Why Drug Makers Should Pay Close Attention to the Pressures Bearing Down on Payers

The U.S. health care reform act is expected to have only a moderate direct impact on drug manufacturers. Its indirect effects, however, could be substantial. By intensifying the pressure on payers to cut costs, control consumption, and consolidate, health care reform could dampen the growth and profitability of drug manufacturers, even as it extends coverage to millions of uninsured people. And although the pace of reform may be slowed by a Republican-controlled House of Representatives, the transformation of the U.S. health care system is certain to continue.

Drug manufacturers need to adjust their businesses to suit the new payer landscape. Some may need to build or enhance capabilities such as innovative pricing and contracting in order to assume more of the risk and medical costs currently borne by payers. Many will need to realign their market access organizations with the post-reform priorities of payers. Forward-thinking companies will not only pursue defensive strategies, but will also view the shifting payer landscape as a unique growth opportunity.

Drug makers have little time to waste in reconfiguring their businesses. Some payers are already experimenting with programs that will change how doctors prescribe drugs. In October 2010, for example, UnitedHealth Group announced a new payment program that marks a radical departure from traditional “fee-for-service” approaches. The program, which is being piloted with oncologist groups, provides upfront reimbursements for entire treatment programs, thus changing the economic incentives for selecting and administering drugs.

The original version of this paper was published in The RPM Report.