Market Access and value-based pricing

Marcus Deans explores the competitive advantages of value-based pricing



Marcus Deans explores the competitive advantages of value-based pricing



No one likes a whinger or a moaner, do they? This has to be at the top of most peoples Things I hate list. The Oxford Dictionary aptly defines moaning as: A low, sustained, mournful cry, usually indicative of sorrow or pain and whinging; to complain or protest, especially in an annoying or persistent manner.


However, those of us who have worked within the pharma industry during the last five years have had to get used to persistent moaning and whinging about the increasingly challenging environment, which apparently has led to innovative medicines being unable to reach the very patients they were designed to treat due to lack of governmental reimbursement.


We all know that in todays healthcare market the pharmaceutical decision-making process has expanded to include not only prescribers but also multiple stakeholders and influencers. These new customers, generally called payers, are the often the lead villains in this drama, and also the subject of the majority of moans emanating from the pharma industry.


Value and value-based pricing


As these payers increasingly drive towards value based purchasing, and hence demand the best value for their purchasing power, it is now imperative that pharma companies endeavour to actively communicate value. And perhaps most important when communicating value is the implementation of value-based pricing.


But what is value? Over the years, I have heard many definitions of value, often depending on where I am and with whom Im talking.


When I was a rep and we spoke about providing customers with more value, this was often a euphemism for reducing the price of a particular service or drug. In the boardroom, value is often confused with product features as opposed to the value those features bring to customers.


The most appropriate definition of value for the healthcare industry is the costs and consequences of one treatment compared with the costs and consequences of alternative treatments. Value based pricing therefore is a process of



  • Understanding stakeholders needs;

  • Gaining deep insights on stakeholders and key value drivers;

  • Understanding how the drug impacts each stakeholder when compared with competitors;

  • Quantifying value and ultimately translating that into pricing.

It should ideally be started in the very early stages of product development and have patient care at its core.


So why havent pharma been more proactive in implementing value-based pricing and communication of value in order to overcome some of these new challenges? Well, there are essentially three main hurdles:


The right people


We all know that more than half of pharma companies have a dedicated pricing or health economic function. However, the role of these departments seems mainly to be reimbursement as opposed to value pricing.


Reimbursement deals with the technical world of coding, coverage and payment and is an area that requires years of experience, relationships with payers, and a thorough understanding of the technical rules and reimbursement procedures.


Value pricing, however, relies more on a sound understanding of value and how it is created for stakeholders, strong strategic and analytical skills, and a broad business perspective.


It is therefore rare to find an individual with both skill sets. Companies must seek and employ those individuals with the appropriate set of skills to develop and implement value pricing.


Integrating value thinking into sales forces


As sales forces are the face of the company and the sharp end of the marketing and market access strategy, getting this right is absolutely critical. A good sales rep is always hungry for any additional training that will help him to be more productive and serve customers better.


Companies must ensure that, because value-based purchasing/prescribing is here to stay, training representatives in understanding both the customers business economics and how the drug may effect those economicswhile also having the appropriate tools to demonstrate economic valueis essential.


Hence, an audit of the current skill set of both the reps and trainers in the area of value is the ideal place to start.


The new product development process


All companies have a robust new drug development (NPD) process with clearly defined inputs, outputs and criteria for each stage of drug development. What is lacking in most cases, however, is the integration of marketing and other functions into the NPD process.


By involving marketing from the get go, the organization could potentially estimate the customer economic value of certain features under consideration. This can then be compared to the estimated cost to develop and manufacture those features to aid the organization in making trade-off decisions before complete development.


The days of the marketing department receiving a target product profile with features that do not resonate with customer requirements need to come to an end if success is to be realized.


Competitive advantage


With the trend of value-based purchasing and prescribing set to continue, getting the value-based pricing approach right from the outset will be a strong competitive advantage. If a company can gain a 3% higher price over five years, this would result in 20% higher profits.


In addition, a better understanding of value will help lead to better investment decisions and, ultimately, real innovations that improve human healthcare.


But above all, without doubt, the single biggest advantage would be the lack of whinging in the future.