Market Report Source

Overview

Introduction
The US is the leading global drugs market in terms of sales and profit margin. However, drug companies are facing an unprecedented number of challenges in maintaining revenue growth: fewer drugs are being approved, a wide number of blockbusters are facing patent expiry, and payers are implementing stringent cost-containment policies in the face of sky-rocketing healthcare costs.

Scope
Identification of the pressures facing the drugs industry and examination of the implications for P&R
Overview of the US healthcare market, focusing on identifying key P&R stakeholders
In-depth analysis of global P&R controls, examining which are important in the US market both currently and in the future
Best-practice recommendations to help drugs companies capitalize on pricing and reimbursement opportunities to maximize drug ROI
Highlights
US drug developers need to prioritize P&R as an important factor in drug development, and in particular should place significant emphasis on performing robust pharmacoeconomic analysis to strengthen the case for setting a strong launch price and securing adequate reimbursement.

Drug developers should increasingly focus on securing strong P&R justification before green-lighting me-too drugs. If it is not possible to clearly differentiate the drug, then the developer should carefully assess potential ROI, and consider discontinuing development if necessary to optimize resource allocation.

To capitalize on changes to the P&R environment, drugs companies must optimize P&R team interaction both internally with other teams such as brand management, and externally with payer decision-makers.

Reasons to Purchase
Review P&R trends in the US, based on Datamonitor analysis and primary research conducted with key stakeholders in the industry
Benchmark company performance against best-practice P&R recommendations to develop stronger P&R strategies
Gain insight into how P&R fits into drug company strategy in the US and identify specific opportunities and threats within this area

Table of Contents

CHAPTER 1 EXECUTIVE SUMMARY

Scope of the report

CHAPTER 2 OVERVIEW OF THE US DRUGS MARKET: IDENTIFYING WHY PRICING AND REIMBURSEMENT IS IMPORTANT AND WHERE IT FITS IN

Introduction: why is drug pricing and reimbursement important?

Pharma is facing a reduction in productivity

Blockbuster patent expiries are also damaging Big Pharma

Pharma pipeline strategy needs to adjust to market demands

Public and private payers exert pressure on profit margins

Pressures on drug developers rise because healthcare expenditure is set to continue to increase

Although drugs make up a relatively small percentage of healthcare spending, they are a highly visible target

Spending on drugs is set to rise

The drugs industry is being squeezed on drug pricing and reimbursement

CHAPTER 3 THE US HEALTHCARE SYSTEM

Introduction

There is a wide range of P&R stakeholders in the US healthcare system

An overview of private and public healthcare in the US

Private healthcare insurance dominates US healthcare provision

The cost of private insurance is rising, however most patients believe they are receiving value for money

The role of COBRA in insurance coverage for the unemployed

Public healthcare in the US covers a significant percentage of the elderly and disabled

An overview of Medicare

An overview of Medicaid

Reimbursement through Medicare/Medicaid

A small but significant percentage of the US population are uninsured

A summary of the US Healthcare System

CHAPTER 4 DRUG PRICING IN THE US

Introduction

Setting the price for a new drug

An overview of pricing controls

Drug pricing controls in the US

The US market favors reimbursement controls over pricing controls

High US drug prices drive R&D investment

The increasing role of government as healthcare prodider raises pressure on pricing and R&D investment

An overview of government-led price controls

Cost-plus pricing is not used in the US

The use of profit controls is more of a European measure than a US strategy

Implicit reference pricing is set to be incorporated into US cost containment strategies

An overview of reference pricing

There are a number of issues with reference pricing

Reference pricing in the US

Price ceilings are used in the US but are not a key pricing control

Price cutting and price freezing do not play a significant role in US cost containment

Linking pricing with Consumer Price Index

The use of pharmacoeconomics (PE) in US pricing controls

Using healthcare economics, outcomes research and pharmacoeconomics to justify pricing

Overview: how does PE fit into healthcare economics?

How does PE fit into drug development and marketing?

Methodologies of pharmacoeconomic evaluation

PE analysis: Cost-minimization analysis

PE analysis: Cost:benefit analysis

PE analysis: Cost-effectiveness analysis

PE analysis: Cost-utility analysis

The use of pharmacoeconomics in HTAs

Issues with pharmacoeconomic analysis

Discounts and rebates have a significant impact on US pricing

The use of discounts and rebates in the public arena

A range of public payers leverage drug discounts in the US

The introduction of Sections 601, 602 and 603 transformed drug pricing in the public arena in the US

