By Martin Trautmann, Maya Desai, and Dezhi Kang
While hospital drug expenditures represent a substantial market for the pharmaceutical industry, manufacturers face an increasingly complicated market environment. Key trends profoundly impacting hospital product launches include:
- Increasing scrutiny on hospital pharmacy spending: Hospitals are increasingly using formulary to manage inpatient and emergency room (ER) products — as well as non-self-administered outpatient products—to enhance patient safety, improve care quality, and help control costs.
- Value-based payment models: Many hospitals — especially major academic and large community institutions — are likely to pursue Medicare and commercial payer value-based reimbursement programs, such as accountable care organizations, bundled payments, or clinically integrated networks. This transition will force providers to adapt and evolve to new reimbursement mechanisms focused on clinical evidence, rather than on the volume-based contracting of the past.
Key success factors and strategies in a value-based reimbursement environment
To achieve successful commercialization, companies looking to launch a hospital product will need to understand the four critical success factors of a value-based reimbursement environment, and create a robust strategy to address each.
- Demonstrate clear clinical and economic benefit to both hospitals and payers
The move toward value-based payment has resulted in shifting priorities in the evaluation of new products. Pharmacy and therapeutics committees are moving beyond the cost impact of individual drugs to focus on broader health and economic consequences for payers, and on clinical and economic evidence for hospitals. Therefore, manufacturers must differentiate their new product by clearly communicating its impact on the clinical and financial burden of both hospitals and payers through head-to-head trial and “real-world” data.
- Understand and prioritize reimbursement opportunities to ensure appropriate product coverage
Manufacturers must understand the varied hospital reimbursement mechanisms and determine the best approach for optimal reimbursement of their product across different settings. Special attention should be paid to Medicare due to its significant impact on reimbursement and the tendency for commercial plans to adopt similar coverage policies and payment methodologies.
With Medicare, inpatient hospital products covered under Medicare Part A are reimbursed with a bundled payment based on their diagnosis related group (DRG). This could limit hospital adoption if the bundled payment doesn’t sufficiently cover the high cost of the new product. However, manufacturers can seek additional reimbursement, such as through new technology add-on payment.
New ER and non-self-administered outpatient products covered under Medicare Part B are similarly reimbursed based on ambulatory patient classifications (APC). But unlike DRGs, multiple APCs can be assigned to one claim. Depending on the daily cost, products used in the hospital outpatient setting are either bundled with associated procedures in payments, or reimbursed at average sales price plus a markup.
- Advocate to hospitals to include in formulary, budget for, and store the product
Evaluating products for the hospital formulary and inventory is a multidisciplinary process involving physicians, pharmacists, case managers, contracting/purchasing committees, and hospital executives. Understanding the influence pathway and identifying key decision makers is essential to formulary approval. In order to create a tailored strategy, manufacturers must survey the hospital space to understand different hospitals’ formulary considerations. To accelerate the formulary request process, manufacturers should also identify and develop product advocates within hospitals and prepare the needed product dossier prior to launch.
- Gain maximum hospital adoption
Getting formulary approval does not guarantee optimal hospital adoption. A product’s use can still be limited due to several factors, including low product awareness or familiarity among treating physicians, discrepancy between clinical trial data and real-world experiences, and formulary restriction.
Manufacturers should develop strategies to address these factors, such as:
- Promoting guideline inclusions to positively influence the adoption of a hospital product.
- Leveraging influencers and decision makers for hospital formulary access to encourage the product’s use throughout the department once it is on formulary.
- Conducting workshops or speaker programs to educate department members on product administration and use.
- Continuing to publish real-world evidence of the product’s clinical and cost-effectiveness.
Systematic approach to hospital product launches
As launches become increasingly more complex, an integrated access-focused commercial strategy will be crucial. This requires a concerted effort between functional departments to engage in common dialogue and discussion. Key aspects of this strategy include:
- Market research and analytics teams characterizing the market space, understanding the opportunities, and gaining insights into the unique requirements of commercializing a hospital product.
- Market access teams developing strategies to ensure adequate coverage, reimbursement, and hospital formulary access, and providing input for product development planning.
- Medical affairs teams developing and preparing the market and supporting hospital product adoption through various medical communication channels and publications.
- Marketing and sales teams driving hospital penetration and product adoption through targeted communications and a well-vetted sales targeting strategy.
In an increasingly value-based world, hospitals and health systems will continue to face clinical, financial, and regulatory mandates to generate value for the products and procedures they utilize. Pharmaceutical manufacturers must adapt to these challenges to be successful in this environment. A roadmap anchoring key functional activities, combined with deep thinking within the context of market forces, is crucial to any successful hospital product launch.
Martin Trautmann is a managing director, Maya Desai is an associate director, and Dezhi Kang is a managing consultant in Navigant’s Life Sciences practice.