Five things your company needs to do to prepare for the influence of Accountable Care Organizations

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1 Five things your company needs to do to prepare for the influence of Accountable Care Organizations An extract from Pricing & Market Access Outlook 2013 Edition

2 Five things your company needs to do to prepare for the influence of Accountable Care Organizations Payment reforms included in the Affordable Care Act (ACA) in the US are driving the formation of large, integrated provider networks that can deliver the full spectrum of patient care. These providers are rushing headlong to figure out how to contain the overall cost while delivering high quality care. The growth of pay-for-performance pilots and the advent of Accountable Care Organizations 1 (ACOs) are profoundly affecting pharma s customers and thus have manufacturers reassessing how they develop and market new products, as well as engage with customers responsible for both cost and quality. Watch and wait is not a strategy to prepare for the future, so IMSCG offers five steps every company should take to understand ACOs and plan for this new customer segment. Situation The Affordable Care Act created the Accountable Care Organization Shared Savings Program. Simply put, ACOs are groups of doctors, hospitals, and other health care providers, who come together voluntarily to give coordinated high quality care to their Medicare patients. 2 The Shared Savings Program offers bonus incentives to ACOs that can provide high quality care and control costs for a Medicare population. Four million Medicare beneficiaries are currently being served by ACOs across the country, but one estimate puts the total number of lives served at million which includes commercially-insured lives receiving care in Medicare ACOs and in non-medicare ACO-like arrangements developed between integrated providers and payers. 3 The total number of ACOs is approaching 500 (see Figure 1). Using the leverage of Medicare, the federal government is trying to move the health care financing model away from traditional fee-for-service, which incentivizes providers to perform more services, toward pay-for-performance, which rewards delivery of cost effective quality care. Medicare Pioneer ACOs, health care organizations and providers that are already experienced in coordinating care for patients across care settings, 4 will have the opportunity to earn a greater share of savings, but also must take on risk in the event of higher-thanexpected expenses. Many integrated providers, including ACOs, participate in bonus and risksharing arrangements with commercial payers that incentivize the delivery of cost-effective care across all settings. 1 Integrated providers responsible for the cost and quality of care for a defined group of patients 2 CMS website, 3 Accountable Care Organizations now serve 14% of Americans, Oliver Wyman, February 2013, 4 CMS website, 08

3 500 Figure 1: Growth of ACOs over time Number of ACOs Q Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q Medicare Non-Medicare Total Source: A future scenario Assuming the ACO model continues to grow and evolve, manufacturers must prepare to work with a new kind of customer. Let s consider a hypothetical ACO, QualHealthSys (QHS), which owns the dominant hospital system in a metropolitan area, a network of primary care group practices, as well as some large specialty practices. Payment arrangements: QHS is a Medicare Pioneer ACO and also contracts with several major regional payers covering commercial lives for arrangements that include bonuses and penalties tied to cost and care metrics. One payer has negotiated a capitated contract that pays fixed fee per member per month for QHS that covers all aspects of patient care. As a result, QHS is motivated by payment to keep costs down. Care protocols: QHS has adopted care protocols in all high-cost disease areas and enforces these protocols through the Computerized Physician Order Entry system and other technologies. The entire system has a closed formulary. Regional influence: A substantial portion of patients in the region receive their care at QHS and Key Opinion Leaders in multiple diseases have been acquired by the system and are working as full-time employees. Rep access: QHS does not allow pharma sales reps into its buildings without appointments and providers may not accept anything of value from suppliers. Pharma needs to determine the nature and extent of QHS s institutional influence, how to call on this customer, and what to say. The traditional model of sales reps detailing will not work for such a new customer with a different set of motivations, objectives, and controls. Accordingly, what are the five steps a manufacturer must take to develop a successful relationship with QHS? 1. Understand the customer s influence over disease treatment and prescribing First, we need to understand the customer and its influence. This process includes a broad segmentation of ACOs and Integrated Delivery Networks (IDNs), identification of key regional providers, and detailed profiling of each system and its various elements. How does the system 09

