and how price discounting does (or does not) flow through to payers and patients.
Pharmaceutical Commerce sat down recently with Roth; here’s what he had to say.
1) Let’s talk first about how Blue Fin Group came into being. What is your industry background, and how did that lead to founding Blue Fin?
I would have to say that it’s a combination of being an entrepreneur at heart and starting other companies, but also of my time in the industry. I owe a great deal of my foundational understanding to the time spent at my industry alma mater, Cardinal Health, where I worked in the ‘90s. I spent five years in the field in the Southeast and five in the home office in Ohio working with some pretty forward-thinking people. I got to work with every type of healthcare product, manufacturer and channel, and learned the economics of the healthcare industry and the flow of the dollar.
Most of my associates then, though, focused on the margin of distribution. As soon as I understood how channels buy, I wanted to understand how they sell, and if you want to understand that, you have to start with plan sponsors or payers. So I learned about the impacts of various payer models—Commercial, Medicare and Medicaid—on hospitals, retailers, long-term care providers government providers, and group purchasing organizations (GPOs) at local, regional and national levels, and how these economics varied for brands, generics, biotechs, consumer goods and medical devices.
Blue Fin Group came into being in the fall of 2001 at the request of a Top 5 pharmaceutical manufacturer as I was in the process of selling my first company, Channel Link. The request was timed with the distribution business model migrating from the “buy-and-hold” to the “distribution service agreement.” This particular manufacturer was experiencing a painful bull-whip effect on the demand for their products as distributors forward bought aggressively against price increases. This was having a detrimental effect on accurately forecasting and reporting their quarterly revenues, as well as supply chain planning and overall cost effectiveness. The client loved the strategy I designed and then asked me to help implement it.
Working with my brother, who has high-level business consulting experience, we delivered a very successful result for this client. This led to engagements with other clients, and Blue Fin was off and running. Now in our 15th year of business, we have more than 200 clients. While we primarily work for manufacturers, we are proud to say that we have worked with every business model in our industry, ranging from pharmacy channels, hospitals, payers, clinics, provider networks, GPOs, a number of service providers and private equity firms.
2) Doesn’t this range of clients put Blue Fin in conflicting situations, in that some of them, to some greater or lesser degree, are on opposite sides of the table when it comes to doing business? How is Blue Fin able to represent the best interests of each type of client?
While we do work with a number of business models in the industry, 90—95% of our work is with manufacturers. We are what we like to call a “principled consulting organization.” We view our reason for being as to help the industry fight for innovation and patients’ access to that innovation. We use that to gauge our ability to support a client. To date, much of the innovation is coming from manufacturers. As Blue Fin Group expanded our leadership team in 2007, we brought on three other industry leaders, John Cervione, Rich Carlson and Ron Krawczyk, as managing partners. All three brought a spectrum of commercial skills and experiences ranging from payer, provider, pharmacy, product management and several cross-functional positions supporting commercial operations. All three were clients of Blue Fin Group at one point, and they saw firsthand how our consulting model was different from what they’d experienced previously in their careers and wanted to be a part of it.
In the mid-2000s, when the pharma industry was working its way through the impacts of the Medicare Modernization Act (MMA), we saw how the Centers for Medicare and Medicaid (CMS) would impact the commercialization approach for buy-and-bill products, and how this would cause greater governmental involvement and transparency of pricing. We knew this would have significant impacts on how the manufacturer would view the gross-to-net situation within product management.
So we deepened our involvement working with manufacturers across product management and commercialization to ensure we connected the disparate commercial teams: Market Access; Field Sales; Trade and Channel Management; Patient Services, including Field Reimbursement Specialists; and Product Management. In the old primary care mentality, commercial strategies could be disconnected, but this is not the case with Specialty. The launch of an orphan class drug is a great example of what I mean. The full commercial team has to understand the holistic plan and each other’s functions in order to develop a strategy that ensures commercial success. The standard playbooks from primary care are no longer effective approaches in a world of specialty and orphan products.
To be direct with your question though, Blue Fin Group will not work with any channel or service provider that seeks to disadvantage innovation. We do not play two sides. We believe that as payer pressure continues to mount, the innovators will struggle to properly gain market acceptance. The second reason we will work with channels is to gain a real-world knowledge of who they are and where they’re going. It’s one thing to hear or be academically taught how they work. It’s another to speak with them, roll up your sleeves and work with them. You get to see what they know and what they don’t. You’d be amazed at how each model sees the healthcare world from their own lens without having the proper appreciation for other models or the bigger picture.
