Ever since the Accountable Care Organization concept was introduced, pharmaceutical innovators have been rightly concerned over the potential impact ACOs could have on their business. When the managed care wave washed over the industry in the late 1980s and throughout the 1990s, Big Pharma scrambled to meet the challenges of negotiated pricing and market share-based contracting. Task forces were formed, business units were assembled and high-level, national account teams were created to meet the demands of the new customer class. Today, with ACOs proliferating, “It’s like déjà vu all over again” for the pharmaceutical industry.
The question on the minds of many of our clients is: Are the resources that we’ve dedicated to ACOs sufficient? Others may be asking: Are these resources necessary?
The Affordable Care Act’s cost-controlling measures undeniably have the potential to impact both revenues and profits of pharmaceutical manufacturers. Although consumer demand will surely continue to increase, given the aging population, drug companies may need to rethink their pricing strategies—an unwelcome idea within the industry, to be sure—as ACOs, health insurers and employers will eventually become more discerning and restrictive when allowing new drugs to be approved on formulary.
In our research conducted recently with ACO executives, about 30 percent of hospital-led ACOs said the ACO Pharmacy and Therapeutics committee differs from the hospital P&T committee. One can hardly imagine a less-restrictive body determining the fate of existing drugs on the market, much less newer, more expensive treatments.
In the worst-case scenario, increased profit potential could cause pharmaceutical companies to scale back on research and investments, stifling innovation and reducing the likelihood of novel compound discovery. Michael Fath, senior director of global marketing, pulmonology and thrombolysis at Grifols, recently told Medical Marketing & Media, “If you're a big player with a big product, I think the price that you lose is going to be more than the patients you gain.” Forbes contributor David Whelan has said:
Clearly the long-term trend toward cost-control is not good for the Pharma sector. The inclination to use evidence-based medicine…will limit how the most expensive, branded drugs are used. Formularies will get tighter since any savings will fall to the bottom line and will be shared. Under an ACO (in the utopian sense), a doctor would make more money prescribing a generic drug or by choosing not to prescribe a $70,000/month experimental cancer therapy. This will take a long time to play out—and I don't have a particular investment thesis. But ACOs will be no boon to drugmakers.
In our experience at Darwin, like other vertical markets, we’ve seen Pharma respond to the emergence of ACOs along a continuum of efforts. Some have gone on offense, aggressively aligning Market Access Team forces to call on and partner with ACOs. They view ACOs like any other organized customer and have the experience and resources to manage them. Others have the managed markets experience and resources, yet for whatever reason have all but ignored ACOs, taking a wait-and-see approach. (And there are some that have yet to work through the calculus of how ACOs might affect their business, which is a mistake.)
After hundreds of interviews with C-level ACO executives and ongoing research over the last 18 months, I’ve come to believe that the truth about ACOs and their potential influence on Pharma is somewhere in the middle.
I once wrote, “If MCOs were Pit Bulls to Pharma, ACOs are hungry Dobermans, guarding the gates of cost control in menacing packs.” With financial incentives so strongly in place, ACOs are laser-focused on cost reduction that ultimately personally affects the physician (as the prescriber) in the wallet. From Pharma’s perspective, it is difficult to argue that ACOs are somehow fundamentally different from managed care, when there is even stronger motivation to block new drugs from entering the ACO universe.
Yet while this may be true in theory, the reality is that only the more advanced ACOs—the Pioneers, and about three dozen MSSPs—have the capability today to restrict access and carve out formularies. Many ACOs don’t have time to consider such ideas. A remarkable number of ACOs are still working on effective EHR integration, much less manage a drug formulary. Readers may be surprised to learn that for some ACOs, their short-term success is due to low tech solutions, like using care managers for appointment followup and increasing the role of pharmacists for medication management.
In hindsight, being “laser-focused on cost reduction” is also more theory than practice. As CMOs and quality managers become more familiar with their data, improving outcomes trumps reducing costs every time. More importantly, ACOs focus on the expense side of ledger by reducing hospitalizations, reducing re-hospitalizations, medication management and decreasing polypharmacy, and other resource-intensive items that they can measure. They’re more interested in getting the basics right than negotiating prices, at least for now.
The maxim “when you’ve seen one ACO, you’ve seen one ACO” is a phrase that at times has been applied to managed care, health systems, home health and other provider organizations. But when strategizing about how to approach the ACO market, this viewpoint isn’t helpful. Instead:
1. Consider where along the spectrum the ACO is in its evolution. The more experienced, the more likely its leaders will be open to a conversation about partnerships.
2. Consider the size and influence of the ACO. Advocate (Illinois), Baylor Scott & White (Texas) and Banner (Arizona) are all examples of experienced, influential ACOs that manage large Medicare populations and have commercial agreements that extend far beyond.
3. Consider your product and service offering. If you have products for diabetes, heart failure, COPD or other targeted quality measures that influence whether an ACO is eligible for shared savings, you’ll have something to talk about. If you have a service offering that complements your product line, even better.
Deciding how to target ACOs is the first step in working with them. What to do once you get there is the subject of Part Two.