		In conjunction with the Council of Supply Chain Management Professionals’ annual symposium (Atlanta, Sept. 30—Oct. 3), the 19th Annual Survey of Third-Party Logistics Providers was delivered. The survey, conducted by Drs. Robert and Kristin Lieb, of Northeastern University and Emerson College respectively—and with funding from Penske Logistics&mdash;polled 31 “large” 3PLs in North America, Europe and Asia-Pacific. Most of the study looks at overall business conditions and forecasts; this year, a part of the study was dedicated specifically to healthcare.

		Survey respondents globally say that their organizations have “weathered the tepid economic conditions” of 2011 fairly well, with all companies finishing that year in the black financially. Europe has been a soft spot, mostly due to the ongoing financial crisis of the euro and accompanying economic downturn, and with unprofitability for regional operators doing business there.

		Respondents in North America say that 73% of them met or exceeded their revenue projections for last year—which is actually down by about 15 percentage points from the year before (Fig. 1). (However, “meeting an expectation” might simply mean good forecasting, and not necessarily actual growth.) In Europe, just under 60% met or exceeded expectations (and 25% were actually unprofitable), which is actually up slightly from the year before, and with just under 30% exceeding expectations, is indicative of a climate of clear winners and losers there. In Asia-Pacific, four of the eight companies surveyed met their financial objectives for the year.

		These 3PLs handle all sorts of traded goods, via a full range of transportation modes; healthcare products are actually a relatively small portion of the physical volume for most of them. However, the survey highlighted the potential these firms are seeing in healthcare products delivery now and in the future. Fig. 2 shows their current and projected expectations for healthcare services; that projection can fairly be characterized by wild optimism: While it is mathematically possible for business to double in size, across the world, in the next three years, it is more likely that some of the surveyed firms will meet these projections—and some will not.

		“The 3PLs are looking at getting business in this industry as companies attempt to gain control of their costs,” says Lieb. “That is typically when the concept of using 3PL services gains traction.”

		And while medical devices is a smaller dollar-volume business than pharmaceuticals, it could be a larger physical volume (which is important to logistics providers). More than half of the CEOs predicted the medical devices segment of the industry will grow fastest during the next three years.

Fig. 2. Average % of Revenue from Healthcare Customers

		“Our aging population and ongoing technological innovations have led to a proliferation of medical devices and equipment for large and mid-sized distributors,” stated Joe Gallick, SVP, sales for Penske Logistics (Reading, PA), in a news release. “As these companies grow, the increasing complexity and higher costs of managing logistics internally make a compelling case for collaborating with a third-party logistics provider, who can help them design and implement more efficient transportation and distribution solutions.”

		From the 3PL executive perspective, here’s what they believe are the critical concerns of healthcare products clients:

			Growing importance of compliance and regulatory assurance

			Developing countries increasing consumption—major logistics needs

			Hospitals looking to outsource procurement and delivery

			More stringent government regulation of imported medical products

			Aging population and building of hospitals/clinics, coupled with growing global urbanization, expected to drive growth in the medical device industry.

		One other element of the report surveys 3PLs’ understanding of their clients’ commitment to sustainability. Based on the 2012 data, sustainability fell as a business concern (Fig. 3), continuing a trend that began in 2010. Addressing environmental needs is often looked on as a desirable, but not essential business value; it looks like the current tough economic conditions are affecting that trend.

Fig. 3. Environmental Sustainability, Customers

						Asking 3PLs for Cost/Impact Analysis

		Finally, a survey finding affecting 3PLs globally found that there is a “talent shortage” of qualified employees. “The problems with drivers and warehousing workers are well-documented,” says Lieb. “In addition, all of the major 3PLs in all three regions have identified this is a problem at the managerial level as well.” The textbook-economics solution to a labor shortage is higher wages, but it remains to be seen whether 3PLs’ business performance can support that.

		The companies participating in the survey were: Agility Logistics; Cardinal Logistics; Caterpillar Logistics; CEVA Logistics; DB Schenker; DHL Exel Supply Chain; DSC Logistics; GENCO Supply Chain Solutions; Kuehne + Nagel Logistics, Inc.; Menlo Logistics; MIQ Logistics; Penske Logistics; Rhenus Contract Logistics; Transplace; UPS Supply Chain Solutions; UTi Integrated Logistics; Werner Logistics; and Yusen Logistics.

Articles

Annual survey of leading third-party logistics providers tabulates their interest in serving manufacturers, hospitals and retail

3PL execs assess global business conditions, highlight healthcare's potential

	While the evolving EHR communication channel is mostly in the control of health systems that adopt a certain vendor, system-wide, individual doctors can—and do&mdash;connect online via social-media networks set up for their profession. One of the leaders in this regard is Sermo (Cambridge, MA), recently acquired by WorldOne Interactive, a New York-based market research firm specializing in email communications.

	Among other things, the Sermo acquisition will power up WorldOne’s MedLive service, an online polling mechanism to get fast responses from WorldOne’s database of 1.8 million healthcare professionals worldwide. Sermo, which counts more than125,000 credentialed physicians as members in its community, provides interactivity among its members. Last year, it launched iConsult, a crowdsourcing platform through which physicians can share diagnostic data, queries and images among peers who are also in the Sermo network, to solicit opinions of others for treatment.

	“Doctors are increasingly using their digital devices to get professional-level wisdom from the crowd online,” comments Hudson Plumb, SVP and CIO, McCann Regan Campbell Ward (New York).

	“We allow brands to host content, such as sponsored posts, educational materials and presentations by key opinion leaders, and give doctors access to prescribing resources such as sample opportunities and patient resources,” explains Jake Coniglio, SVP, global strategy and corporate development for WorldOne Interactive. Meanwhile, he notes that market intelligence and demand signals can be gleaned from the conversations that flow on Sermo and iConsult, and these help drug companies to fine-tune the clinical resources they might choose to present on the network. “When physicians show intent by querying or commenting on a given topic, this demonstrates their need for more information or can be a form of earned media about a positive experience,” says Coniglio.

	Exploring other ways to tap today’s online zeitgeist, WorldOne Interactive is also banking on the concept of competitive gaming: The new DocTANGO product is an online social gaming platform that makes brand science a sport, by enabling physicians to educate themselves about emerging trends “while competing against their peers for points and public prestige, rank and status by way of a leaderboard that shows the winners,” says Coniglio.

	A MedLive poll of 500 global MDs demonstrates that 82% of MDs are interested in competing against global peers in an online health game that tests their knowledge, and 84% are interested in contributing their insight to help experts forecast future healthcare events in competitive online environments. “This type of thinking unlocks a series of promotional, engagement, detailing, data and forecasting opportunities for marketers,” says Mike Marett, senior vice president, head of global business development at WorldOne Interactive.

Peer-to-peer consulting and social gaming may catch physicians' attention

Building the social media connection

		Earlier this year, Healthy Advice Networks (Cincinnati, OH) acquired PatientPoint, a business that had developed an “electronic check-in” system for patients to use when visiting the doctor’s office (and which now runs on the Apple iPad platform). Now, in something of a David-defeats-Goliath move, the acquirer is taking the name PatientPoint. Aside from the resonance of each name, the change signifies the importance of EHR integration (which PatientPoint provides) to the in-office television and news feeds that Healthy Advice has been offering to more than 55,000 doctors’ offices nationally. “The combined products of our new company offer an unparalleled ability to drive continuous patient and physician engagement along the entire continuum of care—pre-visit, at the point of care and post-visit,” says Tom McGuiness, CEO of the company.