As an example, think about the Integrated Health System (IHS). They are becoming a powerful force in our industry. Our clinical trials are conducted there so they understand the science. Many have been self-insured for years and are now rolling out their own health insurance offering to local employers much like a staff-model Health Maintenance Organization (HMO). Once they mature this concept, either state-by-state or regionally, they will be able to offer insurance on the state exchanges.
Given that they can deliver the care and have face-to-face relationships with their patients and the caregivers, they can also be more effective with wellness offerings than other competing models. This will give the larger insurers a run for their money. We believe that it will be harder for Managed Care Organizations (MCOs) to “build the bricks” and “own the docs” than it is for the IHSs to move upstream and become payers. Blue Fin’s work across this spectrum benefits our manufacturer clients.
3) Drug pricing is headline news these days, and there is talk (which seems to come up every election cycle) to do something about it. Is the US industry driving toward a head-on collision with payers and the US government? Or is there a ramp to be found that lets the pharma industry grow while price inflation eases?
I would contend that there are actually many powerful constraints on drug pricing already in place. The diseases we are focusing on as an industry today have smaller patient populations and are handed significant commercial hurdles such as Prior Authorizations and Step Edits. For publicly funded healthcare, there have been many constraints on drug pricing, including the Medicare Modernization Act of 2003, which reformed payments for buy-and-bill specialty products, or the Deficit Reduction Act of 2006 and its effect on generic pricing. It still takes approximately $750M+ to bring a drug to market and we have a limited number of years to recoup the investment, during which time there are all the price concessions and discounts discussed above plus the cost of a sales force, payer team, channel discounts and fees, and patient services. Often this is the money that goes back into R&D to come out with the next wave of products. Regulate this pricing the wrong way and we’ve killed innovation.
At a more granular level, there are other mechanisms that contain real price. For example, Medicaid receives a 23.1% or greater statutory rebate and has a penalty for products that increase price. This essentially capitates the price of drug to its launch price. Commercial and Medicare Part D have price protection clauses of around 6—9%, so every increase goes to the payer in the form of a rebate and then this price is negotiated during formulary renewals. For Medicare Part B, manufacturers hesitate to increase price because the base of reimbursement is ASP, which is an average of pricing in the market and any price increase would create a situation in which providers would lose money. So there are indeed checks and balances. Increases aren’t real until a payer accepts a net price increase. We need to be more careful about allowing politicians to create fear and speak in hyperbole. It upsets me.
4) Various outcomes-based, value-added or shared-risk arrangements have been proposed for expensive drugs, but the administration of these appears to be very complex and unwieldy. Will these arrangements become the norm in the near future?
I do believe we’re getting closer to value-based agreements for pharmaceuticals. We’ve been talking about these since the ‘90s. The problem is isolating the science from how the science is applied and to whom. A few main reasons these haven’t gained traction are patient behavior (diet, exercise, adherence to therapeutic regiment), provider behavior (proper prescribing, drug administration, follow-up), and genetic predisposition. There is no way just to hold the science accountable by itself.
This is a major disconnect in drug development and application, and one of the activities we work on with manufacturers. When a drug goes through clinical trials, every patient has access, a professional is there to confirm administration of the therapy, and there’s monitoring of the patients’ behaviors and reactions. In the real world, patients abandon therapies, they down-dose because the out-of-pocket is too high, they don’t adhere to therapy for all types of factors. Value-based agreements have to have built-in assumptions around these behavioral factors and the data to measure it. So to answer your question, as an industry, we are not ready, but some channels are advancing quickly.
In order to prepare, we need to get the manufacturers ready for the shift in data utilization. It is realistic that as we digitize health, patient and provider behavior as well as their phenotype and genotype data will be available. Then we can move to value-based. We are thinking 2020 and beyond, and viewing it from the eyes of companies like Kaiser Permanente, Mayo Clinic, Cleveland Clinic, Geisinger, etc. in that they are likely to have conducted genetic tests on the patients, applied precision medicine concepts, worked to digitize the patients’ health and behaviors, and can track the holistic patient journey. This will be a point of singularity.
One of the challenges for pharma is understanding how to qualify these accounts so they don’t sign agreements that end up killing them in the long run. They need to be careful not to get bullied into these agreements. This is a perfect example of how we work and how we aim to protect innovation. Even with this optimism also comes skepticism as we will encounter significant issues and practicalities along the way, such as how to protect data, how the American Medical Assn. wants to suppress genetic testing, to very practical matters such as how manufacturers can properly report pricing to CMS for government pricing purposes. There’s much to think about.
