Amy Hunckler, KPMG Strategy

Although significant on a patient-by-patient level, the budget impact of any single specialty drug therapy or even disease market may be small overall in the

realm of $3 trillion in U.S. healthcare spending. However, combined spending growth from new specialty drug breakthroughs appear to be reaching unsustainable levels, a development that is leading to payer scrutiny.

Patients using specialty drugs represent less than 5% of the US population, but they account for 25% of payer and employer healthcare expenditures and 40% of total drug expenditures, according to a Milliman Research Report. [1] And given the small size of the patient populations, specialty drugs represent only 2% of pharmaceutical prescriptions written, but 30% of all consumer drug spending. [2]

How the pharmaceutical industry will respond to this new scrutiny has executives and experts in two camps. Idealists view things optimistically, believing that payers will always scrutinize the cost of new therapies, but true breakthroughs will continue to have relatively high pricing flexibility and few restrictions on access for the foreseeable future. The other camp, which we call the Realists, maintains that no disease area will be able to escape pricing and access challenges, and that the reality of payer pressure must be taken seriously as launches are planned. As is often the case with opposing viewpoints, the truth is arguably somewhere between the two.

The Idealists make a credible argument that payers, no matter how cost-focused, would have a difficult time limiting access to life-saving therapies when few or no alternatives exist. The Realists contend that diseases with only a single breakthrough treatment option are increasingly rare. With a greater choice of therapies, payers will eventually gain the upper hand, driving down net pricing and enforcing their own therapeutic preferences, Realists say. These preferences will be at least partly driven by the discounts and rebates manufacturers offer.

Whether you are a market access Idealist or a Realist, it is hard to deny that payers will need to assert more influence over pricing and access in certain disease states and where competitive dynamics and budgetary metrics require their input. Market access teams throughout the pharmaceutical industry have been speculating about various doom and gloom scenarios to address how payers will respond. Scenarios range from gradual imposition of more demands for discounts in therapeutic categories that had been immune to contracting, to such extreme developments as the United States moving to a single payer system virtually overnight, or the formation of a pan-European pricing and drug procurement body.

As a starting point for identifying the most pressing market access challenges, we offer our perspective on the near-term payer tactics that are most likely to affect the value of most pharmaceutical portfolios. These 10 critical dynamics should be systematically incorporated into all commercial strategy decisions:

Indication-Based Pricing – When a drug has significant variation in efficacy across lifecycle indications, this ties price with outcomes to some extent.

Winner-Take-All Contracting – Competitors offer higher and higher discounts in exchange for exclusive or semi-exclusive formulary access.

Capitated Payments by Outcome – The price would remain constant regardless of the number of drugs required to achieve the outcome.

Narrower Definition of “Added Benefit” – Expectations around a drug’s efficacy will be linked to a higher price or preferential formulary placement.

Patient Affordability Barriers – Coinsurance or co-pays will be addressed with performance-based contracts.

Clinical Pathways – Physicians can receive incentives from payers to help patients adhere to a recommended (and lower cost) treatment regimen.

Off-Label Utilization Restrictions – Payers will limit patient access to certain medications only when they have the highest unmet need.

Consolidation of Drug Procurement – Healthcare providers on a regional basis will band together regarding the purchase of mostly hospital-based therapies.

Greater Demand for Lifecycle Discounting – The US could start to see this practice, which is common in the EU and Japan.

Pharmaceutical companies are struggling with how and to what degree to prepare for the rapidly changing payer landscape, especially as they pertain to the treatment of breakthrough innovations for rarer diseases. As rumor and misguided predictions abound about the measures payers will take to rein in drug costs, inertia can set in.

In most organizations, the market access organization is positioned as an advisor to other internal groups. Insights on the changing payer environment and evolving market access requirements are evaluated by a complex web of groups that may or may not choose to accept market access guidance when it comes to initiating new clinical studies, launching real-world evidence pilots, adapting field force messaging, establishing pricing and contracting terms, or advocating for policy changes within legislative bodies.

Companies should consider a collaboration model between the market access function and other groups that contribute to the overall payer value proposition. Whether this means embedding the function within a larger group or creating an overarching “umbrella” group focused on positioning products for the evolving payer landscape will depend on the culture and structure of the company. However, maintaining the current disjointed approach will not be sustainable as more complex market access dynamics unfold.

Peter Gilmore, principal in KPMG Strategy, has more than 15 years of experience advising senior management teams at leading pharmaceutical, medical device and consumer health companies, focusing on a wide range of commercial and R&D issues. He has evaluated numerous licensing and acquisition deals across 30+ disease categories. Peter is a graduate of Dartmouth College.

Amy Hunckler, director in KPMG Strategy, has nearly 10 years of experience supporting leadership teams at biopharmaceutical, medical device and diagnostics companies. Amy has worked across dozens of therapeutic areas, with a heavy emphasis on core specialty markets, including oncology, immunology, neurology and rare disease. Amy is a graduate of Brown University.

Amy Hunckler, KPMG Strategy

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