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Pricing and Reimbursement in the US: Innovation And Robust Pharmacoeconomic Analysis Are KeyPublished by: Datamonitor Published: Jun. 22, 2006 - 164 Pages Table of ContentsCHAPTER 1 EXECUTIVE SUMMARY 4 Scope of the report 4 CHAPTER 2 OVERVIEW OF THE US DRUGS MARKET: IDENTIFYING WHY PRICING AND REIMBURSEMENT IS IMPORTANT AND WHERE IT FITS IN 13 Introduction: why is drug pricing and reimbursement important? 14 Pharma is facing a reduction in productivity 15 Blockbuster patent expiries are also damaging Big Pharma 18 Pharma pipeline strategy needs to adjust to market demands 19 Public and private payers exert pressure on profit margins 21 Pressures on drug developers rise because healthcare expenditure is set to continue to increase 22 Although drugs make up a relatively small percentage of healthcare spending, they are a highly visible target 23 Spending on drugs is set to rise 24 The drugs industry is being squeezed on drug pricing and reimbursement 25 CHAPTER 3 THE US HEALTHCARE SYSTEM 26 Introduction 27 There is a wide range of P&R stakeholders in the US healthcare system 27 An overview of private and public healthcare in the US 29 Private healthcare insurance dominates US healthcare provision 30 The cost of private insurance is rising, however most patients believe they are receiving value for money 32 The role of COBRA in insurance coverage for the unemployed 33 Public healthcare in the US covers a significant percentage of the elderly and disabled 33 An overview of Medicare 33 An overview of Medicaid 48 Reimbursement through Medicare/Medicaid 50 A small but significant percentage of the US population are uninsured 53 A summary of the US Healthcare System 54 CHAPTER 4 DRUG PRICING IN THE US 55 Introduction 56 Setting the price for a new drug 56 An overview of pricing controls 58 Drug pricing controls in the US 59 The US market favors reimbursement controls over pricing controls 59 High US drug prices drive R&D investment 61 The increasing role of government as healthcare prodider raises pressure on pricing and R&D investment 61 An overview of government-led price controls 62 Cost-plus pricing is not used in the US 62 The use of profit controls is more of a European measure than a US strategy 63 Implicit reference pricing is set to be incorporated into US cost containment strategies 63 An overview of reference pricing 63 There are a number of issues with reference pricing 64 Reference pricing in the US 65 Price ceilings are used in the US but are not a key pricing control 66 Price cutting and price freezing do not play a significant role in US cost containment 66 Linking pricing with Consumer Price Index 67 The use of pharmacoeconomics (PE) in US pricing controls 67 Using healthcare economics, outcomes research and pharmacoeconomics to justify pricing 67 Overview: how does PE fit into healthcare economics? 67 How does PE fit into drug development and marketing? 68 Methodologies of pharmacoeconomic evaluation 70 PE analysis: Cost-minimization analysis 71 PE analysis: Cost:benefit analysis 71 PE analysis: Cost-effectiveness analysis 71 PE analysis: Cost-utility analysis 72 The use of pharmacoeconomics in HTAs 74 Issues with pharmacoeconomic analysis 75 Discounts and rebates have a significant impact on US pricing 76 The use of discounts and rebates in the public arena 76 A range of public payers leverage drug discounts in the US 79 The introduction of Sections 601, 602 and 603 transformed drug pricing in the public arena in the US 80 States have introduced additional measures to secure discounting 81 Rebates in the public arena vary by country 82 Private payers in the US 82 Cash customers pay the greatest for drugs 82 PBMs and institutional purchasers are the largest purchasers of drugs 85 Modulating pricing while the drug is on the market 86 Parallel importation can reduce profit margins for drugs companies 87 Drug distribution infrastructure can impact on drug prices 91 Health informatics may lead to increased pricing transparency 92 Marketing is an effective tool in supporting drug pricing 93 Generic incursion reduces profit margins for drugs 94 CHAPTER 5 DRUG REIMBURSEMENT IN THE US 97 Introduction 98 Reimbursement favours innovation-focused drug development 98 A wide range of factors influence reimbursement 101 Controlling doctors budgets is used in Europe but is not widely used in the US 102 Volume and expenditure limitations is not a key reimbursement control in the US 102 Tiered co-pay and formularies are key reimbursement controls in the US 103 Overview of formularies 104 There are a number of stakeholders that impact on formularies 105 Tiered formularies are widely used in the US for cost containment 107 Formulary access and Positive/Negative lists are a popular cost containment tool in the US 108 Drug companies should avoid getting