5) The specialty pharmacy channel has grown dramatically in recent years but now there appears to be some conflict between these pharmacies and payers. How will this get resolved?
I agree. There is indeed conflict. From our purview, we saw payers such as MCOs and pharmacy benefit managers (PBMs) jump into Specialty Pharmacy (SP) early in the game. It was easy for them really as it was viewed as an extension of their Mail Order businesses. That’s still how Blue Fin Group views the SP class—mail order on steroids. To us, the SP model merely elaborates the benefits investigation/benefits verification process and patient services, and incorporates more sophisticated forms of packaging and shipping to contend with the product formulation complexities.
PBMs have been challenged recently by Wall Street analysts questioning the longevity of their standalone model. Plan sponsors see the need to merge medical and pharmacy benefit. SP was an easy way for the payer to gain control of a physical function and also earn dollars from it. The function of SP was anyone’s to be had. Retail was very late to adopt the model and quite frankly SP arose because of deficiencies in the Retail Pharmacy model. Retail doesn’t do well with expensive therapies, complex storage and handling, complex therapeutic education, prior authorization support, or adherence outreach. I’m not aware of any retailer either capable or willing to provide the level of data back to manufacturers to gain visibility to the prescription journey and statistics around abandonment, time to fill, adherence and other key metrics.
The only way Blue Fin Group currently sees this getting resolved is if some one person or group at the manufacturer owns the prescription journey. Internally within pharma, it is currently divided among four or more commercial groups that do not understand or appreciate one another’s role or priorities. Large MCO and PBM SPs gain access to the high-profile products; independent SPs can gain access too, but the volume of transactions still side with the MCOs and PBMs. Holding these channels accountable to performance is the key. Keep in mind that MCOs and PBMs are ones that set the high out-of-pockets, the prior authorizations, the step edits, etc. What makes manufacturers feel confident is that this pharmacy channel will perform well to optimize the prescription journey. Logically it’s hard to wrap your head around that.
But manufacturers have to be careful how hard they push. The MCOs and PBMs are still powerful entities. They are increasing the portion of restricted and managed lives in their networks, making the NDC blocks and tier statuses more effective. It’s a balancing act. And with a few recent examples of some SPs perhaps going too far to get a patient on drug and to keep them compliant, it is a fine line that the manufacturer walks to support an optimal journey while at the same time operating within regulatory and ethical guidelines.
Similar to the shift from Retail to Specialty Pharmacy, we are at the forefront of witnessing another shift: to the Integrated Health System (IHS) Specialty Pharmacy. Unlike the MCO and PBM SP, the IHS SPs are part of a larger view of the patient. Take for example, organ transplant. The IHS has every reason in the world to ensure the patient gets on drug, takes it the right way and experiences the intended outcome. If this does not happen, the whole IHS is in jeopardy of reimbursement lowering systemwide if these patients are readmitted. Apply this concept to SP as several IHSs are currently doing and you see a whole new level of performance. We’ve had this point of view challenged, through payers restricting access, which is true and is happening now. But where the conversation is heading is a challenge back to the payer from the IHS that says: Well, if I can’t service the life, or at the right economics, then you [the payer] indemnify the life. So a moment of truth does lurk in the future. The fight will be between the payer and IHS, with the latter, as I mentioned before, seeking to become a payer on its own.
6) New research is pointing toward precision medicine using individual patient’s genomics, and even individuals’ own cells, as the basis for a therapy. This is radically different from creating a compound or biomolecule that addresses many patients’ disease. What’s the structure of what drug companies will look like if this technology takes off?
Precision medicine is coming fast. The genetic testing companies are slowly gaining approval and the science is proving to be sound. But, how do you do a clinical trial for a product that works uniquely for one patient? To us, precision medicine signals the move from the paternal view of medicine in which the doctor is the epicenter of the world to a democratic view where the patient is the center. Take Angelina Jolie as an example. In Eric Topol’s book, The Patient Will See You Now, he profiles how she took the research into her own hands and worked with healthcare professionals that could understand what she was doing and execute against her personal plan for her health.
