Insights

Let’s be clear: the fundamental assumption on which the pharmaceutical industry’s commercial model was based and still operates – the primacy of the physician as medical decision-maker – is about as valid as centering news businesses around press runs and print ads.

There are certainly therapeutic islands in this industry where the assumption is temporarily useful (oncology, most obviously, or rare, particularly childhood, diseases). But these are strung out across the vast number of disease categories like Pacific archipelagos yard-by-yard losing land to rising seas.

Not that physicians don’t have prescribing influence. If they don’t ask for a drug in the first place, if it doesn’t seem important to test out, it won’t of course get prescribed. But do individual physicians wield the power of choice within classes, or even to experiment with new drugs unavailable on formularies? Not so much – to not at all.

There seem to be plenty of pharma executives who are ignoring this tectonic shift in industry landscape (either out of ignorance, or willfully, because they’ve promised the Street they’d hit particular sales targets). And many have paid the price in poor launches.

But it’s been almost equally destructive to acknowledge the change – and yet misunderstand it. We note, for example, a series of excellent articles by the editors of The RPM Report starting from the premise that “when it comes to prices, the interests of manufacturers are … diametrically opposed to those of consumers and their agents (insurers, public and private).” ( (Also see “Changing The Subject (Part 1): Stop Trying To “Win” The Drug Pricing Debate” – In Vivo, 25 May, 2016.)and (Also see “Changing the Subject (Part 2): Turning Turing Around By Offering A “National Center Of Pharmaceutical Supply”” – In Vivo, 25 May, 2016.).)

But it’s hardly that simple. Employers are certainly worried about the rapid increase in specialty drug cost. Patients worry about their share of drug cost, which may or may not have much to do with the price. But neither employers nor patients have much direct influence on specific coverage policies. They’ve entrusted drug-cost management to agents – insurers, pharmacy benefit managers (PBMs), specialty pharmacies – who can sometimes make money on drugs – and the higher priced the better.

The bigger issue for these agents, specifically insurers, is the predictability of expense. That’s because, by and large, they pass on medical costs to their customers, either directly or through premiums. The primary question for a Medicare plan, for example, is how to accurately bid for new business – pricing premiums high enough to account for the underlying medical and pharmacy costs but not so high that they’ll lose business to a plan with sharper forecasting skills. And even the most sophisticated health plans do a pretty poor job of predicting the three key components of a pharmaceutical’s economic impact: price, usage and rate of uptake.

Given this unpredictability, not to mention the underlying cost increases that so distress payers’ clients, it’s generally easier to limit the use of expensive drugs or find cheaper alternatives. That’s why payers and PBMs have excluded more and more brand-name drugs from the prescribable pharmacopeia – either explicitly (“we will not pay for this drug”) or implicitly, through a whole series of increasingly restrictive barriers. A doctor, or more likely, the office staff, might be able to fill out a 40-question prior authorization form, but they’re not likely to do so very often.

For the pharmaceutical company, such exclusions result at best in an extended commercial coma with severe long-term sequelae: it dulls or even kills physician curiosity. If physicians can’t experiment with a new drug, at least on some patients, there’s little hope that they’ll demand its availability later.