This book encompasses four parts that form the backbone of the complicated journey into understanding drug pricing on a global basis:
Drug Pricing and Market Access Basics,
Structured Pricing and Market Access Approaches,
Developing an Integrated Global Strategy,
Key Healthcare Systems.
Be prepared for lots of abbreviations used throughout the text that cover administrations, agencies, alliances, departments, entities, organizations, schedules, companies, diseases and classifications as well as advertising/market/marketing, medical and drug-speak.
This book is not a trivial accounting and light conversation targeted at average consumers wanting to understand why their drugs cost so much and where/how to get them “cheaply,” though some may gain comprehension of the issue. Rather, it is a deep discussion and interpretation of forces driving our global health-care markets backed by Schoonveld’s years of practice and personal investment within this domain. I must admit to a nervous anxiety throughout this read as I learned that those involved in health care (whether as caregivers, payers or providers) are not only under the pressure of decision making for those involved but also with new drug development and implementation, pricing, market access controls and health economics. To that end, the book offers a forthright discussion on sensitive moral and ethical controversies surrounding health-care concerns and a direct, sometimes blunt, accounting of realities.
Government controls and international trade are contributing to the complexity of global drug pricing. The health-care industry cost structure and humanistic considerations bring emotional reactions to trade-off decisions forcing “a value to be placed on improvements of human life” (p. 19). Schoonveld uses the analogy of “dinner for three,” referring to physician, patient and payer (the chooser selects the drug, the consumer ingests the drug and the insurance agent pays the bill)—each with his/her own interests in quality and cost for the “meal.”
From a payer’s perspective, there are a number of payer systems, decision-making bodies and key budget holders in the process and cost controls and decision-making processes used by payers. Decision making is formed by assessing these areas: medical need, effectiveness, evidence, economical impact, ability to control and political importance. Cost-control mechanisms are used to stay within budget and include: direct, indirect and utilization controls. Pricing and profits form discussion with price elasticity and optimization in the context of payer control and managed care formularies. New drugs are evaluated by comparing the existing options. A “gold” standard, under a formal Reference Based Pricing system, is a means of pricing and reimbursement control which can challenge and impact innovation incentives and safety. The discipline of health outcomes focuses on economic and humanistic outcomes of a health-care intervention. NIH provides definitions for health outcomes, health economics and pharmaco-economics (p. 72). Health outcomes are expressed as long-term patient outcomes and patient quality of life measures (very vague from many payers’ perspectives). Stepwise innovations are supported by budget impact analyses and cost-minimization; innovations with substantial drug cost consequences are supported by cost-effectiveness analyses.
The value placed on drugs is cast in the context of features, benefits, price and importance for key stakeholders (physicians, patients and payers) and is summarized in the context of the payer benefit pyramid. Product attributes and functional consequences form the base foundation of the pyramid, and benefits (clinical, humanistic, economic, public health) shape the top of the pyramid (p. 84).
Drug development is described as “expensive, time-consuming, and very risky” (p. 97) with full development sequenced as: pre-clinical, through multiple stages of development, registration, launch and life-cycle management. Phases include: asset shaping, evidence building and implementation, and adjustment, and each phase requires different activities to support development. Oncology and diabetes examples are shared to illustrate the complexities and ethical considerations at play during development of a new drug.
Four types of global payer segments are described:
Therapeutic referencing systems (the most common pricing and market-access control systems in the world);
Emerging cash; and
These are primarily differentiated by their philosophies and principles in regard to cost management. The PODiUM approach and its elements include: Patient & Rx Flow, Promise Options, Direct Competition, Unmet Needs and Money Flow; these help assess the situational context of a drug systematically, as attitudes toward and the price for a drug are related to a drug’s value proposition (determined by the specific context)—i.e., pricing and market-access opportunities for a new drug for the payers, physicians and patients.
The BEST PRICE framework helps to explore potential pricing and market access for a drug via four steps:
1) Benefits analysis,
2) Evidence assessment,
3) Payer value Story,
4) Optimal PRICE.
Payer segments were analyzed with country specific examples to show the relationship of demonstrated evidence of key benefits, pricing and market access:
Competitive Insurance-Based System (U.S.),
Therapeutic Reference Systems (France, Germany and Japan),
Health Economics-Driven Markets (United Kingdom and Canada), and
Emerging Cash Markets (Brazil, Russia, India, China).