Recently companies like Novartis and Bayer have announced partnerships with companies such as Intellia Therapeutics and Caribou Biosciences (both developers of CRISPR genome-editing technology) where they will gain visibility to where a strand of DNA may be corrupt or mutated. The idea is that the patient would send their data to the manufacturer and the manufacturer would create a custom therapy for that patient. Companies like Moderna Therapeutics are actively engaged in this process. They are essentially finding ways to program our RNA as the communication tool to reengineer our DNA. Blue Fin views this type of science as a singularity event—one which will make our old approach to medicine archaic.
7) There’s been quite a bit of consolidation in the industry. We witnessed distributors consolidated in the 2000s; now there’s Big Insurers, Big Health Systems, Big Retail Pharmacies and, with mergers like Pfizer-Allergan, another round of Big Pharma. And there are alliances that have formed, such as Walgreens-AmerisourceBergen and CVS Health and Cardinal Health. Are the relationships among these healthcare sectors changing as well? What will the future life sciences industry look like?
Blue Fin has a signature piece of intellectual property we call the “Chessboard.” It maps out all the business models in the industry and how they fit together. We learned to do this when CMS introduced the MMA and it’s proven to be a great call on our part. It is an ecosystem. And now it’s a consolidating ecosystem and almost a game of musical chairs, with chairs getting pulled more frequently. We don’t view this as healthy for the industry necessarily but more of a reaction to payer consolidation. While we do not see a single payer system in the future for the US, we do see a fragmentation of payers into three main buckets—commercial, which services employer and self-insured; Federal, which will emulate single payer; and State, which will be the lowest and cheapest form of payer.
We see channels no longer attempting to service all three payer groups as they have historically. High-end science, technologies and channels will continue to thrive in the commercial world. It will adopt new approaches, such as regenerative and precision medicine. Based on budgets and utilization, it’s unlikely that the federal group will have access to anything other than basic care and maintenance. Lower end or older science will be applied. Less qualified providers will accept lower rates. Based upon state budgets and utilization, payers such as Medicaid will offer even less than basic care. Commodity science and services will be applied to broad populations. This is all part of the great correction of adding the Medicare and Medicaid entitlement programs back in the 1960s. They are not sustainable. It’s this pushback, with a bigger one coming, that is driving this consolidation. There will be further consolidation, and eventually we’ll see new models arise from the ashes to support these three payer segments and the array of science available.
8) You’ve built a successful consulting organization—what keeps you going now? What’s the next challenge you’re looking at?
There’s a few things that keep the fire burning. First, as measured by our actions, we don’t see a greater use of our life energy than helping this industry through these puzzles. There are many good people working in industry that want to evolve and stay relevant but need help dealing with the inertia of their own organizations. They need help with education across the company, understanding how the landscape will play out internally and externally, and help aligning their commercial silos. We’ve proven that we’re good at this and we love doing it.
Second, we feel that this industry needs more alignment and we’re working through our voice to connect the constituents. A client of mine recently presented an image of a demolition derby at an industry conference I attended this year and with disgust viewed the industry business models opposed to one another. He posited that we’re more about extracting pain for economic gain from one model to another. The MCO attempts to vilify the IHS. The PBM attempts to squeeze the manufacturer. The doctor protects themselves. Then he threw up a slide of Nascar cars going 180 miles around the track in alignment. If we hope to realize our goals around targets such as the Institute for Healthcare Improvement’s Triple Aim or Population Health, we have to align. We want to help companies understand where and how this is possible.
And third, we love change and want to be part of all the amazing innovation that’s on the way. Regenerative medicine, precision medicine, genetic testing, biosynthetics, AI, robotics, nanotechnology, digital health—and of course informatics around all the data—is coming at breakneck speed. And there are short-term puzzles such as value-based contracting, the uptake of biosimilars, and the integration of disparate businesses to form a real Patient Centered Medical Home. We feel that Blue Fin Group can be part of it all as opposed to working with just one angle of the industry.
For us, it’s about applying who we are, what we know and what we’re capable of helping with, and getting in there and rolling up our sleeves. I was raised by a two-star general and he was a disciplined guy. He taught me many things, but about 2—3 years ago he gave me the piece of advice that rings hard in my head. He said, “When you’re 80 years old and in some dark corner of some room, you will be left with your thoughts. And the ones that you’ll spend the most time on are your regrets. Not so much what you did, but rather the ones that you didn’t do.” I believe the entire consulting staff at Blue Fin Group shares that with me. We want to matter. We want to help innovation move forward and thrive. We want to have no regrets as we look back on our careers and the impact we had on the industry we serve.