Communicating Value in an Era of Price Sensitivity
Communicating Value in an Era of Price Sensitivity
The healthcare industry is evolving from efficacy-based care to efficient care, especially as payers’ influence in determining which drugs, devices, and treatments patients can receive grows. Citizens across the United States are expressing outrage over the cost of medical bills—see, for instance, one Redditor’s alleged $367,435 medical bill—and politicians are exerting downward pressure on healthcare costs by voicing their opposition to exorbitant prices. These economic and social pressures are a central concern of health economics and outcomes research.
How can pharma and device companies adapt to this change in the market? One solution is to communicate product value and affordability. This blog post will cover the major factors catalyzing the adoption of value-based care, and how pharma marketers can adapt to this trend by marketing a product’s value and affordability.
Accountable Care Organizations
Medicare pays healthcare providers (HCPs) using a fee-for-service system, which means HCPs are compensated for the quantity of care they provide, not its quality. The Affordable Care Act created financial subsidies for providers who could reduce costs, a measure aimed at incentivizing HCPs and institutions to shift away from a quantity-based model toward a value-based model. Providers responded by creating accountable care organizations (ACOs), which are voluntary groups of HCPs and hospitals who coordinate the care they give to their Medicare patients, usually those with chronic diseases and disorders.
ACOs are designed to share patient information with all HCPs and institutions within the organization in order to give a holistic view of a patient's treatment and avoid multiple providers treating the same conditions. By improving organization, logistics, and quality of care, providers and institutions can augment their profits, especially when factoring inr government subsidies.
It might be a bit outlandish to compare prescribing medications to buying a bespoke pair of shoes, but we’re going to try. Big pharma is embracing the idea that variables such as genes, environment, and lifestyle should affect how a patient is treated: Just as shoes are not one-size-fits-all, neither is treatment—and pharma companies are trying to tailor therapies, typically gene-based ones, to individuals, as opposed to providing one treatment for all patients.
A natural response to the concept of precision medicine is: “That sounds expensive!” To assuage these concerns, we'll return to our example of custom footwear. A consumer who buys a bespoke pair of shoes knows that they will fit the contours of his feet, but a customer at a department store will most likely need to try on many pairs of shoes before finding the right fit. Now, imagine if the department store charged a copay for each pair of shoes the customer tried on: The cost would skyrocket, eclipsing even the cost of a bespoke pair of shoes.
The same holds true for pharmaceuticals: Using biological and environmental indicators to tailor a medication to an individual increases the likelihood that the first prescription will be effective, and lowers the probability that a patient will return for a new prescription. Prescription costs and repeat visits to doctors decrease, while the quality of care increases.
Health Technology Assessment
In a study published in 2008, the U.S. Congressional Budget Office estimated that “roughly half of the increase in healthcare spending during the past several decades was associated with the expanded capabilities of medicine brought about by technological advances.” While patient outcomes have improved because of these technological advances, cutting-edge technology is vastly more expensive than lower-tech options. Enter health technology assessment (HTA), the economic, social, and ethical study of health technology.
HTA research determines if new technology is effective, for whom it works, whether it is economically viable, and whether it is better than existing alternatives. In response to HTA research ,governments and international agencies are introducing uniform standards for assessing the impacts and consequences of new technologies. And because agencies can now recommend against new technologies that come with exorbitant price tags, HTA research puts pressure on pharma and device companies to lower costs.
Wearables and pocket-sized health devices have made enormous strides in terms of their capabilities: They can now provide medical advice and information, in addition to monitoring a patient’s conditions. Apps and wearable devices can monitor vitals, detect strokes, and diagnose conditions such as breast cancer, pancreatic cancer, and diabetic retinopathy.
Initial screenings for diseases and conditions are still a necessity, but direct-to-consumer apps and devices may one day obviate unnecessary trips to the doctor’s office. Doctors may eventually be able to monitor patients’ conditions and even diagnose them remotely: Clinical trials are currently testing whether Fitbits can improve fitness levels in cystic fibrosis patients and diagnose chronic obstructive pulmonary disease.
These digital health advances are in an inchoate stage, but they hint at a viable and cheap alternative to expensive testing.
Per the U.S. Food and Drug Administration (FDA), a biosimilar is a biological product that “is biosimilar to or interchangeable with an FDA-approved biological product,” often referred to as a reference product. Because of their complexity, biologicals will by nature exhibit various levels of variance. Manufacturers of biosimilars therefore seek to demonstrate similar structure, efficacy, and pharmacokinetic and pharmacodynamics properties to that of the reference product in seeking approval of their molecules.
The FDA and European Medicines Agency (EMA) have tended to extrapolate approvals for biosimilars. That is, biologic therapies often have multiple indications, and biosimilar manufacturers need demonstrate efficacy for only one indication to be approved for all indications approved for the reference product. This tends to align with the FDA’s policy of allowing data accumulated about a compound to be used in evaluating it. Congress created an abbreviated licensure pathway for biosimilars in 2009, which the FDA says will “provide more treatment options, increase access to lifesaving medications, and potentially lower health care costs through competition.”
Although the availability of biosimilars will enhance patient access to new therapies, their impact on pricing will probably not be as great as that of generics. Prices for biosimilars will likely be approximately 15 to 35% less than those of their reference product, which may enable manufacturers of the reference product to reduce their prices to compete.
What Does This Mean for Pharma and Device Marketers?
Competition and political pressure are forcing pharma and device marketers to adopt a value-based model: It’s now insufficient to merely claim that your product is effective. You must also demonstrate a value proposition organized around affordability and cost offsets, enhanced efficacy and safety, and improvements to quality of care and quality of life. Expect phase III clinical trials and post-launch studies to analyze a product’s value proposition by using data to demonstrate these benefits.
These same market forces are pressuring pharma and device marketers to lower their prices. Patients and politicians alike lambasted Mylan for raising the price of its EpiPen over 400%, and publicly condemned Turing Pharmaceuticals and its CEO Martin Shkreli for inflating the price of Daraprim by over 5,000%. Social and political headwinds are stirring up resentment of high prices for lifesaving drugs, which buttress the need to provide a value proposition.
Will Prices Fall?
Not necessarily. It's true that downward pressure against drug and device prices is intensifying. But while 64% of Democrats, 60% of Republicans, and 58% of Independents support lowering the cost of prescription drugs and legislation to approve generics and biosimilars is opening the market to low-cost alternative treatments, very little legislation has been enacted to directly restrict drug prices. The market remains friendly to pharma, but manufacturers must articulate their value proposition to patients, HCPs, payers, and the government, and produce data to support their message.
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