Over the past six years, the Affordable Care Act (ACA) has had only marginal impact on the pharma industry. Much of the change to the overall healthcare industry that was promised did not materialize and as a result market dynamics had more impact on pharma than the ACA. In a look forward, we examine the pharma market in view of key market trends in healthcare in the US and the implications of shifting policy in Washington D.C. Our research revealed many trends and forces in the US market but we chose five that we thought were significant enough to merit discussion in the context of pharma market impact:
- Healthcare policy changes (LOW IMPACT): The new administration will continue to press forward for a repealed and/or modified health care law. For pharma, the two big issues to watch are the fate of the 20+ million Americans who now receive coverage because of the ACA, and how the Centers for Medicare & Medicaid Services (CMS) will approach price negotiations with the pharmaceutical industry. The ability to remove care from 20+ million Americans seems difficult to accomplish on many levels. We do believe that any changes made by the new administration will make it more difficult for portions of that population to maintain coverage. This could have some impact over time on pharma revenue if that portion of the US market is lost. On the CMS side, we believe most of the Medicare contracting is managed today, which means a small percentage of the pharma spend in the US (roughly 10-15%) is even open to negotiation. Even if the federal government decides to pursue direct negotiation with pharma – the overall impact would be minimal. Our net position is that policy could have some small impact on pharma but not material.
- Alternative payment models (APMs) (LOW IMPACT): APM advancement over the past six years has been slight. The most promising activity on APMs is being driven by CMS with bundled payments. The current focus in this space seems to be on high-cost procedures, such as cardiac surgery and knee and hip replacements, which typically involve more devices than drugs. However, we do see potential for expanding bundled payments into high price drugs for certain conditions – if CMS or a collection of large payers can agree on a care pathway and pricing across healthcare service categories – which, while possible, is not likely.
The other potential players in this space are pharmacy benefits managers (PBMs), who could potentially represent a collection of payer/employer clients in negotiations that go beyond the unit price of a drug. Though to achieve critical mass, several contractual issues would have to be undone making it only a low likelihood in the near term. The most likely scenario is that “one-off” contracts will continue to emerge, like those agreed to in Harvard Pilgrim’s pay-for-performance deal for Repatha™, that will focus on a specific product and payer, and will be effective on a case-by-case basis. In total, given the slow rate of progress of APM’s over the past six years and the low likelihood to effect large scale change we view this factor as having low impact on pharma over the next five years.
- Value Based Frameworks (MODERATE IMPACT): Frameworks aimed at quantifying the value of specific products have become a popular trend in recent years, especially in the oncology space where new treatments often come with steep price tags. We believe that these benchmarking tools will have a moderate impact on the industry going forward, in support of value-based pricing.
The key issue with frameworks is that they are all dependent on comparable product profiles and prices as a starting point for assessment. This calls into question analysis of therapies that are novel treatments. The organizations that design these tools are also not necessarily independent. For example, the Institute for Clinical and Economic Review (ICER), which has started to be recognized by payers as a source of information, receives approximately 25% of its funding from the healthcare industry. Right now, how this information is incorporated is inconsistent and uneven; however, this may advance as ICER’s position in the industry matures. As a result, we believe that ICER may have impact on pharma pricing and product valuation in the years ahead. Pharma executives should pay attention to ICER’s evolution, and look for opportunities to work with the organization as they make decisions about pricing and product value going forward.
- Accountable care organizations (ACOs) and innovative delivery systems (IDS) (LOW IMPACT): ACOs became popular in 2011-2013 when the CMS Shared Savings initiative enabled providers to share in the profits based on their ability provide efficient, quality care. Commercial payers then began establishing contracts with ACOs as a way to fix their costs and shift risk. However, these contracts have not represented a significant shift from the status quo for pharma, especially given ACOs’ reticence in making pharmaceuticals central to their contracting strategy. IDS institutions are organizations that are both payer and provider. They have been somewhat more successful at advancing care and value. Kaiser Permanente, Intermountain Healthcare and Geisinger Health System have been leaders in this space, using IDS models to integrate their payer and provider capabilities. These organizations are reputed to be high quality and low cost, and are attractive candidates for pilot programs and partnerships with policy makers, as well as centers for innovative research. However, the model has not extended to pharma in a systemic way as other components of care are more in view.
- Application of real-world evidence (RWE) (MODERATE TO HIGH IMPACT): The RWE trend will continue to have a growing impact on the industry as these strategies and platforms become key levers for marketplace success. RWE provides regulators, payers, providers and patients with greater clarity on the performance of a drug in a real world setting, which often varies from the environs of clinical trials. These studies provide insight into a drug’s impact on patients with co-morbidities and late stage disease, and can be used to track issues around compliance, number of hospital visits, and cost-effectiveness, which helps to paint a more complete picture of performance, value and cost-effectiveness.
This impact of this trend has increased as providers and physicians take on larger roles in decision-making about treatment. Regulators are also beginning to develop guidance on how to incorporate RWE into labeling reviews. It’s not yet clear how this trend will effect data requirements for post approval studies, but it is a significant development bringing more credibility to the applicability of RWE.
The RWE trend should be viewed as a benefit for pharma, as clinical advantages discovered in the real-world setting can translate to economic advantages. For example, In the U.S., a national claims database study showing superior outcomes for Lipitor™ versus generics in non-CVD patients, helped broaden the target population of Lipitor; and prior-authorization for Remicade™ was removed based on compliance and outcomes demonstration relative to the injectables HUMIRA™ and Enbrel™, in a real world study.
In the U.S. and perhaps beyond we believe RWE will create an environment where access decisions are dynamic – they do not get set in stone based on the label resulting from Phase III clinical trials. We also believe as electronic medical records become more widely used, and the exchange of data gets easier and more robust, RWE will become more common and the interventions to improve overall care may become the lever to influence product differentiation and access. The likelihood that RWE and real world data platforms will be a must for pharma in next five years is moderate to high.
With the exception of RWE, it makes sense for pharma to monitor the market and not respond. In the case of RWE, however, going on offense in competitive strategic markets makes sense and presents significant opportunity in the US and potentially elsewhere.
> This post was co-authored by Tyler Rhode, Associate, Consulting Services at QuintilesIMS
To read more, please download our recent white paper, Evolution, Not Revolution