		Healthy Advice has had wall-mounted TV screens in doctors’ waiting rooms, in exam rooms and in the doctor’s office area, providing dedicated patient- and physician-education programming. PatientPoint’s check-in system enables the patients to connect themselves to their healthcare provider (and, ultimately, their payers). Raj Toleti, founder of the original PatientPoint, says that current connectivity development includes linking actual prescription information from Walgreens to patient records as a means of addressing gaps in care.

Healthy Advice Networks is now PatientPoint

		Saying that the pharma industry’s infatuation with iPad presentations by sales reps to prescribers needs to get beyond the “toy factor,” InTouch Solutions CEO, Faruk Capan has announced a collaboration with MD Mindset (Whitehouse Station, NJ), which has been busy in recent months gathering data on physicians’ use of iPads and their preferences for communications and data presentation. Alongside this collaboration, InTouch is also rolling out a new app-development environment, Allora Health (www.AlloraHealth.com), which offers broad sharing of many types of content—and with any CRM system compatible with the iPad platform.

		MD Mindset’s business has been to provide training to sales reps and pharma companies, based on data generated from surveys of physicians from a network that it has built. As the iPad storm took hold in pharma marketing, it began offering market intelligence to pharma clients on physician preferences in iPad use. “The unifying goal is to uncover what information physicians need to change their clinical behavior and prescribing practices,” says Jessica Labita, VP, customer services at MD Mindset. The company is now selling syndicated research reports on the market research it is uncovering.

		Meanwhile, InTouch Solutions (Overland Park, KS) has carved out a position as one of the leading interactive agencies building apps for pharma marketers; it has already built more than 70, according to Capan, in addition to creative services and social media consulting. The partnership will enable InTouch to guide pharma clients in effective app development and communication practices, he says, getting beyond the common practice of “iPad-ifying” conventional sales presentations to communications that better meet healthcare providers’ needs.

		And all this is preamble to a next step InTouch is taking: the cloud-based Allora service, which is a blend of an application-development environment and a networking tool. With Allora, developers will be able to write apps for iPad, Android and other mobile platforms, and share content not necessarily written in HTML5, the preferred language for app development. According to Capan, Allora will enable data to flow from and to CRM systems (for such purposes as documenting sales calls and providing necessary regulatory compliance information). “Allora Health will differentiate use from our competitors, sure,” he says, “but the real goal here is to create better communications and data-sharing between reps and healthcare providers, and ultimately between the pharma industry and health systems.”

		Another InTouch service, now enhanced to rank individual biopharma Twitter accounts, is TweetPharm. The two-year-old service started for “fun” as a means of tracking the volume of pharma-related Twitter activity; now, using Twitter’s API, InTouch is gathering six variables: number of tweets, number of followers, number the handle is following, retweets received, number of listings, and number of retweets produced. These are weighted (InTouch is making the weightings transparent to users) to produce an overall ranking of Twitter handle popularity.

		“We have seen tremendous traffic to TweetPharm since its inception,” says Capan. “TweetPharm’s ranking reflects and celebrates the fact that pharma is beginning to embrace social media as more than just a presence, but rather true, online engagement.”

InTouch Solutions, MD Mindset collaborate to tailor iPad content development

iPad-based partnership combines physician preferences in digital communications with app development

To go with a third-party logistics provider (3PL) or to go it alone—for many manufacturers, that is a tough question they find themselves grappling with every day. While the decision to outsource warehousing, logistics, transportation and order-to-cash management functions may be relatively easy for smaller or start-up manufacturers, it’s often not such a simple decision for larger manufacturers. Although scale and other factors may make it more cost-effective for larger manufacturers to go it alone, many are finding that 3PL providers can be the more effective and cost-efficient choice to handle select parts of the logistics process. On the other hand, those that are already working with 3PL providers may still find themselves wondering whether they’re getting the most return on their logistics investment.

		Regardless where you fall on this spectrum, here are some simple questions and suggestions to help you decide if working with a 3PL provider is the right move for you, and to make sure you’re getting the best return on your logistics investments. A recurring theme in this analysis is that many 3PLs, especially larger ones, have economies of scale because they are handling the varying demands of multiple clients. That scale is usually not available to the single manufacturer.

Think beyond the one-time infrastructure investment.

		Most smaller manufacturers outsource their 3PL needs because they usually don’t have the scale to build, staff and operate the team, facilities, infrastructure, and processes needed to ship direct to customers, and few have the resources to manage the related customer service, returns and order-to-cash management services on their own.

		For mid-sized manufacturers, the decision may not be as simple—particularly as they develop the scale that increases the return on initial infrastructure investments needed to go it alone. If you’re in this camp, it’s important to think beyond the initial investments needed to handle logistics on your own. Consider whether you can, or want, to commit to the often unpredictable continual investments and manpower that are needed to improve capacity and capabilities as you add new products to your portfolio&mdash;particularly if those products may require refrigeration and other costly special handling procedures. Also consider whether it’s in your best long-term financial interest to commit to the continual infrastructure and technology investments needed to comply with constantly evolving state and federal product integrity, track-and-trace, and support pedigree requirements.

Can you cost-efficiently staff to handle ebbs and flows in demand?

		If you experience significant peaks in demand due to seasonality, supply chain partner purchasing dynamics or plain old spikes in sales, you may have to deal with unplanned or inconsistent expenses, like paying warehouse staff overtime or adding additional shipping routes. Because they handle the specialized shipping needs of multiple manufacturers, some 3PL providers can often handle those ebbs and flows more easily—and can shield you from the related impact.

Do you have the resources to invest in truly best-in-class technology for products that require refrigeration and other special handling?

		3PL providers that focus on specialty medications usually have the scale to invest in best-in-class, specialized equipment to ensure products are compliantly handled from the time they leave your dock until the moment they reach the wholesaler’s dock. Ask yourself how much you annually spend or will need to spend on pack-out materials like validated coolers and gel packs, which can range anywhere from up to $80 per shipment, before transportation costs. 3PL providers that use dedicated, refrigerated trucks can eliminate those pack-out costs completely, while also ensuring more consistency in the way refrigerated products are handled. Again, the investment in best-in-class, refrigerated truck technology can be leveraged across multiple customers to achieve the economies of scale that help those investments earn a meaningful return.

Nervous about outsourcing customer service?

		Think again. Hiring, training and staffing a competent customer service team, and making them available 24/7 to respond to customer inquiries, concerns and emergencies, can take a considerable investment. Given the critical role quality customer service can play when it comes to building customer trust and loyalty, it’s easy to understand why many manufacturers consider that a smart investment.

		But the reality is that 3PL providers can often handle customer service more cost-efficiently, and should have processes in place, like in-depth product education and training, dedicated product- or manufacturer-specific phone lines, and customized greetings, to ensure their customer service staff seamlessly functions as a true extension of your team.

		If outsourcing your customer-facing services gives you pause, ask potential 3PL providers what kind of customer reporting and feedback metrics they offer, so you can measure their performance. A good 3PL will mutually agree on key performance indicators (KPIs), like order accuracy and returns processing, and report on those on a regular basis, so you can keep close tabs on customer satisfaction and ways to improve it. If you’re currently handling customer service in-house and still aren’t sold on outsourcing this important function, then consider tracking how your own customer response team performs against those same KPIs. If your team isn’t performing with 99% accuracy on each of them, chances are improvements are necessary.

Are you leaving money on the table due to inefficient accounts receivable processes?

		If your accounts receivable balance regularly goes just a day or two past due, you’re losing money. And the more overdue those balances become, the more time and effort it takes to collect them in full. Manufacturers that ship directly to hospitals, retail pharmacies, or physicians often find that tracking down and reconciling past-due payments can be a daunting, time-consuming, and expensive task—one that just makes good economic sense to outsource to experts who have developed best practices for keeping them current. Wondering if your accounts receivables process is up to par? If you’re not resolving at least 90% or more of your deductions within 31 days and 98% or more of your invoices within 90 days, improvements are in order.