onto negative lists 109 The relationship between positive lists and prior authorization 109 Cost is an important factor in formulary access 110 Taxes on reimbursed drugs 110 Some countries require drugs to be included on reimbursement lists of a number of countries before reimbursement is granted 110 Pharmacoeconomics and risk-sharing agreements are increasingly important in the US 111 Step therapy or fail first plays a central role in cost containment in the US 111 The role of restricting pharmacy networks in the US 112 Enforcing a switch to OTC status is another reimbursement restriction tool 113 CHAPTER 6 THE FUTURE OF PRICING AND REIMBURSEMENT IN THE US: BEST PRACTICE RECOMMENDATIONS 114 Introduction 114 Best practice recommendations 114 Recommendations focusing on improving how P&R is carried out internally in a company 115 Prioritize P&R as an important functionality in drug development 115 Broaden the remit of PE analysis and shift it into earlier-phase clinical trials 115 Optimize the P&R team's interaction with other internal teams within a company 127 Ensure full, up-to-date understanding of P&R legislation 128 Avoid green-lighting mediocre or me-too drugs 130 Use external organizations more effectively 131 Carry out better market analysis and competitive intelligence analysis 132 Recommendations focusing on enhancing how the company carries out P&R activities externally in the marketplace 134 Enhance public image to boost P&R 134 Identify and establish extensive contact with decision-makers 137 Actively manage interaction with formularies 138 Obtain greater patient feedback 140 Target physicians to overcome prior authorization 140 Carry out more effective lobbying 141 Drug-specific recommendations 142 Carry out effective brand strengthening 142 Determine whether to launch in the US first 143 The future of pricing and reimbursement in the US 144 CHAPTER 7 APPENDIX : SUPPORTING DATA 146 Glossary of terms 146 References 148 Publications and online articles 148 Datamonitor resources 161 Conference literature 162 Online resources 164 List of Tables Table 1: NGO stakeholders in US healthcare 29 Table 2: Categories of Medicare coverage 34 Table 3: Quality improvement programs for PDPs and MA-PDs 40 Table 4: Examples of macroeconomic pricing controls used globally 59 Table 5: Advantages and disadvantages to CUA 73 Table 6: Examples of pharmacoeconomic analysis 74 Table 7: Examples of reimbursement controls used globally 101 Table 8: Key recommendations to improve the use and effectiveness of PE data in clinical trials 121 List of Figures Figure 1: Key pressures facing drugs developers 14 Figure 2: NME & BLA approvals, compared to PhRMA company R&D spend, 1990-2004 16 Figure 3: Biotechnology companies are set to show a stronger 2004-10 CAGR than pharmaceutical companies 17 Figure 4: The percentage of BLAs approved is falling, while the percentage of NMEs is rising, 1990-2004 18 Figure 5: Generic risk facing leading pharmaceutical and biotech companies is rising through to 2010 19 Figure 6: Biotechnology drugs targeting therapeutic areas related to an ageing population set to experience stronger growth 20 Figure 7: US health expenditure set to rise steadily through to 2010, at a higher rate than GDP growth 22 Figure 8: Medical goods account for a relatively small percentage of total healthcare expenditure in the US, 2003 23 Figure 9: A large number of stakeholders makes the US healthcare market highly complex 26 Figure 10: Private healthcare insurance dominates US healthcare provision 30 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 31 Figure 12: Increase in US health insurance premiums vastly outstrips increases in the rate of inflation and earnings 32 Figure 13: Medicare spending, by type of provider, 2005 38 Figure 14: Part D enrollment is dominated by United Healthcare, April 2006 40 Figure 15: Standard Part D Benefit Design for a higher-income patient in 2006 42 Figure 16: Standard Part D Benefit Design for a lower and middle-income patients, 2006 43 Figure 17: A number of factors impact on the IPPS reimbursement, 2006 52 Figure 18: Factors influencing DRG weighting 52 Figure 19: Factors affecting drug pricing 58 Figure 20: A number of public and private bodies impact drug pricing in the US 60 Figure 21: Different US pricing levels and schemes command different drug discount levels, 2003 79 Figure 22: Globally, a number of factors can affect the price of the drug following launch 87 Figure 23: A low percentage of drugs approved by the FDA undergo priority reviews 99 Figure 24: Best Practice Recommendations for P&R in the US 114 Figure 25: PE tasks to carry out in each drug development phase 120 AbstractIntroductionThe 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
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
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