States have introduced additional measures to secure discounting

Rebates in the public arena vary by country

Private payers in the US

Cash customers pay the greatest for drugs

PBMs and institutional purchasers are the largest purchasers of drugs

Modulating pricing while the drug is on the market

Parallel importation can reduce profit margins for drugs companies

Drug distribution infrastructure can impact on drug prices

Health informatics may lead to increased pricing transparency

Marketing is an effective tool in supporting drug pricing

Generic incursion reduces profit margins for drugs

CHAPTER 5 DRUG REIMBURSEMENT IN THE US

Introduction

Reimbursement favours innovation-focused drug development

A wide range of factors influence reimbursement

Controlling doctors budgets is used in Europe but is not widely used in the US

Volume and expenditure limitations is not a key reimbursement control in the US

Tiered co-pay and formularies are key reimbursement controls in the US

Overview of formularies

There are a number of stakeholders that impact on formularies

Tiered formularies are widely used in the US for cost containment

Formulary access and Positive/Negative lists are a popular cost containment tool in the US

Drug companies should avoid getting onto negative lists

The relationship between positive lists and prior authorization

Cost is an important factor in formulary access

Taxes on reimbursed drugs

Some countries require drugs to be included on reimbursement lists of a number of countries before reimbursement is granted

Pharmacoeconomics and risk-sharing agreements are increasingly important in the US

Step therapy or fail first plays a central role in cost containment in the US

The role of restricting pharmacy networks in the US

Enforcing a switch to OTC status is another reimbursement restriction tool

CHAPTER 6 THE FUTURE OF PRICING AND REIMBURSEMENT IN THE US: BEST PRACTICE RECOMMENDATIONS

Introduction

Best practice recommendations

Recommendations focusing on improving how P&R is carried out internally in a company

Prioritize P&R as an important functionality in drug development

Broaden the remit of PE analysis and shift it into earlier-phase clinical trials

Optimize the P&R team’s interaction with other internal teams within a company

Ensure full, up-to-date understanding of P&R legislation

Avoid green-lighting mediocre or me-too drugs

Use external organizations more effectively

Carry out better market analysis and competitive intelligence analysis

Recommendations focusing on enhancing how the company carries out P&R activities externally in the marketplace

Enhance public image to boost P&R

Identify and establish extensive contact with decision-makers

Actively manage interaction with formularies

Obtain greater patient feedback

Target physicians to overcome prior authorization

Carry out more effective lobbying

Drug-specific recommendations

Carry out effective brand strengthening

Determine whether to launch in the US first

The future of pricing and reimbursement in the US

CHAPTER 7 APPENDIX : SUPPORTING DATA

Glossary of terms

References

Publications and online articles

Datamonitor resources

Conference literature

Online resources

List of Tables

Table 1: NGO stakeholders in US healthcare

Table 2: Categories of Medicare coverage

Table 3: Quality improvement programs for PDPs and MA-PDs

Table 4: Examples of macroeconomic pricing controls used globally

Table 5: Advantages and disadvantages to CUA

Table 6: Examples of pharmacoeconomic analysis

Table 7: Examples of reimbursement controls used globally

Table 8: Key recommendations to improve the use and effectiveness of PE data in clinical trials

List of Figures

Figure 1: Key pressures facing drugs developers

Figure 2: NME & BLA approvals, compared to PhRMA company R&D spend, 1990-2004

Figure 3: Biotechnology companies are set to show a stronger 2004-10 CAGR than pharmaceutical companies

Figure 4: The percentage of BLAs approved is falling, while the percentage of NMEs is rising, 1990-2004

Figure 5: Generic risk facing leading pharmaceutical and biotech companies is rising through to 2010

Figure 6: Biotechnology drugs targeting therapeutic areas related to an ageing population set to experience stronger growth

Figure 7: US health expenditure set to rise steadily through to 2010, at a higher rate than GDP growth

Figure 8: Medical goods account for a relatively small percentage of total healthcare expenditure in the US, 2003

Figure 9: A large number of stakeholders makes the US healthcare market highly complex

Figure 10: Private healthcare insurance dominates US healthcare provision

Figure 11: PPOs were the most popular form of managed care in 2005 in terms of the percentage of patients offered different types of plans in 2005

Figure 12: Increase in US health insurance premiums vastly outstrips increases in the rate of inflation and earnings

Figure 13: Medicare spending, by type of provider, 2005

Figure 14: Part D enrollment is dominated by United Healthcare, April 2006

Figure 15: Standard Part D Benefit Design for a higher-income patient in 2006

Figure 16: Standard Part D Benefit Design for a lower and middle-income patients, 2006

Figure 17: A number of factors impact on the IPPS reimbursement, 2006

Figure 18: Factors influencing DRG weighting

Figure 19: Factors affecting drug pricing

Figure 20: A number of public and private bodies impact drug pricing in the US

Figure 21: Different US pricing levels and schemes command different drug discount levels, 2003

Figure 22: Globally, a number of factors can affect the price of the drug following launch

Figure 23: A low percentage of drugs approved by the FDA undergo priority reviews

Figure 24: Best Practice Recommendations for P&R in the US

Figure 25: PE tasks to carry out in each drug development phase