Chargebacks and returns: the most challenging component of order-to-cash management.

		Returns represent the bulk of customer deductions and can cause significant discrepancies between what manufacturers believe they should be paid and what their customers believe they owe. Processing returns, reconciling the deduction and the credit, and collecting the money owed in a timely manner is key to successfully resolving those discrepancies. But it takes considerable time, expertise and persistence. The most experienced 3PL providers specialize in helping manufacturers handle both the physical and financial aspects of the often time-consuming and very individualized returns process, to ensure money isn’t left on the table. While you handle returns, your processes can be pushed to the limit during peak ordering periods or one-time events, such as product recalls. Even during peak return periods by unpredictable events, dedicated healthcare 3PL providers should have the processes in place to quickly scale up the staff necessary to safely and efficiently process returns.

		A good 3PL provider can also handle related headaches that can drain staff time, like customer chargebacks, issuing wholesaler credits, and ensuring compliant product disposal or destruction. Outsourcing these services can prove particularly useful to generics manufacturers, who have to deal with tiered contracts, generic sourcing programs, and other factors that drive price changes and require intricate chargeback processes.

		If you’re seriously considering outsourcing to a 3PL provider, it’s important to understand that not all 3PL providers are created equal. Here are some top-line issues to consider when evaluating the provider that best meets your needs. If you already have a 3PL provider in place, asking these key questions can help you evaluate whether it’s the best one for you.

What’s your 3PL provider’s approach to account management?

		The benefit of working with a 3PL provider should ultimately be that you focus less time, money and energy on warehousing, logistics, order-to-cash management, and returns, and more on your core competencies—usually, R&D. But, if your 3PL provider doesn’t have the right account management structure in place, you can spend more time&mdash;and experience more frustration&mdash;managing the relationship than it’s worth. Ask potential providers:

			Will I work with multiple account managers or a single account manager who has a bird’s-eye view to everything?

			What processes do you use to monitor customer satisfaction and to continually improve the service you deliver?

			How often do you provide updates to clients regarding key performance indicators, operating metrics and agreed-upon action items?

			What’s your implementation process? How long does it take to get a customer up and running, from the time the contract is signed?

Does the 3PL provide you with flexible, real-time access to reporting data?

		The ability to see your logistics, customer service and order-to-cash data is paramount to managing your business efficiently. Your 3PL partner should provide versatile reporting tools, including “canned” or predetermined reports, as well as ad hoc/customized reports. To make sure your partner can meet your data needs, ask:

			Can you provide me with 3PL-related data feeds in a variety of formats?

			Can I access my data in real time, anytime, day or night?

			If I encounter a problem with a report or a data feed, can you resolve it in 24 hours or less?

When it comes to warehouse operations, does it have the basics covered?

		Make sure potential 3PL providers offer product receipt, storage and inventory management services. Also make sure they can handle ambient, refrigerated, CII—CV, and hazmat products, as well as end-to-end pick, pack and ship services.

Does the 3PL provider possess appropriate regulatory expertise?

		Nothing can hinder a product’s commercialization success more quickly than regulatory issues—particularly ones that could be avoided with the right industry know-how and expertise. Make sure the 3PL provider you choose has proven cGMP expertise; strong and long-term relationships with regulatory agencies, such as the DEA and the FDA, and the proper systems and equipment to continually validate (and when needed, report) that your product has been handled compliantly throughout the chain of custody. Working with a 3PL provider that has specialized expertise in healthcare logistics can also protect you from having to deal with the daunting intricacies of product-specific licensing requirements.

Here are the factors to consider when deciding to use a third-party logistics provider (3PL)

To 3PL or go it alone, that is the question

		Autumn brought a flurry of reports and news announcements about medication adherence. CVS Caremark sponsored a survey among pharmacists, and the Healthcare Compliance Packaging Council issued a compilation of clinical research on the topic, among others. The subject has been getting increased attention over the past couple years as the components of the national HIT (Healthcare Information Technology) program (which includes incentives for IT implementations that demonstrate “meaningful use,” such as improved adherence) come to the fore. Medication adherence is also a factor in the Affordable Care Act’s performance 

		For the moment, though, the spotlight should be directed at a new study, published in the Sept. 11 issue of Annals of Internal Medicine, which represents one of the most rigorous, and exhaustive, reviews of clinical information on the topic seen in recent years. The study, “Interventions to Improve Adherence to Self-administered Medications for Chronic Diseases in the United States: A Systematic Review,” available with free access at www.annals.org, surveyed 4,124 citations involving medication adherence, and then evaluated the quality of conclusions drawn from 18 types of interventions that have been used.

		Of those 4,124 citations, only 758 met a first cut for appropriateness, and 73 a final cut. Those 73 were then evaluated on the basis of low strength of evidence of no benefit (L-), low strength of evidence of benefit (L+), and moderate strength of benefit (M+). The results: At least a few studies showed an L+ grade for compliance packaging (specifically, blister packaging); and for collaborative care (telephone or in-person); and a category that has us scratching our heads, “self-management” (which would seem to be the basic problem of medication adherence). But the most common grade was “I”— “insufficient evidence.”

		One of the frustrating aspects of such a study, from an industry perspective, is that economic issues were not a factor—neither comparing the cost of various interventions, nor the value of outcomes. (However, the study does find that “Compared with other effective interventions, such as case management and collaborative care, which are relatively complex and labor-intensive, reducing copayments can potentially improve adherence for large numbers of geographically diverse patients.”) The oft-cited statistics that poor adherence cuts 125,000 lives short annually, and that it causes a waste of $100—298 billion to overall healthcare costs, are the 800-lb gorilla in the room. At the same time, the rigor of the analysis (which used the randomized, controlled trials as the measure of research quality) points to a puzzling gap in research in this area: With so many important consequences riding on medication adherence, why isn’t the science of it better understood?

		We’ll put a plug in here for one of our favorite interventions—compliance packaging. For relatively little additional cost (at least compared to something like in-person counseling), compliance packaging has been shown by this study to have positive results. The HCPC compilation reinforces that message. But we’ve been told more than once that medicine buyers (P&T committees, PBM managers and others) rarely factor the added value of compliance packaging into their decisionmaking, thus removing the incentive for pharma manufacturers to provide those features. More evidence of this (cited in the Annals article) is that compliance tends to be better outside the US (where compliance packaging is more common) than here.

		Like so many other scientific studies, the bottom-line conclusion of this one is that more study is needed. With the dramatic consequences of poor adherence facing all of us, that should happen faster. Meanwhile, members of the healthcare system (suppliers, providers and payers alike) should feel more confident that a commitment to improve adherence is worth the effort.

Another go at medication adherence

Fig. 1. Multisensory (seeing, hearing, touching)

						practice pen for patient self-injection

		In today’s healthcare industry, much of the focus on physician and patient outreach is on the use of new online media, interactive-tablet or smartphone displays, and similar digitally driven technologies. These are powerful communications and education media, and their future is bright. But in the meantime, the need for connecting with patients and the healthcare providers that work with them is still challenging. Visualization tools—either displays in the doctor’s office, or educational tools that patients can hold in their hands&mdash;are demonstrating new value to healthcare systems. With the drive for higher healthcare system performance and demonstrated positive outcomes, this value is only increasing.

