The Impact of the Affordable Care Act on Drug Channels

Manufacturers can use a variety of alternative distribution methods to reduce drug waste and prepare for the cost structure changes associated with health care reform.

Manufacturers can use a variety of alternative distribution methods to reduce drug waste and prepare for the cost structure changes associated with health care reform.

The ongoing implementation of the Affordable Care Act will cause the patient base using health care to expand at an accelerated pace as those who were formerly uninsured opt into health care exchanges or gain coverage through the expansion of Medicaid. This will trigger significant changes for payers, and competition will be fierce, noted Kent Rogers, former vice president of managed markets, Acorda Therapeutics, on May 22-23, 2013, at CBI’s Alternative Pharma Distribution Strategies Conference in Philadelphia, Pennsylvania.

By October 2013, when open enrollment in health exchanges begins, health care companies will be in the position to capture more revenue. Overall, “Obamacare” will create a larger market for pharmaceutical companies—but these profits will be captured at a lower margin, Rogers pointed out.

Some of the proposed changes in Obama’s budget would directly affect the pricing and reimbursement of pharmaceutical products, said Rogers. Federally mandated rebates for small molecule therapies would be extended to those eligible for both Medicare Part D and Medicaid (aka “dual eligibles”), which Rogers predicted will provide beneficiaries with savings of up to 80%. Manufacturers would also be expected to close up the “Donut Hole” for Medicare Part D patients (by increasing the drug discount for this population from 50% to 75%), effectively shrinking the gap between the initial coverage limit for prescription drugs and the catastrophic-coverage threshold.

For large molecule drugs, which are usually known as biologics or specialty medications, cost structures are predicted to change as well. The Medicare reimbursement rate will drop from the sequester rate of ASP (Average Sales Price) plus 4.3% even further, down to ASP plus 3%. This lower reimbursement rate will have a particularly strong impact on oncology clinics and oncologists, said Rogers, some of which may end up “in the hole” simply by treating patients.

“Our industry is moving towards a branded specialty pipeline,” remarked Rogers, and “manufacturers are the protectors of net revenue.” To prepare for how reimbursement changes will affect the pipeline, drug manufacturers should develop waste-reduction strategies for their products. These include:

  • In-house hub operations — Although the creation of a hub can be costly, hubs greatly increase the chance that a patient will be actively engaged with his or her treatment.
  • Direct ship to retailers — Manufacturers can reduce costs by bypassing a specialty pharmacy or distributor.
  • Utilization of smaller/“hungrier” specialty pharmacies — The manufacturer is a customer paying for a service, noted Rogers, and “it is important to confirm the capabilities of a potential SPP partner or network participant prior to negotiating contract terms,” he wrote in an article for Pharmaceutical Commerce. “Who provides these services—and how well they are carried out—is a crucial factor in executing a successful commercialization strategy.”
  • Enforce application of copay mitigation programs — Copay programs help drugs get to patients more quickly, Rogers asserted. Although lower patient copays incentivize patients to begin therapy, payers dislike these programs, as they shift drug cost from the patient to the health plan.
  • Pay-for-performance contracts — Manufacturers may include a clause in their contracts with specialty pharmacies stating that payment is dependent upon meeting certain performance metrics.
  • Distribution to large Accountable Care Organization (ACO) entities — Although this method may gain more traction as more distinct ACOs emerge, physicians within 1 ACO (which could include multiple hospitals in a particular region) may disagree about which therapies are best for the organization as a whole. In addition, there may be confusion about where these therapies are physically sent, and clinical trial design goals have to be in alignment with the financial goals of the ACO, Rogers said, which can be difficult to ensure.
  • Limit specialty distribution to avoid diversion — Limited networks not only help limit counterfeit products, they also help maintain patent protection. Rogers noted that manufacturers can dramatically increase the longevity of the molecule they have created by limiting their network. This reduces the chance that the manufacturer’s competitors will buy a manufacturer’s drug, recreate the drug, and then challenge the manufacturer’s patent.