Creating Win-Win Solutions from the Ongoing Drug Cost and Price Debate

Published by: Decision Resources

Published: Jul. 24, 2007 - 31 Pages

Table of Contents

Executive Summary

Strategic Considerations

Stakeholder Implications

Today’s Drug Cost/Price Battlefi eld

Price Criticism in a Nutshell

Entrenched Customer Cost Positions

Factors Driving Health Care Costs

Original Expectations

Inescapable Paradox

Health Care Demographics

Health Care Services Defy Centralization

Intractable Ineffi ciencies

Temporary Relief from Expenditure Controls

Economy Fluctuations

Impact of Demand-Side Controls

Factors Driving Drug Costs

Price and Profi t Controls

Value-for-Money Emphasis

Evidence-Based Medicine

Entrenched Industry Price Positions

Impact of Customer Activism

Need for Product Differentiation

Current Cost/Price Stratagems

Customers as Active Managers of Health Care Cost

Reference Pricing

Drug Legislation and Regulation

Rationing as a Way of Life

Health Technology Assessment

Supplier Price Stratagems

What Price Will the Market Bear?

Pricing Orphan Drugs

Increasing Prices

Thwarting Parallel Imports

Staving Off Generics

Promoting Directly to the Customer

Value-Price Concessions

Value Proposition Pricing

The Value of Time

Purchaser/Supplier Risk Sharing

Johnson & Johnson’s Velcade

Pfi zer’s Sutent

GlaxoSmithKline’s Phase IV Proposal

Key Guiding Principles for Creating Win-Win Solutions

Future Dynamics Between Health Care Customer and Pharmaceutical Industries

Figures

1. Share of U.S. Prescription Drug Cost by Payer, 1990-2006

2. Factors Driving Health Care and Drug Costs and Customer Concerns over Ability

to Pay

3. Complex Prescribing Decision-Making Process—The New Primacy of Monetary

Issues

4. Setting Prices in a Complex and Multilevel Environment

5. Using Regulatory Hurdles to Force Pharma Companies to Respond to Customer

Concerns

6. Thousands Denied Sight-Saving Drugs in England

7. The New Value Proposition Equation

Sidebars

National Institute for Health and Clinical Excellence--A History of Criticism and Controversy

Tables

1. Pharmaceutical Cost-Containment Measures: Demand-Side Controls

2. Pharmaceutical Cost-Containment Measures: Supply-Side Controls on Manufacturers

3. Projected Impact of Key Brand Patent Expiry on Leading Big Pharma Companies

4. Drugs Approved by the Scottish Medicines Consortium

Abstract

• In today's complex pharmaceutical marketplace and prescription decision-making process, monetary issues
now reign supreme. How has the cost/price issue infl uenced the decision-making process of drug customers and health care providers? Of drug manufacturers?
• A paradox has evolved in today's health care industry: treatment is growing more expensive, but more and
more people are demanding to be treated. How is the desire for universal health care coverage confl icting with the reality of the market? What sort of middle ground will emerge with regard to coverage that will satisfy both parties?
• The advent of knowledgeable and fi nancially motivated customers has irrevocably changed the way in which
buyers perceive drug price. What is the perception of drug price in the context of health care costs? How can the pharmaceutical industry infl uence or alter this perception?
• The path to success in the dynamic between the health care customer and pharmaceutical industry is not
through a decisive victory of one side over the other. What changes in the customer/industry relationship will ensure future success for pharmaceutical companies? What new stratagems could be adopted to yield winning solutions for both parties?

• Drug cost/price criticisms: critics' emotional and economic positions against perceived high drug costs.
• The battle lines: entrenched customer positions about health care costs and pharmaceutical industry positions on price.
• Current cost/price stratagems: strategies used by customers and the industry to manage costs and prices.
• Value/price concessions: select industry pricing strategies that refl ect a more value-based approach to pricing.
• Market outlook: methods for creating a win-win pricing environment and our forecast for future customer/industry
dynamics.

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