		Anatomical models, once made from wax and papier måché, date back to the 1700s. At the time, these were the most effective methods for explaining how the human body works. Today’s educational products are not limited to anatomical models, and are noticeably more advanced from the days of skeletons and dry-erase boards used in previous eras.

		Much of these changes are due to creative product development companies entering the pharmaceutical space. They’re working with brand teams to build educational and training products that would not only have been unheard of, but would have been impossible to create, in years past.

		These product development companies bring with them a unique new perspective. Efforts to understand the psychology of how we (as humans) learn has led to the integration of multisensory and kinesthetic education. These learning methods, combined with advances in technology, manufacturing and globalization, have created impactful and memorable educational products that leverage sensory experiences, such as touch, sight and sound. Their goal is to improve patient therapy and drug adherence (also known as patient compliance).

		The industry has long struggled with patient compliance. Insuring that a patient continues to take their prescribed dosage after they’re feeling better can be a daunting task, and increasingly more difficult for aging patients who struggle with vision, memory and hearing loss. For much of a patient’s life, they’ve taken over-the-counter (OTC) medicine that treats their symptoms. As a result, “feeling better” equates to being healthy. This is not the case for drugs that fight and treat the cause, such as an infection-, oncology- or epilepsy-related medicine.

		In the era before direct-to-consumer (DTC) pharmaceutical promotion, television and radio advertisers were reluctant to spend money trying to gain favor with patients. Up until the 1990s, it was widely considered a waste of resources, especially since patients had little influence over the medical decisions made by their doctors. The routine was fairly simple: Patients visited their trusted physicians, who provided a diagnosis followed by a recommended treatment to which patients willingly adhered. With this paradigm, the pharmaceutical industry seemed to have little need for consumer/patient marketing. It was virtually unheard of to have educational campaigns that centered around products and diseases targeting patients.

		That would all change in 1997 when FDA relaxed rules on DTC television and radio advertising. No longer saddled with having to squeeze in lengthy fair balance, pharmaceutical companies for the first time were able to target patients with their messages. Television viewers and radio listeners were exposed to advertisements urging them to speak to their doctors about arthritis, allergies, menopause, cancer, heart disease, and just about every condition that could be found in the 

		One result of this DTC approach was the pharmaceutical industry’s use of promotional products, such as pens, prescription pads, key chains, mugs, clocks, mouse pads—just about any freebie imaginable that had room for a brand-name logo. This would grow to become a $5-billion industry as doctors’ offices were flooded with these products.

Fig. 2. Doctor’s office display to explain the

		In the latter part of the last decade, a concerted effort was made to ensure that physicians’ prescribing habits wouldn’t be unduly influenced by any means, including promotional products. In January 2009, The Pharmaceutical Research and Manufacturers of America set up a voluntary policy in which member companies would agree to no longer distribute promotional products to physicians’ offices. At this point, pharmaceutical companies were now limited to distributing educational-only materials, rather than the tchotchkes that once filled physicians’ offices. In other words, if the educational item was also a calendar, it was a promotional item and thereby prohibited. Educational-only products, which had been the forerunner of marketing products, were now front and center again. As the expression says, “everything old is new again.”

		While organizations within the promotional products industry were not thrilled about the new guidelines that eliminated about $5 billion a year in revenue, the reintroduction of educational products helped the pharmaceutical industry tell a deeper, more compelling story to both patients and healthcare providers. These new educational products provide effective tools to assist in the information exchange between healthcare professionals and patients, resulting in an increased understanding of diseases, therapies and treatments available to the patient.

Fig. 3. Pharmacy counseling tray to simplify diabetes

						education and avoide use of actual medication

		Take for example, rheumatoid arthritis. Noble was approached by a $9-billion auto-injection brand that was receiving pressure from FDA regarding patient complaints; more specifically, “wet injections” caused by improper self-injections. As a result, Noble designed and manufactured a multisensory practice pen that instructed the patient step-by-step through their self-injection (Fig. 1). Although the pen was only recently launched, the feedback and the stories we’ve received thus far have been off the charts. A talking pen is a revolutionary step in patient education, combining multisensory and kinesthetic learning that could never have been accomplished with a promotional product tchotchke.

		A similar positive experience has been seen with a doctor’s office display for a triglyceride-control product, Abbott’s Trilipix (fenofibrate). The goal was simple: to produce, as a display for doctors’ offices or pharmacies, an educational tool that can illustrate triglycerides in the bloodstream, accompanied by educational materials to explain what the treatment options are. Here, the challenge is to illustrate the patient risks of high triglyceride levels in the bloodstream—a condition that doesn’t immediately result in patient discomfort or other reaction, and therefore has less impact when a physician explains the need for triglyceride control to the patient. The display (Fig. 2) has four lab-style vials showing representations of healthy to unhealthy triglyceride levels in the bloodstream; surrounding text, as well as a pull-out card and notepad on the bottom of the display, provide additional information to the viewer.

		A third example, developed for Amylin’s new injectable diabetes medication, Bydureon, was a pharmacy counseling tray designed to improve the pharmacist’s patient education experience (Fig. 3). To prevent pharmacists from having to frequently open new cartons to gain access to the inner tray during their patient counseling session, Noble designed, developed and manufactured an easily accessible, visual tool utilized to explain the injection components to patients. These new visual aids were delivered to Amylin for distribution, and were designed to simplify and improve diabetes education, while reducing brand costs via costly pharmacy returns.

		The unifying theme of these examples is to engage all the senses of patients (seeing, hearing, touching)—and healthcare providers as well&mdash;to educate them on what can be extraordinarily complicated medical procedures or conditions. The development process can be arduous&mdash;besides the creative design and product development that goes into such displays, they need to meet FDA regulatory approvals as well.

		The physical production and distribution of them has become easier over the years, especially as experience has been gained in low-cost manufacturing processes and coordinated distribution to sales forces or physicians’ offices. But the drive to raise patient compliance with treatment regimens, and to achieve better overall health outcomes through medical interventions, is making the investment in these types of educational materials an easier decision. The prospects for growth in this area are bright.

Jeff Baker is president and CEO of Noble®, an international product development company he co-founded with his wife in 1994. His vision and deep-rooted values have grown Noble into an award-winning product development company known for innovation and family-first values. Noble is located in Orlando, FL (www.gonoblerx.com).

Visual aids, diminished for a time as a marketing and educational tool because of industry restrictions, are making a comeback

The power of visualization in patient education

Fig. 1. PAC vs. AWP for Tracking Actual Acquisition Cost

		In the mid-1990s, Gold Standard, a drug information publisher, launched Clinical Pharmacology to fill a need in pharmacies for reliable and affordable drug reference information, easy to use at the point of care. Over the next few years, we worked closely with many retail pharmacies, from the largest chains to small independents, PBMs, and health insurance companies. More and more, our customers were expressing the need for non-clinical drug information, especially price information, to support their business operations. This is not to say that price information was not available from other sources—it was&mdash;but many of our customers were not satisfied with the price information they had access to. Their concerns included timeliness and accuracy, but the word they used most to describe what they wanted was transparency.

		This seemed reasonable enough. People who are in the business of supplying a product need to know what their costs will be in order to determine a profitable price. We quickly determined that we could provide our customers with more timely and accurate prices from our partner manufacturers, but transparency was a taller order. As we all know, the drug supply chain is complex, and price obscurity across the continuum has been an accepted, if not entirely desirable, state of affairs for decades. I always say the first question to ask when considering a change is: How does it work now and why?

