Achieving success in managed markets through analytics

It’s no secret that today’s prescription drug market is driven by the major payers who provide prescription drug coverage for a high percentage of patients. Payer organizations such as governments, managed care organizations, hospitals and pharmacy benefit managers have tremendous control over point-of-care availability and market access for prescription drugs. To ensure market access, biopharmaceutical manufacturers negotiate contracts with these managed markets payers that may include discounts and rebates, which could be based on tier status, volume, prompt payment or market share. In order to sustain the profits necessary to satisfy shareholders and fund future research efforts, successful biopharmaceutical manufacturers are increasing their use of business analytics in managed care channels to sharpen the business decisions that determine market access for their key medications.    

Contracts and rebates - balancing market access and profits
Managed care organizations strive to improve patient health while simultaneously controlling the overall cost of treatment. In order to achieve this challenging objective, these organizations established a "tier" system to classify drug treatments into a formulary structure that is deemed to achieve the best possible patient outcome at the lowest cost to both the patient and the payer organization. One payer survey found that 93.1 percent of respondents using a formulary have it structured with multiple tiers. Some payers utilize a three-tier system with generic medications in Tier 1, preferred brand name drugs in Tier 2 and non-preferred brand name drugs in Tier 3. Tier 3 medications require significantly higher patient co-payments than Tier 1 medications. A preferred tier medication becomes the product of choice to treat all indications for which it is approved for the covered patients of that managed care organization. Biopharmaceutical manufacturers compete for access to patients through preferred tier status by providing clear evidence to managed markets that its products are the most cost-effective treatments for a particular condition.

One of the main approaches utilized by biopharmaceutical companies in the competition to gain preferred tier status is their contracting and rebate strategy. In simplest terms, biopharmaceutical companies will offer a rebate for a drug or group of drugs in exchange for increased patient access for their medications through priority formulary status with a particular payer. The rebate is usually based on the payer meeting certain utilization thresholds such as market share or volume. An optimal rebate strategy can result in significant competitive advantage and maximum market share, revenue and profitability for a biopharmaceutical company. 

While the goal of contracting strategy is to make sound business decisions about rebate levels to achieve market share, revenue and profitability objectives, many organizations approach this critical business issue today with limited solutions based on disparate spreadsheets that are applied inconsistently across products or geographies. Data integration and analysis processes are disconnected, making the analytical process for contracts and rebates difficult to standardize and repeat. When decisions are based on simple algorithms and limited variables, recommendations are inconsistent, suboptimal and not predictive.

Improving visibility
But how do you design contract rebate strategies that will produce the best business results for a biopharmaceutical company? Rebates set too high will improve revenue and market share, but could significantly erode profitability. Rebates set too low could result in pricing that is perceived to be too high compared to your competition, preventing a drug from achieving priority status. If you set rebates for a private plan too generously, you could run afoul of United States government requirements to offer the "best price available" to the Medicaid program. Clearly, rebate strategies defined in isolation without the benefit of business analytics could benefit one brand or region - but not the company overall.

An optimal solution to meet the information needs of the managed markets organization includes data integration, contract analytics, scorecards, contract performance reports, control measures and contract status. Contract analytics provide the ability to:

• Predict the effect of various rebate levels on tier status (for your drugs and their competitors), market share and ROI.
• Analyze current contract terms directly against newly proposed contract terms.
• Analyze government best price exposure.

In addition to contract analytics, a managed care scorecard provides easy access to information designed to measure and monitor contract parameters such as plan enrollment, total prescriptions vs. co-pay and contract status. Contract performance capabilities include a series of reports designed to measure and monitor contract performance in terms of total prescriptions, market share, generic competition and new therapy starts. The control functionality features reports designed to measure and monitor contract performance in terms of new patient starts, product switching momentum and total prescriptions by patient attributes such as age, gender or diagnosis. Contract status reports measure and monitor sales, rebates and market share by contract and formulary status.

Closing thoughts
The financial stakes are high for biopharmaceutical manufacturers in managed markets. Many companies are looking to provide better information to decision makers to power more-informed managed care strategies. Implementation of a managed care business analytics platform provides better information to decision makers by:

• Integrating the required data from multiple sources, such as syndicated data providers, internal contract management systems, external data providers and census records.
• Measuring and monitoring rebate contract parameters and performance, such as prescriptions by patient type, product switching momentum, new therapy starts and market share.
• Using what-if modeling against hundreds or even thousands of variables to assess the predicted effect of various rebate scenarios on tier/restriction status, market share, sales volume and ROI.

Is your organization ready to achieve success in managed markets through analytics?

Bio: Mark Weadon is the industry Product Marketing Manager for life sciences at SAS. Prior to SAS, Weadon implemented pharmaceutical industry IT solutions for GlaxoSmithKline for more than 13 years.