Axtria Blogs

Blogs By Mike Diggin

Enabling Smarter Commercial Model Experimentation

Enabling Smarter Commercial Model Experimentation

Numerous publications, blogs, etc. have reported how quickly the pharmaceutical industry is changing and how manufacturers need to modify their approaches and structures to survive the competition. The pace of change necessitates that Pharma companies undergo a transformation; with organizations expanding the capabilities of their commercial models through smarter experimentation, scalable measurement, faster learning, and dynamic decision making regarding their commercial models.

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Why Pharma needs to evolve Sales Strategies?

Prescribing decisions in the institutional setting differ considerably from the retail setting. As noted in the figure below, HCPs are influenced by several parties, both internal and external. While the health of the patient and safety of medications continue to be of paramount importance, over the past several years, financial considerations have increased attention on quality of care. No longer is a hospital’s survival dependent on the “hotel model” (where higher occupancy equals greater profitability), rather insurance companies, in an effort to control costs, are incentivizing institutions (IDNs) to keep patients healthy, reduce the length and frequency of hospitals visits, etc. Further, as new information systems and technologies are implemented (many driven by requirements outlined in the Affordable Care Act) the ability of key payers to manage costs and processes will improve. This will continue to drive the behaviors of healthcare professionals and their employers.

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Payer Value Proposition

Launching a new product in today’s Pharmaceuticals marketplace can be very challenging. The dynamics of the market are shifting at an unprecedented pace, with an ever-increasing number of factors influencing the prescribing behavior of Healthcare Professionals. This is evident in the expansion and control of integrated health systems, the conversion of FFS Medicaid to Managed Medicaid, impacts of Healthcare Reform (including Accountable Care Organizations and Healthcare Exchanges), etc. Further, the need to control healthcare costs is having a direct impact on Pharma, where physical access for sales reps is being limited, quality-based initiatives are being driven, and branded products are being restricted.

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Payer Influence on Product Performance in the Pharma Industry

Rebates and Discounts represent one of the largest line items on Financial Statements of Pharmaceutical Manufacturers, yet the criteria for assessing contracting decisions often lacks the analytical rigor that match the financial exposure. Pre-deal analysis uses inputs from account managers which tend to overestimate both the benefit of contracting and the risks associated of not contracting. This is not a surprise since factors beyond Pharma’s control can impact the actual results, including a payer’s formulary control and related spillover impacts.

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The Accountable Care Organization: Powerful Sales Incentives Will Shift Prescribing Behavior

An Accountable Care Organization (ACO) is a group of providers willing and capable of accepting accountability for the total cost and quality of care for a defined population. The goal of the ACO is to deliver coordinated and efficient care. ACOs that achieve quality and cost targets (determined by Medicare) will receive a financial bonus based on selected “Risk Sharing Model”, and under some approaches, those that fail will be subject to a financial penalty.

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Promotional Activity – Including/Excluding Healthcare Professionals

Over the past several years a number of Pharma companies have developed processes and procedures to ensure that promotional activities, personal and non-personal, are targeted appropriately. Customers are either “included or excluded” based on the specialty of a healthcare professional (HCP) and a product’s approved indication(s). As noted in a variety of recent legal and financial settlements, the costs associated with inadequate promotional controls is extremely high.

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A Closer Look at Integrated Health Groups

Integrated Healthcare Groups can be segmented (targeted) based on several criteria/factors such as size, # of hospitals, # of admissions, # of employed HCPs (hospital and community-based), etc. When analyzing IHGs it is also important to assess their true level of integration. Several large IHGs (i.e. Carolinas HS and Novant) have grown rapidly through acquisition however they do not have common systems in place across their network, therefore the level of “integration” is somewhat weak. Conversely IHGs with more established systems (i.e. Kaiser, Geisinger, etc.) have infrastructures in place that position them to drive a high level of control and track, measure and reward performance.

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Managed Markets - Deal Assessments

Many factors influence deal performance and it benefits a Pharma manufacturer to thoroughly gather and analyze as much data as possible in order to make the most informed decision. Pre-deal analytics are certainly a critical step in the process, however a comprehensive evaluation of all drivers that influence performance is required to truly evaluate a deal. Developing tools that assist in looking back at previous deals provides an organization with a clearer understanding of a payer, the effectiveness of their internal resources and positions leadership to pursue new opportunities with greater confidence

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