Creating Win-Win Solutions from the Ongoing Drug Cost and Price Debate

This publication has been discontinued on December 21, 2011.

Introduction

Abstract

Introduction

In 2007, we are approaching a tipping point in the standoff between drug customers/payers and drug producers, each striving to achieve an advantage in the struggle between drug cost versus drug price. The solution to this struggle between closely aligned yet combative industry forces lies in the creation of win-win solutions that benefi t not only payers and industry but, more importantly, society as a whole.

Questions Answered in This Spectrum Report

• In today' s complex pharmaceutical marketplace and prescription decision-making process, monetary issues now reign supreme. How has the cost/price issue infl uenced the decision-making process of drug customers and health care providers? Of drug manufacturers?
• A paradox has evolved in today' s health care industry: treatment is growing more expensive, but more and more people are demanding to be treated. How is the desire for universal health care coverage confl icting with the reality of the market? What sort of middle ground will emerge with regard to coverage that will satisfy both parties?
• The advent of knowledgeable and fi nancially motivated customers has irrevocably changed the way in which buyers perceive drug price. What is the perception of drug price in the context of health care costs? How can the pharmaceutical industry infl uence or alter this perception?
• The path to success in the dynamic between the health care customer and pharmaceutical industry is not through a decisive victory of one side over the other. What changes in the customer/industry relationship will ensure future success for pharmaceutical companies? What new stratagems could be adopted to yield winning solutions for both parties?

Scope

• Drug cost/price criticisms: critics' emotional and economic positions against perceived high drug costs.
• The battle lines: entrenched customer positions about health care costs and pharmaceutical industry positions on price.
• Current cost/price stratagems: strategies used by customers and the industry to manage costs and prices.
• Value/price concessions: select industry pricing strategies that refl ect a more value-based approach to pricing.
• Market outlook: methods for creating a win-win pricing environment and our forecast for future customer/industry dynamics.

Table of Contents

• Executive Summary
  • Strategic Considerations
  • Stakeholder Implications
• Today' s Drug Cost/Price Battlefi eld
• Price Criticism in a Nutshell
• Entrenched Customer Cost Positions
  • Factors Driving Health Care Costs
    • Original Expectations
    • Inescapable Paradox
    • Health Care Demographics
    • Health Care Services Defy Centralization
    • Intractable Ineffi ciencies
    • Temporary Relief from Expenditure Controls
    • Economy Fluctuations
    • Impact of Demand-Side Controls
  • Factors Driving Drug Costs
    • Price and Profi t Controls
    • Value-for-Money Emphasis
    • Evidence-Based Medicine
• Entrenched Industry Price Positions
  • Impact of Customer Activism
  • Need for Product Differentiation
• Current Cost/Price Stratagems
  • Customers as Active Managers of Health Care Cost
    • Reference Pricing
    • Drug Legislation and Regulation
    • Rationing as a Way of Life
    • Health Technology Assessment
  • Supplier Price Stratagems
    • What Price Will the Market Bear?
    • Pricing Orphan Drugs
    • Increasing Prices
    • Thwarting Parallel Imports
    • Staving Off Generics
    • Promoting Directly to the Customer
• Value-Price Concessions
  • Value Proposition Pricing
  • The Value of Time
  • Purchaser/Supplier Risk Sharing
    • Johnson & Johnson' s Velcade
    • Pfi zer' s Sutent
    • GlaxoSmithKline' s Phase IV Proposal
• Key Guiding Principles for Creating Win-Win Solutions
• Future Dynamics Between Health Care Customer and Pharmaceutical Industries

Figures

• 1. Share of U.S. Prescription Drug Cost by Payer, 1990-2006
• 2. Factors Driving Health Care and Drug Costs and Customer Concerns over Ability to Pay
• 3. Complex Prescribing Decision-Making Process-The New Primacy of Monetary Issues
• 4. Setting Prices in a Complex and Multilevel Environment
• 5. Using Regulatory Hurdles to Force Pharma Companies to Respond to Customer Concerns
• 6. Thousands Denied Sight-Saving Drugs in England
• 7. The New Value Proposition Equation

Sidebars

• National Institute for Health and Clinical Excellence--A History of Criticism and Controversy

Tables

• 1. Pharmaceutical Cost-Containment Measures: Demand-Side Controls
• 2. Pharmaceutical Cost-Containment Measures: Supply-Side Controls on Manufacturers
• 3. Projected Impact of Key Brand Patent Expiry on Leading Big Pharma Companies
• 4. Drugs Approved by the Scottish Medicines Consortium

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