Payer Decision-Making Process

Decision MakingWhether it is a new or existing product, the fundamental issues that affect payer positioning are similar and must be discretely understood in each therapeutic area. The primary drivers that the payer looks for in the product are clinical evidence, comparative clinical differentiation and economic competitiveness compared to other existing products. Besides clinical value, other aspects that are equivalently important are the ability to keep patients compliant and reach their intended treatment goal, which leads to reduced costs and increased quality of care. Payers also seek competitive pricing and contracting terms that benefit their business and financials. Payers are increasingly looking for creative ways such as linking product access and price to health outcomes with the goal of better managing care and associated costs. This is an essential part of value-based pricing and the product that offers the best value in terms of treatment outcomes usually commands the best price.

Drug coverage (formulary) Overview 

Payers use structured formularies to manage drug utilization and associated costs. The type of coverage offered to a drug (i.e., unlimited coverage, coverage with restrictions, or no coverage at all) depends on several factors such as product value proposition, competitive choices, cost effectiveness, and others. The drugs usually are categorized into one of five tiers within a formulary. Tier 1 drugs are generics only; brand name drugs ideally prefer to attain Tier 2 positioning which has minimal co-pay compared to the other higher tiers. More expensive specialty drugs are typically slotted in Tier 3 or higher which have significant restrictions.

Coverage Restrictions

Payers apply coverage restrictions to ensure that drug access is managed in a controlled environment. Restrictions or incentives have a direct bearing on the ultimate treatment decision-making process of both the physician and the patient and their utilization of drugs. Prior authorization, specific medical criteria, restrictions on physician specialty who can prescribe the medication, requirement for case management, dosing and site-of-service limitations are the most prominent restrictions that wane off the interest of physicians. These restrictions will act as barriers for product adoption and utilization and thus removal or minimizing the impact of these restrictions paves the way for product uptake.  Typically, the private payers are not likely to evaluate product for formulary acceptance for up to 6 months for new products. During this time, the payers consider product availability on a case-by-case basis when medically reasonable or necessary. Based on physical properties and cost, payers have to choose between “pharmacy benefit” (narrower in scope and limited to oral prescription drugs or self-injectables) and “medical benefit” (much broader in scope and inclusive of all medical and hospital care services).

Utilization versus Control

Payer restrictions have proven to be effective in containing costs, irrespective of the lack of complete knowledge about the overall impact of the care being provided to patients.  Prior Authorization Impact Prior authorization requirements differ by product and by payer. Payers with higher numbers of patients in a disease class are likely to have more restrictive prior authorization requirements as the disease management costs tend to be higher. The prior authorization may be renewed at some time interval, as payers tend to change their coverage provisions if compelling new clinical and research evidence is presented. Differentiated products that offer compelling CES value proposition are able to secure better formulary positioning with fewer restrictions. The consistency and persistency with which prior authorization is being applied has improved in recent years, reflecting the ever-increasing payer determination to enforce their concept of “appropriate care” based on the evidence and value. 

High out-of-pocket payments (OPPs)

The out-of-pocket payments are the costs that patients incur as co-payments or coinsurance when they purchase the product. Even with managed care coverage, the out-of-pocket cost for some patients can turn into a significant financial and psychological barrier.    In some chronic disease areas (e.g., diabetes), pharmacy costs are not a primary concern because of the high use of generics. However, in other areas, the management of formulary and drug utilization to effectively manage the disease and the affiliated costs is a major concern. The payer formulary reviews focus both on clinical and economic factors while deciding whether to grant broader or narrower access to a product. There is an inverse relationship between payer controls and drug utilization in some therapeutic areas; this has been a contentious issue for both patients and BioPharma companies to deal with. A high level of control will affect the accessibility and hence the utilization of the product. Conversely a highly utilized product will be the one that is not obstructed by restrictions as the payers face significant pressure from their customers (i.e., employers and consumers) seeking the product access.