The role of the pharmacy
While brand teams face many considerations when bringing an innovative therapy to market, one of the most critical is how they manage the pharmacy channel. The pharmacy plays an important role in the patient’s medication treatment journey and influences brand economics.
In today’s evolving pharmacy landscape, manufacturers should take an active role in shaping how their product is managed or risk gross-to-net (GTN) erosion. Yet, as evidenced by the fact that more than 50% of product launches fail to reach their expected value, teams often overlook the nuances of their primary commercialization channel.
The pharmacy is unquestionably unique, presenting a significantly more opaque route to market than what commercial teams face in less regulated industries. A driver of complexity is certainly the intricate payment flows in the value chain and the power insurers have over pharmacy economics. In recent years, payers have exercised their pricing control in the form of strict cost control measures to curtail rapidly growing pharmacy spend. These measures have resulted in a challenging economic environment for pharmacies with many experiencing declining reimbursement making it challenging to dispense covered, branded therapies.
Strong market access doesn’t guarantee strong reimbursement
Negotiating for strong market access to ensure the prospect of payer reimbursement for therapy is an essential component of a brand’s strategy. Yet today, formulary placement is insufficient to ensure a high percentage of covered dispenses at the pharmacy. The standard access strategy fails to consider the role of PBM networks and the impact of the actual pharmacy reimbursement on commercial outcomes.
Pharmacy reimbursement is primarily driven by the negotiations between pharmacies and health insurers’ pharmacy benefit managers (PBMs) for network participation. A pharmacy’s reimbursement rate is calculated as follows:
Thus, the assumption many manufacturers make is that the negotiated rates ensure the pharmacy is adequately reimbursed to maintain profitability. However, even contracted “in-network” pharmacies can be underwater on any given prescription. At the brand level, pharmacy reimbursement variance is significant across the ecosystem. Moreover, the format carrying out the dispense also influences the reimbursement rate as brick & mortar contracts typically command higher reimbursement than mail order (i.e specialty pharmacies).
Increasingly, pharmacy participation in PBM networks includes clauses that measure pharmacies based on performance standards, enabling penalties in the form of direct and indirect remuneration fees (DIR) if they are not met. This practice has grown exponentially by 107,400 percent between 2010 and 2020. To the detriment of pharmacies, performance standards are often dynamic, making them difficult to attain. Additionally, penalties enacted for poor performance can be clawed back following the point of sale resulting in pharmacies being left underwater for prescriptions that they had originally believed to be profitable.
If a pharmacy knows that they will be under-reimbursed, it’s likely that they will pursue alternative reimbursement sources. Thus, under-reimbursement can have a significant impact on pharmacy behavior given pharmacies will find it difficult to fill unprofitable, branded scripts, negatively impacting a manufacturer’s GTN.
The impact of declining reimbursement on the access journey
The implications of declining reimbursement on the prescription access journey are critical for manufacturers to understand. When a pharmacy experiences under-reimbursement, they generally take one of the following actions:
1) Offer the patient a generic alternative - Often a generic medication that requires follow up with the prescriber, which may increase the risk of abandonment. For the brand, the long-term effect is twofold- loss of the patient and prescriber loyalty.
2) Apply a manufacturer sponsored coupon. Pharmacies seek alternative reimbursement sources if the primary payer channel is not viable. If a manufacturer offers a cash program that offers an affordable price to the patient while buying down the product from the pharmacy, it’s an attractive option. While the patient may start on therapy, the manufacturer foots the bill, hitting their GTN.
3) Transfer the prescription to another pharmacy. Often, the path of least resistance for pharmacies is to inform the patient that they are unable to fill their prescription and offer to transfer it. While it’s possible that the receiving pharmacy may be able to fill a covered dispense, there is no means to predict this. Patients may end up back at square one.
Responding to pharmacy under-reimbursement
Commercial teams need to accept the reality of declining pharmacy reimbursement as an important variable in their go-to-market equation. They would be wise to prioritize channel partnerships that maximize the chances of strong reimbursement and simultaneously offer a means to influence pharmacy economics.
In retail, manufacturers have few levers to influence pharmacy economics given the independent role of the Big 3 in distribution. It follows that utilization of free goods programs is difficult to curtail in this setting in instances where pharmacies are underwater on branded medications. Thus, deploying an alternative channel strategy offers manufacturers tighter control over their business rules and enhanced visibility into the prescription journey offers the most viable opportunity to mitigate the negative effects of under reimbursement.
Discover how a specialty lite brand achieved 10x higher covered dispenses, 85% new patient enrollment, and 100% of scripts shipped within 1 business day post copay approval with Phil.
To learn more about how Phil can help you harness the power of your brand’s prescription data, visit https://phil.us/life-sciences.
