Welcome To The Matrix — The Challenge Of Contracting For GPO Bids

By Bruce Valentine

Healthcare group purchasing organizations (GPOs) and pharmacy benefit managers (PBMs) both play a central role in today’s healthcare payment and delivery landscape. Traditionally GPOs have served health systems, hospitals, and other healthcare providers by negotiating contracts with suppliers, including drug manufacturers and medical device companies. PBMs serve third-party payers that negotiate supply and reimbursement arrangements on behalf of commercial insurers, government payers, and employers. In recent years, large PBMs have launched entities that they have structured as GPOs in an effort to proactively disaggregate contracts, leverage greater bargaining power, and possibly as safe harbors as greater scrutiny is focused on PBM transparency and accountability. These new entities, which focus primarily on pharmacy utilization management, are different from traditional hospital/health system-based GPOs, which use their aggregated purchasing power to negotiate discounts with manufacturers and distributors of medical supplies, technologies, and drugs.

The three largest PBMs now manage, directly or indirectly, the rebate contracting process through their respective GPOs, for greater than 80% of the covered lives in the U.S. Around this time of year bid requests are being sent to manufacturers. The complexity of those RFPs has increased dramatically over the years, in response to expanding market demands and specialty drug spending. These complex, muti-tiered matrixes present a dizzying array of rebate options and overlays that challenge a manufacturer’s contracting strategy. So much so that some knowledge of game theory can come in handy when analyzing the various situations and variables. And even though a typical rebate contract covers a 3-year term, in most cases, rebate rates get reviewed annually and tend to only go one direction – up.

When engaging in the bidding process, pharmaceutical manufacturers and medical device companies must match the sophistication of the PBM/GPO entities through careful strategic planning that considers both short- and long-term contracting goals: what access is possible at launch? Do I need to contract, or will I be able to grow market share regardless? How mature is the market? Will there be new entrants to the market in the near future? Will additional indications or biosimilars be coming? Regardless of their strategic goals, manufacturers are faced with a broad array of contacting considerations that include varying levels of control, multiple step-therapy or exclusion options, indexed price protection calculations, and increasingly, additional administrative, data and “enterprise” fees.  All factors that could sink a brand's gross-to-net estimates over the life cycle of a product.

Account managers need to clearly understand the impact that each bid option may have on product access and patient out-of-pocket costs across different formulary structures. Knowing who controls what formulary for which client plan is also crucial in developing an optimal contract strategy. Furthermore, contracting strategies must be developed in collaboration with internal stakeholders, the payer marketing, brand, and sales teams. Effective strategies incorporate market dynamics, projected price increases, as well as a comprehensive trade-off analysis of concessions required to achieve sales and revenue goals. In some cases, goals can be achieved without contracting.

Bio:

Bruce Valentine is a member of the Amplity Health National Account Management leadership team. He has over 20 years’ experience in the pharmaceutical industry with various senior sales and market access positions at both large pharma and biotech.