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.
Business Gap
The ability to control costs and enforce formulary compliance differs across healthplans, often based on size, geographic location, competition, internal policies & procedures, etc. More controlling payers (i.e. Kaiser) have strong internal policies and operate in a somewhat defined geography. Payers exerting less control tend to operate on a national basis with numerous sub-plans. This diversity provides more opportunity for local factors to influence processes and is exhibited in the variability of formulary compliance in downstream entities of large plans and PBMs. Pharma needs to recognize these variations and use analytical models to support negotiation strategies that maximize product performance.
Further a payer’s ability to effectively control and enforce its formulary may vary by therapeutic area (TA). Therefore, factors used to make a contracting decision for one TA may not be applicable across a Pharma company’s portfolio.
Closing the Gap through Analytics & Insight
In order to effectively implement a successful contracting strategy Pharma needs analytical tools to address several key questions related to market conditions and related variables. These include quantifying a payer’s ability to enforce controls on prescribing, assessing a product’s forecasted performance at higher vs. lower co-pay levels, and measuring the effectiveness of a well-designed co-pay card program. Insights resulting from this analysis can directly influence contracting decisions including terms, rebate levels, tier placement, etc.
Axtria Inc.
As the marketplace continues to evolve, the need to support key business decisions through analytics has become much more than a “nice-to-have”; it is a business requirement. Axtria is an advanced analytics company that combines industry knowledge, analytics and technology to deliver solutions that help companies make better data-driven sales, marketing and Managed Markets decisions, with measurable results. Axtria has the experience to develop data- & analytically-based operational processes for managed markets that not only deliver a ‘what happened’ answer, but also create a foundation for answering the thornier questions of ‘what should we do next?’.
Additional insights on this topic are available in a whitepaper which can be requested here.