August 29, 2014 Morayea Pindziak

How Will the New Marketplace Affect Pharmaceutical Companies?

With the emergence of a new national health insurance Marketplace, insurance shopping has a new level of accessibility that has resulted in a broad-spectrum shift of health insurance operations, new insurers, formularies, and an array of benefits designed to meet the actuarial expectations stipulated by the law. As of April 19, 2014, over 8 million people signed up for a Marketplace plan, exceeding the projected 6 to 7 million, with an additional 6 to 7 million enrolled in Medicaid. The majority being previously uninsured. The Marketplace is poised to grow to over 24 million members by 2016 with the potential of expansion beyond that by tens of millions.

Formularies and Benefits in the Marketplace

There are approximately 250 formularies that have been created by over 275 insurers. While these formularies had to meet state specific essential health benefit standards, there is a similarity between the 2014 formularies and their commercial counterparts.

In addition, the Marketplace appears to take a more transparent approach to a number of circumstances where the drug benefit would not apply, including:

  • Out of network drug purchases do not count toward deductible or out of pocket maximum, or may have a substantially higher set of deductibles that apply.
  • Drugs prescribed by an out of network physician – not covered.
  • Brand drugs purchased when a generic is available – not covered.
  • Drugs that require prior authorization but are obtained without going through this process – not covered.
  • Non-formulary drugs – not covered.

Drug Utilization

Current Marketplace enrollees, tending to be lower income, overwhelmingly selected the lowest cost premium plans available. We would expect the same type of pharmaceutical purchasing behavior. An initial 2-month snapshot review of approx. 650,000 claims for 25 insurers from January to February 2014 by Express Scripts showed:

  • Higher antidepressant (8% higher), pain medication (29% higher), seizure medication (19%) use vs commercial
  • Specialty Meds: 1.1% of Rx vs 0.75% in commercial
  • HIV: 55% of specialty claims vs 21% in commercial
  • Cancer and HIV higher in Exchanges based on claim cost

Going forward, we would expect to see that initial skewing of drug utilization patterns begin to normalize.

The Marketplace:  What to expect in 2015 and in the Years Ahead

Insurer Expectations

Over the next 1 to 3 years, we expect to see greater market segmentation by key insurers. With some gaining hundreds of thousands of new Marketplace enrollees, this could stimulate new selective and targeted contracting interest and arrangements with Pharma. Insurers will drive toward value and lower costs in this transparent and competitive market, and will request this through contractual concessions and migration to shared risk/outcome type contracts from Pharma. Pharma will need to evaluate the traditional contracting value in light of the emerging reality in this market.

There may be a greater emphasis on certain classes of drug vs others. Products with a lower perceived value to the insurer (i.e., ones that don’t demonstrate cost reductions or quality of care improvements) may struggle to gain preferred status. Bundling such products in rebate agreements with other drugs that do have stronger perceived value is one way in which this risk could be mitigated.

The New Cost-Reactive Stakeholders

The member, with cooperation from their prescriber, becomes the key product decision maker relative to their ability to afford the copay (or coinsurance) at any tier level or the full cost through the deductible. Simply gaining a preferred brand position on a formulary may not return the contract value, as even preferred brand positioning often is associated with a significantly higher copay or coinsurance compared to generics (or compared to traditional commercial coverage of preferred brands (See table 1 above). Physicians will be interested in complying with their patient’s affordability expectation.

The Marketplace Formulary and Benefits

The formulary rules in place for 2014 will continue through the 2015 season (i.e., same benchmark plan, formulary Essential Health Benefits). There will likely be a change for 2016, but insurers are awaiting formal guidance from CMS which is expected to be issued by the end of 2014.

 

 

The Marketplace Effect on Pharmaceutical Companies

A Need for Vigilance and Readiness

New rules and compliance requirements will continue to evolve and change likely at a greater pace than commercial or other managed markets. This will require expanded vigilance and new tools to help track and work with these changes. There will be greater cost control and pricing negotiation expectations on pharma each year in this segment, with spill over potential to the broader commercial market. The Marketplace will become a significant component of the managed markets segment, with strong ties to Medicaid. This becomes an opportunity, with an estimated $26 billion in additional retail drug spend anticipated because of expanded coverage through 2021.

Tweak to Optimize the Opportunities 

The out-of-pocket cap on medical costs across new insurance plans as stipulated by ACA is a significant opportunity for Pharma. This creates the following opportunities for Pharma:

  • Validation of currently subsidized patients who were uninsured, to make sure they are not in the Marketplace and thus qualified for benefit coverage (no longer in financial need of the subsidy).
  • Build Marketplace enrollment questions, guidance, and referral into the application process
  • Consider approving subsidies for a limited time, contingent on Marketplace enrollment

For specialty drugs, we anticipate that most insurers will require use of their specialty pharmacy network. Identifying patients through Pharma-specialty pharmacy relationships may become an efficient first step. Pharma will need to structure its research, clinical studies, contracting, marketing, and operations to meet these new stakeholder requirements and expectations.

Marketplace Bottom Line 

In 2015 many insurers are looking to expand into new Marketplaces, and national insurers are planning to expand their footprints as well, due to very limited 2014 participation. Medicaid enrollment will continue to grow, particularly in those states that expanded the qualification limits. Those benefits, formularies, and pharmaceutical management approaches that are successful within the Marketplace plans in 2014-2015 will expand to become the norm across most of the commercial business.