		Thanks to an astonishingly productive period in the research and development of pharmaceuticals during the second half of the 20th century, drugs became an essential component of medical treatment and a major health insurance benefit. During the same period, computer technology advanced even more rapidly than pharmaceuticals and drug compendia became available, allowing for greater automation and electronic processing of prescriptions and claims adjudication. Third-party payers and prescription benefits managers emerged to assist health insurance companies, adding another layer to the supply chain. The sheer volume of transactions combined with the number of players involved with getting drugs to consumers required agreement on what drug price to use for each drug in negotiating contracts and adjudicating claims.

		Almost by default, the industry settled on the average wholesale price (AWP), developed by George Pennebaker to adjudicate claims and establish proper drug reimbursement for the California Medicaid Drug Program (called Medi-Cal) in the 1970s. The price was originally based on survey data from pharmaceutical wholesalers about what they charged pharmacies for their products. However, in the absence of reported data, First Databank (FDB) and other compendia calculated an AWP price using 1.20 or 1.25 multiples of the WAC (wholesale acquisition cost) price.

		It has long been commonly agreed that AWP is an imperfect standard, varying from true acquisition cost by a wide range, and jokingly referred to as “ain’t what’s paid” since the 1980s. Nevertheless, AWP has been the accepted starting point to determine reimbursements and contract purchase price. For example, a contract might state that payment will be the usual and customary, but no more than AWP minus 15%, or the estimated acquisition cost, but no more than AWP minus 10%.

		Criticism of AWP was not confined to its failure to represent a true average. More strenuous complaints have been directed at how easily AWP can be manipulated. This assertion ultimately led to a Medicare Part B fraud investigation and a lawsuit against its original publishers.

		Medicare Part B primarily covers physician-administered drugs. The investigation focused on whether AWP was being used to bill Medicare for more than the actual cost of drugs. AWP was being used to calculate claims, and the charge was made that the price was being artificially manipulated to ensure higher reimbursements. In 2005, the Prescription Access Litigation (PAL) project claimed there was a conspiracy to increase AWP. As a result, in 2011, FDB ceased publishing AWP in its drug price data.

		Because FDB is commonly used for price data, the looming, and now actual, absence of AWP from its price file sparked debate about a new drug price benchmark to replace it. As imperfect as AWP is, it is still the standard for many contracts and claims.

		Industry leaders and advocates have proposed various alternatives to AWP and, while no consensus has yet emerged, there is general agreement on the criteria that a new standard should meet. It should be:

			Transparent, easily understood, unambiguous, and reflect the true acquisition cost of a drug.

			Accessible, administratively simple and efficient, so that it can be easily adopted by the industry.

			Comprehensive, and offer drug pricing information for all branded and generic products.

			Trustworthy, timely, and updated frequently enough to reflect quickly changing acquisition costs, particularly for generic products.

			Immune to manipulation, auditable, not anti-competitive, stable, and not result in more litigation.

			Administratively simple and practical.

		A review of the drug price types available today shows that none meet the desired criteria for a new standard:

			Actual Acquisition Cost (AAC) is the final price that a pharmacy pays after all discounts have been subtracted. Were it accessible, this would be the ideal standard.

			Average Manufacturer Price (AMP) is the price that manufacturers report to the Medicaid drug rebate program. It is only reported monthly and quarterly, and even the monthly information is three months old.

			Average Sales Price (ASP) is the calculated price for Medicare Part B drugs. The use of ASP is problematic because its accuracy is questioned. In addition, it’s not available for all drugs, and not specific to NDC.

			Estimated Acquisition Cost (EAC) is either the estimated cost of a product or a pharmacy’s usual and customary charge.

			Federal Upper Limit (FUL) is a calculation by CMS (Centers for Medicare and Medicaid Services) for the amount that will be paid in aggregate on multisource drugs. No FULs have been published since September 2009.

			Maximum Allowable Cost (MAC) is defined by each payer/state for its multisourced drugs only.

			Manufacturer List Price (MLP) is the price listed by the drug company.

			Wholesale Acquisition Cost (WAC) is the only price type defined in regulations. It is the list price from a manufacturer to a wholesaler or a direct purchaser without discounts.

		In recent months, two new drug price options, each taking quite different approaches, have emerged as potential new standards for drug acquisition cost:

			National Average Drug Acquisition Cost (NADAC) is based on a voluntary CMS survey of 2,500 pharmacies requesting invoice data to gather their acquisition costs and compute a public average acquisition cost (AAC). The level of participation and transparency from pharmacies remains to be seen. **

			Predictive Acquisition Cost (PAC) combines a predictive analytics model with multiple factors associated with the cost of a drug, including industry MAC benchmarks, published price lists, existing price benchmarks, supply/demand measures and survey-based acquisition costs. The statistical model is trained to synthesize various known attributes into an overall estimation of acquisition cost.

		PAC, developed by Glass Box Analytics, a Springfield, VA, consulting company, is currently available, and in the interest of full disclosure, Elsevier’s Gold Standard is its exclusive publisher at this time. PAC leverages proven concepts from other industries and applies the power of predictive analytics to drug pricing. By using various factors associated with the cost of a drug, it deploys a multidimensional predictive analytics model to track the acquisition cost of drugs with sufficient accuracy to support pricing activity. The statistical model is trained to synthesize various known attributes into an overall estimation of acquisition cost.

		As a publisher, our role isn’t to tell our customers what price type they should use in their business transactions. Our job is to make available to them whatever price or prices they might wish to use and to be transparent in how those prices were acquired. In the case of AWP, we do this by publishing three versions of the price—reported, WAC x 1.20 and WAC x 1.25. This makes it clear where the price type comes from, but unfortunately, it does not help our customers know how close AWP is to the true drug acquisition cost.

		Glass Box Analytics has made a good case in showing that PAC more closely tracks true drug acquisition cost as historically compared with AWP, as shown in the generics example, using generic drugs, below. Of course, proving that PAC is a better price type than AWP does not necessarily mean that it is the best option for a new standard. PAC estimates or predicts drug acquisition cost using sophisticated analytics, in much the same way that FICA scores estimate or predict an individual’s credit worthiness. While we believe that the model is very strong and produces accurate results, it is different than actual reported payment data.

Pricing systems in US drug supply chain have many limitations; an analytics-based method might avoid some of them

Analyzing drug-pricing mechanisms

Evolving technology and service capabilities are the news in reverse logistics for the pharma industry these days. Service providers are touting a greater degree of collaboration with manufacturers, and with retailers, distributors and others along the pharma supply chain. At the same time, it appears to have been a couple of banner years for the recalls business, with large recalls of both ethical and OTC products occurring. (Reverse logistics for pharma is a combination of product returns of expiring or overstocked product, and recalls initiated by manufacturers themselves or by FDA for product defects.)

		“There’s an opportunity to take advantage of today’s technology combined with the willingness of business partners to collaborate,” says Jeff Pepperworth, president, supply chain and pharmaceutical services, Inmar (Winston-Salem, NC). “Collaboration of industry partners will drive best practices to ensure consumer safety, as well as positively impact the cost and efficiencies for the industry.”

		There appears to be an increased sense of urgency on the part of pharma companies, observers say, as they gain a better understanding about the true impact a recall of any size can have from both a liability and brand perspective. Manufacturers reported an average of 2% of their sales volume is returned annually for credit, while Healthcare Distribution Management Association (HDMA; Arlington, VA) member distributors reported an average of 0.03% of total sales dollars were recalled or withdrawn in 2010, according to the 

		Throw in patient-safety concern when a controlled substance is recalled—in an industry where 100% recovery is rarely achieved even for highly unsafe products&mdash;and you have the makings of a potentially painful hit to the bottom line if recalls and returns are not handled adequately. “Effectively managing reverse logistics can have a profound impact on a company’s bottom line,” says Mike Rozembajgier, VP at Stericycle Returns Management Services (Indianapolis, IN). “Even some of the best companies within the pharmaceutical industry at supply chain functions turn to reverse logistics providers for help in managing such a process.”

