Solving the payer's problem: a new key to market access

It is commonly understood in today’s pharma market that successful products combine therapeutic effectiveness with economics: the “access challenge.” According to a new study from Oliver Wyman (New York), current efforts often fall short. “Many payers regard the economic evidence they receive from pharma with indifference, or worse, disdain,” say authors and Oliver Wyman partners Peter Gilmore and Mark Mozeson, citing one health plan CEO who said, “Pharma’s data usually lacks rigor, appears biased, does not address the needs of our members, and is presented to us well after the product is in-market.”

Based on a detailed analysis of 122 new molecular entities (NMEs) launched in the US between 2005 and 2010, the authors came to four key conclusions:

• To truly solve the payer’s problem, pharma needs to provide data on a drug’s impact on the total cost of care (TCC). Pharma delivered a TCC analysis in only about 5% of cases; the rest of the time it offers data on comparative drug costs—data that payers see as part of their problem, not part of their solution.
• To provide the data most useful to payers, pharma will need to leverage new sources of information covering not just the cost of drugs, but the full spectrum of treatment.
• Different disease groupings will require different strategies for economic evidence. In some diseases, economic data will be crucial; in others it may make almost no difference. Companies should focus accordingly.
• The access organization needs to play a greater role in the governance of development and commercialization decisionmaking.

The study’s initial hypothesis was simple: More economic evidence—at or close to the time of launch—should lead to better overall commercial performance. Oliver Wyman looked at (1) the breadth and depth of each clinical program; (2) the health economic evidence presented within 18 months of launch to influential health technology review committees, such as the UK’s National Institute for Health and Clinical Excellence (NICE) or the Canadian Expert Drug Advisory Committee (CEDAC), or published in peer-reviewed journals; and (3) the “return factor”—the quotient of fifth-year sales and development cost, as a proxy for commercial value. Clinical differentiation was scored on a 1—5 scale (1 = undifferentiated; 5 = breakthrough therapy), as was health-economics quality and conclusions (1 = no economic analysis; 5 = unequivocal TCC reduction). A similar rationale was used for return factor. Fig. 1 shows the results.

Fig. 1. Economic/clinical differentiation scores for products launched 2005—2010.

Three conclusions can be drawn at this stage:

• For clinically differentiated products, the old rules still apply. If a product is highly differentiated based on Phase III results, it should fare well commercially, regardless of the economic evidence generated. The authors add that “specialty disease areas in which the drug is focused on meeting unmet clinical need will continue to yield favorable pricing levels,” citing oncology, neurology, immunology and genetic disease. Twenty-three of the 29 products with a return factor of three or higher were in specialty categories.
• Pharma invested in too many me-too drugs. The lower left-hand quadrant is populated with 53 of the 122 NMEs. The average return factor in this quadrant is 1.33 compared with the upper right quadrant’s average of 3.90 and the lower right quadrant’s 3.67. This suggests, say the authors, that “The bar that needs to be cleared to start a Phase III is not high enough.”
• There is no correlation between economic differentiation (value to the payer) and commercial performance (value to the manufacturer)—a surprising result, and one that was tested and confirmed with more elaborate regression analysis. The authors conclude that “Industry’s standard definition of health economics is fundamentally wrong, and pharma is spinning its wheels in its efforts to solve the payer’s problem.”

Targeting high-cost disease states

Oliver Wyman investigated a second level to the health economics/commercial performance quandary: looking at situations where the healthcare spend is significant for payers, and where pharmaceutical therapies are lacking. For example, arthritis represents 9.8% of payers’ healthcare spend, but only 10% of that is tied to drug spend. Conversely, asthma represents 0.9% of healthcare spend, but 50% of that is drug spend. Discounting many other factors that go into current healthcare, an NME targeted at a higher-cost, low-drug-spend disease state has better odds of commercial success than a lower-cost, high-drug-spend state.

This analysis, say the authors, give guidelines to how industry managers should match investments in drug development to market needs. There are four broad groupings:

• Commoditized primary care: Be careful—opportunities are limited. Most primary care categories fit in the “high total spend, high drug spend” profile. Across all diseases, drug spend averages 10%; when that is 30% or higher (such as hypertension, anxiety/depression, COPD or the aforementioned asthma), there is little opportunity to demonstrate reducing in TCC.
• Life-threatening diseases: Focus on efficacy; even incremental improvements will do. Diseases such as lung cancer, acute renal failure, and stroke score low in both total spend and the percentage of spend devoted to drugs, according to the Oliver Wyman analysis; the authors conclude that payers will welcome even incremental improvements in efficacy, and that strong TCC-reduction data become important only when the determination of which drug among several should be the first-line therapy is made.
• High-burden chronic conditions: Balance meaningful improvements in efficacy with impact on total cost. This category includes chronic conditions with high unmet need and high total spend, such as multiple sclerosis, congestive heart failure, chronic kidney disease, and “chronic cancers” (such as sub-types of prostate cancer and lymphomas), say the authors. Clinical interventions are frequent and expensive; drug therapies exist, but there is ample room for improvement. “We believe these disease areas offer the most complex battleground for demonstrating that innovative pharmaceutical products can provide a combination of breakthrough efficacy and cost reductions compared with other treatment modalities,” say the authors.
• Low-drug-spend chronic and acute conditions: Focus the economic story on reduction of total system cost. The authors look on this group as having the best near-term opportunities for commercial success, citing examples like severe sepsis and fracture healing. Clear, unbiased evidence of reducing TCC, such as fewer and shorter hospital stays, or expensive diagnostics and surgical interventions, will make a difference.

Organizational change

The clearest takeaway from the Oliver Wyman analysis is that the pharma industry needs to spend more time and resources analyzing payers’ overall costs. “What matters most to payers is a drug’s impact on the total cost of treating a population, and that means they need research that measures that impact—and not just relative clinical efficacy,” say the authors.

Within pharma companies, a more expansive effort to include market access groups in drug development needs to occur. The authors ask a series of questions: How often is the question of payer economic impact considered before a Phase III trial is initiated? Does the access organization have 50%, 20% or 0% of the voice in portfolio strategy and Phase III start decisions? If there is a choice to be made between adding an economic study to a development program or funding another product, how rigorously are the alternatives analyzed? These questions challenge current pharma leadership on how serious it is about addressing payer problems in drug development.

“The access organization needs to be at the center of the effort to create an economically viable product—and a full member of the team when Phase III decisions are conceptualized and made,” conclude the authors. “We believe that the new level of discipline instilled by this change can also help solve the R&D productivity issues that plague the industry.”

The full study, “A New Key to Access: Solve the Payers Problem,” is available at www.oliverwyman.com.