Pharmaceutical companies are organized very differently for global pricing and market-access functions. Strategies involve trade-offs between markets—launching with higher pricing than optimal in one market to avoid price decline in another. Companies are cautious with pricing decisions to protect their reputations. “Market access is the discipline that addresses any financially based consideration or hurdle to drug prescribing and use, whether imposed by public or private third-party payers, or experienced as a consequence of patient affordability” (p. 181). Pricing and Market Access (P & MA) activities span locally and globally. Pricing is a key element of a pricing strategy (Kotler, 2007) and needs to be integrated with marketing strategy. Information systems are used to monitor and support strategic pricing analyses.
An optimal pricing strategy from a global perspective is considered; 1) it must support the marketing, medical and operational strategies, and 2) prices between countries and over a drug’s life cycle need to be closely managed to protect company profits.
Five key steps are identified to establish optimal global pricing strategy (p. 196):
1) Identify locally optimal price in each key strategic market,
2) Analyze impact of price referencing and international trade (either parallel or re-importation),
3) Evaluate pharmaco-political concerns,
4) Identify global strategy options,
5) Select the optimal solutions.
U.S. re-importation is not legal. Other forms of trade in drugs are: mail order, importation for personal use and illegal trade between countries. Global strategy options and industry cost structures require competitive strategy across the globe; prices in some countries will impact pricing elsewhere.
A chapter is dedicated to ethical considerations of global drug pricing. Discussion in this chapter centers on the right to health care and compassionately priced drugs. The World Health Organization, generic manufacturers and developing countries argue for the creation of two worlds, allowing for low-cost drug supply for low-income countries at or near manufacturing cost levels, but there are several flaws cited for this two-world principle including: change over time as economies grow, controls for product flow, impact on international price referencing and informal negotiations, health-care needs assignments, and disparate income in countries such as India and China.
Risk-sharing is defined as the idea that a payer will add a new product to its formulary in return for a pharmaceutical company’s guarantee of efficacy. However, as pointed out by Schoonveld, most deals share no risk, and he prefers to use the term “alternative pricing schemes” for these outcomes-based contracting and performance-based agreements. A range of types of alternative pricing deals presented include: biomarket-linked reimbursements, surrogate endpoint-based, short-term performance-based, population-based performance guarantee, per-patient cost capitation, and overall sales volume capitation. Goals are important for a deal’s viability—both payer and pharmaceutical company should see a benefit.
Pricing research is used to understand payer, physician and patient decision making. Schoonveld emphasizes the need to avoid the bias of overstated importance of price in decision making by respondents with his own strong bias to avoid research lacking in sufficient structured, in-depth, qualitative interviews and devoid of understanding of payer preferences and decision making, motivations and reasoning, funding flow, and use of inexperienced vendors of pricing research.
The Van Westendorp research methodology is highlighted—as it is frequently used for pharmaceuticals (Van Westendorp, 1976) (p. 241). This pricing instrument consists of four questions (abbreviated here):
1) Reasonable price?
2) Price too low and would question value?
3) Price expensive but still use it?
4) Price too expensive and would not use it?
Another methodology, Gabor-Granger, is also illustrated (Gabor, 1961) (p. 246). Product profiles are presented with a “would you buy” question repeated at various price points to identify optimum price. Schoonveld leaves us with the “don’t try this at home” advice for complicated pricing research; avoid bias and work with experienced vendors.
The final part of this book covers key global health-care systems, key processes and driving factors and organizations involved in the various pricing and market-access approval steps. The health-care systems covered include: United States, Canada, France, Germany, Italy, Spain, United Kingdom, Japan, Australia, Brazil, China and India. Real–life issues and practical aspects for approval are discussed within each system—pricing, market access, health insurance, pharmaceuticals, Medicare/Medicaid, reimbursement, hospital drugs, formularies, health economics, healthcare reform, etc.
Schoonveld does an excellent job of guiding and educating the reader about drug innovation and pricing by providing clear definitions for the terms and practices used by the pharmaceutical industries, those at “dinner,” and involved others throughout his book. Even an outsider to this world of pharmaceutical drugs, drug innovation and global pricing can follow and grasp an appreciation of the emotional and ethical considerations for health care within the context of this inter-tangled, complex, highly evolved international market.
Gabor, A. 1961. “On the price consciousness of consumers,” Applied Statistics, 10, 170-88.
Kotler, P. 2007. Principles of Marketing. 12th edition, Prentice Hall.
Van Westendorp, P. 1976. NSS-Price Sensitivity Meter (PSM): A New Approach to Study Consumer Perception of Prices. Proceedings of the 29th ESOMAR Congress, Amsterdam, 139-67.
Carla L. Kuesten
Released: September 9, 2013, 8:00 am
| Updated: September 17, 2013, 11:59 am