		Although there are no new regulations affecting the handling of pharmaceutical product recalls, industry members say, mechanisms like the recently passed FDA Safety and Innovation Act (FDASIA) continue to exert strong regulatory influence over the US drug and device industries. “A number of high-profile drug safety issues in the past two years placed additional focus on FDA and the way in which it conducts inspections and investigations,” says Donald Rendulic, director, marketing and communications, Genco Pharmaceutical Services (Pittsburgh, PA). “While no one wants an FDA-mandated recall, with the increased agency finding, as well as the increased scrutiny, it is not unreasonable to expect additional product withdrawals or recall events, and to have contingencies in place.”

		Serialization and e-pedigree—the push to give pharmaceutical products ID numbers that can be tracked throughout the supply chain&mdash;almost made it into FDASIA, but was removed when the bill was reconciled between House and Senate versions. But some in the reverse logistics community expect a federal e-pedigree law to appear soon, and even if it doesn’t, the industry will be moving toward compliance with similar regulations on the books in California. The California rules are scheduled to go into effect beginning in 2015.

		“While a provision calling for the creation of a national ‘track-and-trace’ system was dropped from the final FDA reauthorization bill, future legislation is imminent,” Rozembajgier says. “This anticipation is leading companies to see outsourcing recalls as a more attractive option to managing the process in-house.”

		All of which makes it critical for pharma companies to anticipate and prepare for recalls and have a plan in place before it happens. “Following a recall plan helps lay the foundation, so the company can show that it managed a recall with the safety and reputation of its product in mind and with the patients’ safety as a priority,” Genco’s Rendulic says. “Mock recalls can be the best way to get prepared and understand internal and FDA requirements.”

		Reverse logistics tends to be a messy affair, with unpredictable lots of prescription and OTC products from countless retail and institutional pharmacies, chain stores, and hospitals sent back through various intermediary partners in the reverse supply chain. These third-party agents then arrange for product destruction and cash/credit reimbursements for unsalable drugs to be paid by manufacturers. This provides vendors the flexibility to put their resources towards other parts of the business, such as manufacturing or customer service.

		“This is particularly important during the recalls process, as it allows businesses to look forward instead of backward,” Stericycle’s Rozembajgier points out. “3PLs (third-party logistic providers) can mitigate potential risks and liabilities by providing the data and records necessary to comply with regulatory agencies.”

		Another major benefit of utilizing 3PLs is their ability to collect critical data points from products received. This allows pharma companies to better understand where their returns are coming from, the condition in which they arrive, and whether or not return instructions were followed. “With all of this data, companies can understand how their customers handle returns and recalls,” Rozembajgier says. “This insight can be helpful in creating a stronger business relationship, allowing the manufacturer to adapt its procedures to better suit customers and even lead to more effective management of reverse logistics.”

		Industry members say efforts are being made to improve processes and efficiencies for returned unsalable healthcare products, such as leveraging technology to streamline data flow between trading partners and cutting down time between when a product is received, and when the manufacturer credits the retail pharmacy for it. 3PLs have access to every piece of information about a returned package, so they can help companies understand where they face the greatest risks, from ineffective return policies to over-reimbursement.

		Maintaining an acceptable turnaround time from receipt, to scanning, processing, and collecting of data necessary for the manufacturer to provide accurate and timely credit to their trading partners should be the goal. “This is even more important when managing a product recall or withdrawals, when time and accuracy of reporting is most important,” Genco’s Rendulic says. “This helps dramatically with the debit/credit reconciliation process, which can pose major challenges to manufacturers and their trading partners.”

		While a large component of handling a drug recall is the physical processing and disposition of the product, even more important is tracking and information exchange of the recall data. Extensive government regulations and reporting requirements, along with an increased focus on pedigree, have increased the need for good tracking, visibility and control measurements, experts say. These are all critical components for any reverse logistics process. Many pharma companies are making investments in security measures, data systems and business processes to improve efficiencies in managing recalls. These include, among other things, barcoding or RFID tracking on returns packages and increased use of online resources to manage recall data. “Methods of communications between manufacturers and industry trading partners still vary, according to the level and depth of the recall and manufacturer strategy,” says Perry Fri, SVP, HDMA. The association and its member companies are committed to collaborating with all stakeholders to help ensure continued safe and efficient delivery of prescription medicines and healthcare products nationwide, both in the forward and reverse supply chains.

		Over the next five to 10 years, it is anticipated that most, if not all, drugs will be serialized to the individual bottle or package. By reporting back the serial number, a manufacturer has the ability to review the actual purchase order where the drug was originally procured. “We are starting to work with manufacturers on 2D Datamatrix serialization on the reverse logistics side,” Inmar’s Pepperworth says. “Ultimately, once we start submitting the EPCIS product tracking and history, we will have full visibility to chain of custody.” Inmar offers technology tools that provide online access to returns status down to NDC/UPC level, authorization tracking, issuance of RAs online, easy discrepancy reconciliation, shipping information and proof of destructions.

		Reverse logistics planning and execution is also improving through wider adoption of standard electronic communications. Technology advances for product tracking, data management and improved communications between industry trading partners is helping drive reverse logistics to the next level. A case in point is the use of electronic data interchange (EDI) standards—namely EDI 180 and EDI 812&mdash;which has reportedly expanded from forward to reverse logistics in recent years.

		EDI 180 provides a standardized, multidirectional electronic format for the transaction set used when trading partners issue a request, or notification of, a return, and pharma companies need to respond and issue the return authorization. EDI 812 is a bi-directional transaction set that aims to automate and standardize financial elements of a return, requesting and authorizing debits and credits between trading partners. HDMA and others have been supportive of efforts to develop standard practices for serializing pharma packages with barcodes or other unique identifiers; many studies of the subject point to substantial savings in managing returns, recalls, and credit reconciliation when individual products can be tracked up and down the supply chain.

		“More companies are utilizing the EDI Guidelines for 180 Return Merchandise Authorization/Notification & 812 Credit/Debit Adjustments that were published by the HDMA in 2010,” observes Robert Schaltenbrand, director of strategic development at Guaranteed Returns (Holbrook, NY). “Utilization of electronic methods allows for the reduction/elimination of human input error and also speeds up the reconciliation and crediting process.”

		The ability to fully automate and standardize electronic communications related to returns can lead to improvements in time efficiency, accuracy, and flexibility. 3PLs report there has been a reduction in manual handling of returns for pharma clients, and it can dramatically reduce the time it takes to reconcile reporting between trading partners. “It also forms the backbone of a powerful data warehouse, allowing manufacturers to spend time evaluating what stories the data tell,” Genco’s Rendulic says. “For those companies that struggle to understand what the data flow means, look for a reverse distribution partner that can not only provide data, but also has tools to better understand it.”

		Inmar provides a comprehensive dictionary of data elements available through its EDI 180. This dictionary allows for manufacturer-specific reason codes, class of business codes and customer identification attributes. “With inclusion of such attributes as class of customer and specific return reason codes, we have streamlined the reconciliation process,” Pepperworth says. “Aggregating detailed data in this space can assist in analysis and root cause analysis.”

		Communicating with standardized electronic communications, such as EDI 180 and 812, is expected to help streamline the reverse logistics process, and lower the cycle time from notification and authorization to shipment and credit reconciliation of a return. “More than three-fourths of the manufacturers surveyed for the 

 exchanged an EDI 180 with third-party processors (reverse distributors) in 2010, up from 59% the year before,” HDMA’s Fri says. “We see this increased adoption as a positive trend.”

