What will Medicare Part D mean for pharma marketers?

According to the report, patients and providers hold much control over Medicare Part D’s implementation and providers can exercise greater formulary management than in the past.

By Editor on Apr 12, 2006

According to the report, patients and providers hold much control over Medicare Part D's implementation and providers can exercise greater formulary management than in the past. And pharmaceutical companies risk government involvement, or even price controls, if Part D plan costs escalate.

But Jon Hess, research team leader for Cutting Edge Information, says through strategic planning, targeting, marketing and sales, pharmaceutical companies can tackle Part D's nuances and ensure their product portfolios achieve sales goals in the Part D environment.

Although PricewaterhouseCoopers predicts that demand for prescription drugs will increase by an average of 5.7% in 2006, total drug spending by Medicare beneficiaries is predicted to stay steady due to lower costs to seniors. Decreased co-payments will offset increased demand for drugs, Hess says, keeping spending levels stagnant.

Pharma companies may, therefore, be manufacturing more drugs, but not bring in more revenue. The pharma industry needs to evaluate how to best benefit seniors through easier drug access, without hurting the bottom line.

Pharmacies, private insurers and pharma companies stand to benefit from the sheer number of potential Medicare enrollees, with more than 43 million Medicare eligible seniors receiving access to Part D drug plans.

The new drug plan is expected to drive a 2-3% increase in pharma company revenues in 2006 and 2007, Hess says. And generic companies expect a 13% increase in US sales during 2006.

But to be successful in the new Medicare Part D competitive market, pharma companies must deal with shifting market dynamics and changing revenue potential, the group says. Since pharma companies are one step removed from Medicare patients, they need to stay on top of market activity and react to coverage providers and pharmacists accordingly.

Ultimately, the private sector must find a way to keep program costs down or have to answer to the government which promises to step in with some form of price controls should the private model fail, Hess says.

Pharma companies need to evaluate how ready they are, he says, to work along side of Medicare Part D to take advantage of the abundant patient population as well as the potential revenue boost from more patients.

Hess says that pharma companies can benefit from the Medicare prescription drug plan if they carefully analyze certain key areas of their business. The factors that will determine whether revenues are high include patient status, payment sources, rebates and catastrophic coverage.

Because the plan encourages patients to use less expensive generics when available, sales of these drugs may increase at the expense of branded products, making the brand's patent status important to maintaining market share, the group says.

And those drugs with generic alternatives, Hess says, may have to offer discounts in the form of rebates, and prices may have to shift to keep a drug desirable to patients.

The source of payment coming back to pharma companies also will impact revenues, the group points out. Revenues will decrease for drugs dispensed to retirees through employer-sponsored coverage, while drugs dispensed with Medicare benefits will see an increase in revenue.

Coordination among all business areas, including marketing, sales, product development and brand management, will be vital to preparation and execution as companies adapt to the Part D prescription drug plan, the group says.

Pharma companies need to evaluate their corporate and product-level readiness to react to Part D impacts, Hess says. The better informed an organization is, he says, the better it will be able to spell out strategic options ahead of time and respond more quickly to the inevitable changes that will occur in the market.

Pharma managed markets departments say two main activities will be needed to prepare for working with insurance providers. First, marketing functions will need to project how new channels are likely to evolve in light of Part D. Second, marketing's Part D channel planning should be integrated into overall brand planning.

But there is a sense, Hess says, that many top companies are waiting to see Part D's effects before acting. The industry seems to be waiting to determine which coverage plans will claim the majority of the covered patients and which will be key players in the provider market. After the dust settles, he says, more companies will react by tailoring their structures to meet the needs of Part D patients and the big players in the market.

Companies, one study participant says, must do a good job of estimating the available population and determining what cost they are willing to pay to reach that group. Some field sales departments will be realigned to reach the most important Part D patient populations through their doctors, Hess says.

Top companies determine the most important physicians for a particular patient population based on prescription volume, current prescribing practices, patient population mix and Part D prescription drug plan affiliation.

In addition to physicians, the increased influence of the pharmacy under Part D, the group points out, opens the door for targeted marketing initiatives pointed at pharmacists. And Part D-specific messaging should show up in all marketing materials targeted at beneficiaries.

The brand's specific value proposition, positioning and messaging related to Part D needs a succinct voice that is repeatedly delivered with as little confusing information as possible, Hess says.

And Medicare prescription drug plan sponsors offer a unique opportunity for pharma companies to support Part D through medication therapy management programs (MTMPs), the group points out.

Coverage providers are required to develop, implement and execute MTMPs to promote the appropriate use of medications to improve patient outcomes and reduce adverse events. By gathering sponsor feedback on MTMPs's structures and activities, pharma companies can determine their support role in promoting patient compliance.

But Cutting Edge Information says the best tactic for prescription drug plan providers and pharma companies to understand the changing Part D landscape is to invest in market research.

Analyzing competitors's tactics, targets and messaging gives the best view of the market, regardless of whether one's competitors are PDPs or drug makers, Hess says. Without endorsing or backstabbing a particular provider's coverage plan, pharma companies can use market knowledge to their advantage. A drug company that can support its products with solid market research likely will gain better formulary status.

Waiting too long to begin any of these tasks, the group warns, only gives other companies a head start. And as Medicare Part D settles into place and the managed care market molds itself around the legislation, pharma companies need to continue to monitor developments to maintain competitive advantage.

To learn more about the report, visit the Cutting Edge Information web site at www.cuttingedgeinfo.com .