The Evolution of Medical Benefit Contracting: How Pharma Can Prepare

February 2

By Saket Patel

Given the growth of specialty pharmaceuticals, manufacturers will need to develop more aggressive contracting strategies to secure optimal market access for their medical benefit drugs. Shifting market dynamics, driven in part by the influx of lower cost biosimilars on the pharmacy benefit, will require pharma companies to focus more on rebating and cost minimization.

As biosimilar manufacturers face a huge barrier to market entry, they will need to incentivize payers across all lives to gain market share. They will offer either low initial price points or significant rebating to bring their average wholesale acquisition cost (WAC) into parity with brand-name drugs. Meanwhile, manufacturers of brand-name originators will be forced to offer much larger price concessions—rebates in the range of 45% to 55%—to maintain market access.

Value-based contracting, especially for gene therapies that are purportedly curative, will help provide payers the financial guarantees they need to offer long-term coverage. Currently, the terms of value-based agreements are typically more favorable for the manufacturer than the payer. As high-cost gene therapies enter the market, payers will seek to negotiate more balanced terms. Given the unknown downstream implications of these therapies, payers are likely to employ strict policies and coverage reviews for each patient.

For most therapies, however, negotiations will center around securing preferred placement. In exchange for a percentage discount off the WAC, manufactures can ask for concessions like the removal of step therapy restrictions or the designation of preferred status. After contracting is complete, manufacturers will also need to guard against rebate leakage by crosschecking the execution of contract requirements with payers and PBMs.

Regardless of the contracting approach they choose, manufacturers of medical benefit products will need to carefully plan their market access strategy to ensure favorable product positioning relative to their competitors.

For more analysis, read the full article on Drug Channels. If you’re ready to tackle rebate leakage, learn how MMIT’s Contract Validation solution automates the formulary and medical policy validation process to prevent overpayments.