		Further reinforcing this point is Inmar’s observation of having seen an uptick of manufacturers engaging in more robust utilization of the 180 interchanges in the past year. “Reverse distributors can provide line item detail for returns, including drivers of creditable vs. non-creditable information,” Pepperworth notes. “One of the key new features we are currently working on is the ability to receive an 812 credit feed in response to our 180 debit memo feed.”

		The tool will show the amount claimed on the return vs. the actual credit amount allowed. “We believe this is a major advance in the reliability and value of data,” Pepperworth says. “Today, we use a hierarchy of various price options to estimate the fair value of a returned item. Most of the systems in place are a variation of the warehouse acquisition cost (WAC).”

		The 812 removes the need for Inmar to load and manage manufacturer price files.

Enhanced handling of controlled-substance recalls

		3PLs say they have security measures in place to control their inventories, and they are focused on compliance with all federal, state and local requirements. “If you have a solid returns process, controlled product is just another link in the chain,” Genco’s Rendulic says. “While controlled substances are more heavily scrutinized, if you have the systems in place, initiating an event with controlled products should be seamless to the manufacturer.” Genco reports having more than 20 years experience in operating state-of-the-art facilities with leading security profiles to protect even the most stringently controlled products.

		Recalls of controlled substances are among the most challenging of recalls to manage. As with any other aspect of handling controlled substances, there are major differences in the reporting and handling when compared with noncontrolled products. Both types of recalls, however, require notification, product retrieval and form completion. “The ability to account for every unit is important for controlled and noncontrolled recalls,” Inmar’s Pepperworth says. “The process and QA controls are important across the entire pharmaceutical line of products.”

		Given overall concerns about prescription drug abuse, attention is being paid to security practices throughout the supply chain, observers say. These products require additional security measures for inventory management, reporting and record-keeping, in forward and reverse distribution. Controlled substances must be stored in a quarantined area; for example, HDMA reports that its members store Schedule III—V products in cages and Schedule II products in vaults within those cages in their warehouses.

		“They do not store or distribute Schedule I products at all,” HDMA’s Fri says. “There are specific regulations governing the return of a controlled substance, for recall or other reason.”

		Schedule II drugs require a DEA Form 222 (electronic or paper) be sent from the receiving DEA registrant to the returning entity in advance of the controlled substances being shipped. “The DEA encourages registrants to implement procedures that may reduce or eliminate the potential for diversion,” Guaranteed Returns’ Schaltenbrand says. “This is an area where ‘one-step’ relationships would be beneficial.”

		In an effort to reduce non-value-added activities, redundant handling and associated costs in reverse logistics, many major 3PL service providers have developed so-called “one-step” or “one-touch” programs, by which they function as the single intermediary between manufacturer and downstream trading partners. In the traditional scenario, upstream manufacturer and the downstream trading partners would each engage their own 3PL partners to handle routine returns. Using the newer approach, a single intermediary handles the entire return from initiation to final product destruction, acting as a partner to the drug maker, pharmacies or other retail partners.

		This approach, however, has its pros and cons. “In theory, fewer stops for returned product is more efficient,” Fri says. “In practice, some parties prefer their own dedicated agents as auditors.” HDMA has not collected any data relative to one-touch processing.

		Proponents say one-step programs offer many benefits, a number of which are linked to fewer touch points, sustainability, cost improvements and collaboration. For instance, by reducing the number of times product is picked up and handled, it helps decrease redundancies in processing and minimizes opportunities for theft or diversion. Costs are lower from a shipping and process standpoint, 3PLs say, as is the carbon footprint, energy and cardboard use for re-shipping returned products to multiple intermediary partners before the drugs are destroyed.

		“Manufacturers have utilized multiple partners for forward distribution of the product for years,” Guaranteed Returns’ Schaltenbrand points out. “Looking to the bottom line, more manufacturers need to embrace the ‘one-step’ model for further cost savings.”

Improving efficiency, effectiveness of drug recalls

		In accordance with the recently upheld Accountable Care Act, the Centers for Medicare and Medicaid Services (CMS) has created a program to reward insurers for providing high-quality care with new bonus payments to high-performing Medicare Advantage health plans. Under the new program, health plans now have increased incentives to improve patient adherence, and therefore, pay more for medications that could improve patient adherence and real-world outcomes. This creates a new profit opportunity for pharmaceutical manufacturers, because their customers have entirely new incentives, with a lot of money—as much as $3 billion by one estimate&mdash;at stake. Understanding the scope of the changes and proactively positioning their products to capitalize on health plans’ willingness to pay are the two key steps for manufacturers to tap into this new and significant profit opportunity.

		In 2007, CMS began the Five-Star Quality Rating System program, under which CMS rates the quality of insurers’ Medicare Advantage and Part D plans on a scale of 1—5 stars. A rating of one star represents “poor performance” and five represents “excellent performance.” Ratings are based on performance in 55 measures, ranging from outcomes and medication adherence to preventive screening rates and plan customer service. They encompass ratings for both medical care and prescription drug benefits, with prescription drug-related criteria accounting for about one-third of the combined Medicare Advantage plan rating.

		The institution of program bonus payments marks an important change for health plans. In the spirit of improving the quality of healthcare for seniors participating in the Medicare Advantage program, the 2010 Accountable Care Act doubled down on the Star program by tying new bonus payments to a plan’s annual star rating. The bonus payments, which began in 2012, are designed to reward the top performing plans by providing a payment proportional to the total number of Medicare lives covered under a Medicare Advantage contract. Under the new law, CMS will pay up to 5% of a health plan’s total annual benchmark payments to those Medicare Advantage contracts receiving a rating of four stars or higher.

		In addition to the changes mandated by the healthcare law, CMS has also recently extended the scope of the bonus payment program through a new demonstration project. Under that program, Medicare Advantage plans receiving a rating of three stars receive up to a 3% bonus, and 3.5 star plans are eligible for up to 3.5%. This new program will represent a significant increase in the scope of the payments. According to analysis done by the Kaiser Family Foundation, the majority of Medicare Advantage health plans received a three or 3.5 star rating in 2011.

		According to CMS, 10 of the 55 criteria relate to outcomes-based measures, which are given the most weight when determining star ratings. Pharmaceutical products could potentially impact up to eight of the 10 outcomes measures, accounting for nearly 30% of the total weighted rating. Criteria are often specific to a disease area; among others, rheumatoid arthritis, hyperlipidemia, hypertension and diabetes are all reflected explicitly in individual star measures. The Star Ratings program places special emphasis on diabetes management to measure plan quality. The criteria “Diabetes Care — Blood Sugar Controlled” and “Part D Medication Adherence for Oral Diabetes Medications” both receive the highest criteria weight.

		Medicare makes each health plan’s rating available to the public, so that prospective customers can compare plans’ quality ratings on Medicare.gov. Because Medicare plans must market themselves to consumers, a higher government quality rating can lead to a decisive advantage in attracting potential customers. Beyond marketing advantages, the new bonus payments significantly strengthen the incentive for health plans to improve the quality of their care. The Kaiser Family Foundation estimates that the new program will pay more than $3 billion in bonus payments in 2012, and for major national plans, an improvement in their average star rating could mean more than $100 million in additional bonus money.

		The details and potential impact of the changes were discussed in several sessions of April’s Academy of Managed Care Pharmacy Annual Meeting. With such high stakes, managed care is investing heavily in new solutions both to improve their quality ratings and to take advantage of the tremendous financial opportunity that the Star program bonus payments present. However, payers have yet to fully explore the potential role of manufacturers and their products in helping plans achieve higher star ratings.

