Report: drug cos. must adapt, collaborate to navigate health reform
NEW YORK —The era from 2010 to 2020 will be the “decade of health reform,” according to a new report from PricewaterhouseCoopers. But despite adding tens of millions of Americans to the rolls of the insured and boosting prescription drug usage as a result, provisions contained in the Patient Protection and Affordable Care Act will actually put a squeeze on revenues for drug makers—and force them to collaborate far more effectively with other healthcare entities and fundamentally change the way they approach the pharmaceutical business, the company predicted.
In a newly released study on the potential impact of the health-reform law, PricewaterhouseCoopers’ Health Research Institute projected that drug manufacturers will see total industry revenues decline by $112 billion over the next 10 years as elements of the massive health-reform package signed by Pres. Barack Obama earlier this year sweep through the healthcare system. What’s more, health reform will “profoundly alter the healthcare environment,” and “may make health organization’s current business practices and markets irrelevant.”
One of the most visible effects of health-reform legislation will be the expected addition of 32 million Americans to the ranks of the insured, and the elimination of the Medicare Part D drug-coverage “doughnut hole.” But along with the expansion in drug utilization will be new rebates and fees that will eclipse some of the sales and profit gains made by drug makers serving this increased drug-usage population, according to the report. And branded drug manufacturers that heavily depend on government-spending programs for much of their revenues will be hardest hit, PWC predicted.
In “the new coverage vs. discount landscape,” PWC noted, “expanded coverage means increased sales, but higher rebates and fees may mitigate the gain.”
The ultimate effect, the company added, is that “health-reform changes will cut into expected spending on brand-name drugs by 4.3%. The increased number of insured will be offset by heavier discounts required by Medicare and Medicaid and other new fees on government sales, making it less attractive to sell to government programs.”
Overall impact of legislation on pharma revenues
|Industry impact, 2010-2019|
|Total brand pharmaceutical revenues, 2010-2019*||$2.6 trillion|
|Less: Discounts in coverage gap, net change**||-35.0 billion||-1.3%|
|Less: Increase in Medicaid rebates||-35.0 billion||-1.3|
|Less: Annual industry fee||-28.0 billion||-1.1|
|Less: Follow-on biologics||-25.0 billion||-1.0|
|Plus: Increased use from coverage expansions in under-65 population||11.0 billion||0.4|
|Net change in pharmaceutical revenues||-112.0 billion||-4.3|
The new regulations will challenge every healthcare stakeholder. “Health organizations face more than 60 major regulatory deadlines over the next ten years to meet the timetable and goals of health reform,” PWC noted in its report, released May 12 under the title “Health Reform: Prospering in a Post-reform World.”
“To look at the implications of health reform only in the context of current business practices is not only futile but [also] misses the point of the reform agenda,” said Kelly Barnes, PWC’s U.S. health industries leader. “If health organizations make no other changes and sectors continue to operate in silos, the direct financial impact of healthcare reform could be devastating and even threaten their survivability.”
“To prosper, it is incumbent on health executives to reassess their businesses, find new market opportunities and sit on the same side of the table with unlikely new allies who now share common goals,” Barnes urged.
In its report, PWC cited “an environment of relentless challenge and change” within the pharmaceutical industry. “The industry remains under pressure from physicians, patients, payers and regulators to deliver more effective treatments at lower cost,” the company asserted. And with the onset of new demands and new, evidence-based payment structures from a reformed healthcare system, the industry’s “current business model, based on development and marketing of blockbuster drugs, is increasingly economically unsustainable and operationally unsuited to the kind of quick action needed to meet complex stakeholder demands,” the report noted.
Nevertheless, the report’s authors concluded, “the future holds promise.” Among the reasons why: the ramp-up of personalized medicine and increasing number of biologic products in development portend growth for the industry; the delivery of targeted, specialty medicines to selected groups of patients should improve outcomes and boost profitability; and rising populations and personal incomes in emerging markets have the potential to broaden the customer base in untapped and underserved regions.
“To seize these opportunities, the industry must embrace a fundamentally new approach to doing business,” PWC noted.
“Pharma’s traditional strategy of investing heavily in a few molecules, promoting them aggressively and turning them into blockbusters worked well for many years. But today, productivity has plummeted, and the worldwide marketplace has changed dramatically,” the report added. “In response, the industry must improve its understanding of disease, reduce research and development costs and funnel innovation into its pipeline. It must tap emerging markets and switch from selling medicines to improving outcomes.”
And, PWC warned, “Few companies will survive without improved stakeholder management and collaboration with nontraditional partners.”
NACDS puts a new spin on Meet the Market
SAN DIEGO This year the National Association of Chain Drug Stores introduced two new features to its Meet the Market format. First, NACDS hosted a Meet the Market Presentation Template webinar twice prior to Meet the Market, in which NACDS introduced a meeting template that succinctly captured all of the information retailers typically use to evaluate a new product or company.
Also new to Meet the Market were the booths of 10 service companies — trade media and professional education, merchandising consultants and marketing/media information companies — which afforded an opportunity for new and smaller suppliers to meet with these organizations.
“New companies have a need not only to meet with retailers, obviously, they have a need for their business,” noted Jim Whitman, NACDS SVP meetings and conferences. Another ongoing improvement is the productivity within each meeting, Whitman added. “We keep refining the match, the appointments,” he said.
This year, the Meet the Market format — in which smaller and new suppliers have 10-minute meetings with their category buyers — represented more than 8,000 face-to-face pre-arranged appointments.
Retail clinic growth slowing down? Not a chance
WHAT IT MEANS AND WHY IT’S IMPORTANT The news that Target is looking to expand its retail-based clinic business this year is yet one more indicator that reports of the demise of retail clinic growth have been greatly exaggerated.
(THE NEWS: Target to expand its retail clinic presence. For the full story, click here)
As the article states, Target, which opened its first clinic in 2006, is looking to open up eight new locations this September. It already operates 28 locations in Minnesota and Maryland.
It wasn’t so long ago — April to be exact — that CVS Caremark’s MinuteClinic indicated that it could double its current number of clinics in five years.
Why the growth? Well, aside from the aging population and a shortage of primary care physicians, a major catalyst is healthcare reform, which will mean that 32 million people who currently are uninsured will have healthcare coverage. With emergency rooms already overflowing, and primary care physicians already over-extended, having a retail clinic nearby where patients can receive convenient, quality and affordable health care will only become increasingly important.
Meanwhile, RediClinic, which has 22 clinics in H-E-B stores in Houston and Austin, Texas, is cranking up its marketing efforts and has tapped former Duane Reade executive Jeff Thompson as VP marketing. Thompson will be responsible for RediClinic’s consumer and partner marketing activities, including developing and implementing strategic customer acquisition/retention programs, new product delivery and brand strategy.
Thompson most recently served as VP marketing for Duane Reade.
Clearly, there continues to be significant growth opportunities for clinics — both in terms of the number of clinic locations and the scope of services offered within the clinics. As mentioned earlier, there are 32 million reasons why the growth will be quite dramatic.