		A focus on medication adherence is not a new concept for health plans, as many plans have already invested significantly in plan-administered adherence programs. However, this has yet to translate into changes at the P&T level. Managed-care P&T decisions instead still focus on two tenets: “Efficacy is king” and “We don’t pay for convenience.” The pharmaceutical industry has developed numerous innovations over the past several years that offer unique value propositions, yet time and time again, managed care has insisted that clinical efficacy remains the key driver of pricing and access. For example, Merck’s Januvia (sitagliptin) established the DPP-4 inhibitor category of oral anti-diabetics as a class with modest efficacy, but a fairly clean, well-tolerated side effect profile. Januvia has been successful and clearly delivers significant value, but as a result of the predominant payer focus on clinical efficacy, Januvia did not achieve the price levels of thiazolidinediones, such as Takeda’s Actos, or GLP-1 agonists, such as Amylin’s Byetta (exenatide).

		Managed care has also demonstrated an unwillingness to pay a premium for innovations that make the lives of patients easier. New formulations of existing agents and fixed-dose combinations often fail to achieve premium prices despite obvious patient-related advantages. For example, pill burden can often contribute to poor adherence and sub-optimal patient outcomes in diabetes patients. Fixed-dose combinations, which combine a drug like Januvia with a commonly used generic medication into one convenient pill, help patients manage their pill burden, but insurers frequently refuse to pay a premium price for the convenience provided to their members.

		The advent of Star Ratings program bonus payments could change that. Never before has managed care had such a clear monetary incentive to advantage products that promote patient adherence and better real-world outcomes. These new incentives could lead insurers to emphasize patient-related product features, like oral administration, less frequent dosing, and better tolerability.

		This in turn would increase insurers’ willingness to pay for these features, offering manufacturers new avenues to achieve additional price premiums for their products. Under pressure to improve star ratings, Medicare Advantage plans could view a drug like Januvia through a new lens: a convenient and easy-to-tolerate product that could help them improve medication adherence and thus, member HbA1c control. The lure of better quality ratings and higher bonus payments could also compel insurers to reconsider their positions on convenience-focused products, like fixed-dose combinations, and increase insurer willingness to pay for these products.

		While the changes described above present opportunities to extract additional value out of innovations, it would be naïve to think that insurers will make such a leap on their own. Manufacturers need to pursue the potential opportunity proactively, by tailoring and communicating the value propositions of their products to show how new, innovative products can help improve star ratings and unlock new sources of revenue for their customers.

		Consider future diabetes launches, such as a potential anti-diabetic medication with once-monthly dosing. Such a product would have the potential to make meaningful adherence-related blood glucose outcomes improvements for an insurer’s diabetes member population. This product’s opportunity for a significant premium will partially depend on the manufacturer’s ability to convince insurers that granting better access to the product will allow the insurers to earn additional, greater bonus payments. Understanding how star ratings are calculated, coupled with telling a well-crafted product value story that incorporates the potential for star rating improvement, will allow manufacturers to capture some of the additional revenue insurers stand to gain. Additionally, manufacturers can target their value communication strategies to focus Star-related value messages on those health plans that stand to gain the most from improvement in their star rating, since Medicare makes star ratings publicly available.

		To capitalize fully on the opportunity to extract additional willingness to pay for their products, manufacturers will also need to demonstrate their products’ real-world impact to health plans. In recent Simon-Kucher & Partners projects related to patient adherence, payers have claimed that one of the largest barriers to implementation is the difficulty of monitoring the impact of new manufacturer adherence programs. Theoretically linking convenience and tolerability to adherence and outcomes alone is insufficient to payers, leaving manufacturers with one of two options: supporting health plans in tracking adherence and outcomes of patients taking the new product or developing innovative contracting schemes that link access rebates to improvement in one or more of the individual 55 measures used to calculate a plan’s star rating.

		In the case of diabetes, this could mean tying access rebate levels to improvements in the reported percentage of patients whose blood sugar is controlled. Both options will help manufacturers attribute improvements in medication adherence and real-world clinical outcomes to their products and strengthen the argument to command a premium price.

		With millions of dollars and decisive marketing advantages at stake, insurers will clearly value improvement in star quality ratings. Products that can help them achieve this improvement, therefore, take on new, added value. But insurers may not immediately associate new product reviews with the bonus payments that favorable access decisions could unlock.

		With so much at stake for their customers, manufacturers must devote sufficient time to learning the details of the Star program and how the new policies will impact the drugs in their pipelines or portfolios. Capitalizing on this opportunity and successfully convincing insurers of the potential gains they stand to achieve in their highly coveted star ratings will lead to better access, higher achievable prices, and increased profitability for pharmaceutical manufacturers.

Matt Adkins is a senior consultant at Simon-Kucher & Partners, a strategy and marketing consulting firm specializing in the life sciences industry. Matt has worked on engagements for six of the top 10 global pharmaceutical companies primarily related to pricing and value communication strategies. Matt graduated from Brown University with a Bachelor of Arts degree in Economics and Engineering. He can be reached at: Matthew.Adkins@Simon-Kucher.com.

New incentives for health plans could alter the way payers review new drugs

Medicare Star ratings: the billion-dollar opportunity for providers

		It is well-known that today’s pharma industry must undergo structural changes in the face of the patent cliff and pressure on healthcare costs around the world. The industry’s finance, human resources and IT functions have already gone through varying degrees of rationalization; now the question is whether sales, sales operations and marketing can undergo similar rationalization. This question is especially apt for another change the industry is adjusting to: the growing importance of emerging markets as a growth vehicle for pharma companies. Sales and marketing organizations are being asked to do more, with fewer resources.

		Our contention is that there are significant savings—as much as 30%&mdash;to be had by centralizing the program management of global sales and marketing efforts. Many sales and marketing functions are already outsourced, through the use of contract sales organizations, marketing services providers and advertising agencies. Typically, global pharma companies manage these outsourced services locally, causing considerable duplication of effort, problems with nonstandardized procedures, and lack of effective coordination.

		Many life sciences companies are currently making minor adjustments to keep up with the changing demands. While sales and marketing organizations have accelerated activities to reach customers through new digital channels and centralized, highly automated call centers, sales jobs have been steadily reduced. Selective changes have also been made to reduce other costs, such as using contract sales organizations and selecting niche providers for things such as remote detailing and mature product promotion.

		This is not nearly enough. In most cases, these approaches have provided only short-term cost relief. The need for a new operating model and capabilities is clear, yet it remains significantly under-pursued.

		The new managed services model differs from past models where specific areas such as advertising or promotion were given to an outside agency. Instead, the future winners will rely on third-party providers that operate a multitude of sales and marketing functions for the company around the globe—24 hours a day, seven days a week. At Accenture, we have helped several clients create new sales and marketing models with dramatically positive results. Opportunity areas include:

Applying the managed services model to commercial operations can result in dramatic savings as pharma companies globalize

Pharmaceutical Commerce - November/December 2012

3PL execs assess global business conditions, highlight healthcare's potential

Building the social media connection

Healthy Advice Networks is now PatientPoint

iPad-based partnership combines physician preferences in digital communications with app development

To 3PL or go it alone, that is the question

Another go at medication adherence

The power of visualization in patient education

Analyzing drug-pricing mechanisms

Improving efficiency, effectiveness of drug recalls

Medicare Star ratings: the billion-dollar opportunity for providers

A managed services approach to sales and marketing

BeSafeRx: FDA helping consumers avoid risks of online prescription drug purchases

Getting ready for health exchanges - or not

Pharma gets into the 'digital workflow' of physicians

A conversation with Robert Irene, Armada Health