4 influence care? Which people and committees make decisions about treatment and prescribing? What are the processes for making decisions? What tools does QHS use to drive compliance with protocols, guidelines and formularies? On which therapeutic areas and diseases does QHS focus its effort to influence care and outcomes? 2. Develop evidence consistent with the customer s objectives and payment metrics Money drives behavior. Let s say QHS puts financial incentives on outcomes metrics in diabetes and actively tracks patients cholesterol and blood sugar levels. Manufacturers of diabetes drugs need to be able to demonstrate that their product improves management of cholesterol and blood sugar over the standard of care or can maintain the same levels as the standard of care at lower cost. Evidence that does not address key metrics tied to payment will not be compelling to QHS providers and decisionmaking bodies. 3. Develop messaging and programs that convey therapeutic and economic value Product marketing and positioning, value messages, and disease management programs also need to address QHS s key priorities of improving outcomes and reducing costs. Key messages should orient around how its products improve key outcomes and deliver economic value versus the standard of care. Manufacturer programs should also complement QHS s efforts; disease education, patient engagement, adherence and compliance, payment assistance, etc, are channels through which manufacturers partner with the new customer to support and promote their products. Unlike payers, who are focused on siloed budgets and skeptical of manufacturers overtures, ACOs may be more open to cooperation in the interest of patient care. 4. Organize your internal resources around a new customer Manufacturer analytics, contracting, and customer marketing staff also need to reorient around QHS priorities and develop the means to be able to track influence and performance, develop product value propositions, including contracting, and messaging and tactics to support promotion. Training will be required for the field teams to educate them on decisionmakers, tailored value propositions, messaging, value-added programs, and other tactics. 5. Deploy field teams who can deliver value to QHS s physicians and decision making bodies Once we understand what evidence to present, what messaging to deliver, and which bodies/ people to deliver it to, the next question is who should deliver it? A sales rep may explain the features and benefits of a new product around launch, but detailing around the label quickly becomes stale. QHS is more likely to be interested in hearing about evolving advances in treatment, the latest clinical trials, programs advancing care and cost objectives, and financial means to partner with manufacturers. Accordingly, integrated providers call for an integrated selling approach. Medical or Clinical Science Liaisons, who can speak with physicians peer-to-peer or competently present to P&T and protocol committees, will become increasingly important. On the business side, account managers who can address a manufacturer s financial proposition and offerings (eg contracts) also have a growing role. The team must develop a coordinated approach, within legal limits. Conclusion Once we understand where things are headed and what we need to do to adapt, the challenge becomes one of adapting gracefully. ACOs will evolve at different rates in different local markets (see Figure 2). Payment incentives tied to care metrics and the assumption of financial risk as well as the behavioral changes they drive will be negotiated in different forms at different times. While these changes will take place gradually over a five-year horizon, the situation on the ground calls for a new customer engagement model. Pharma needs to take steps now to engage most effectively. 10

5 Figure 2: ACOs by hospital referral region ACOs Source: Why should this matter to you? Payment reform is driving the formation of provider networks to deliver cost-conscious care while maintaining or improving health outcomes. Models in which providers assume financial risk can dramatically affect drug utilization. IMSCG has begun to work closely with a number of clients in preparing for the advent of ACOs and adapting to this new paradigm. The growth of pay-for-performance pilots and ACOs will require drugmakers to prioritize their research and development efforts to focus on drugs that offer the greatest clinical and economic value. ACOs will also require drugmakers to design innovative customer support models and shift their focus towards centralized decision-makers. To request more information or learn how IMSCG can partner with you to assess the implications for your business, contact Kevin O Leary, Senior Principal (KOLeary@imscg.com), or Terry Tao, Engagement Manager (TTao@imscg.com). 11

6 About IMS Consulting Group IMSCG is the leading global consulting firm focused exclusively on life sciences. Our clients range from large pharmaceutical and biotech companies to entrepreneurial companies preparing for their first launch. We collaborate with our clients to make critical business decisions, build commercial excellence, and grow their businesses in an increasingly challenging environment. We believe we can help pioneer new approaches to healthcare by understanding and challenging current pathways. Our senior team is intimately involved in every project, which means that clients partner with the people who create and propose the work we do at every stage of the process. Seniors do not merely steward, they do. Our depth of expertise across commercial functions and therapeutic areas, our presence in local markets across five continents, and privileged access to IMS data enables us to support distinctive analysis, provide global insights, and implement recommendations that are unparalleled among our competition. IMS Consulting Group Hubs Americas New York City (Regional HQ) Cambridge Chicago Mexico City Plymouth Meeting Ottawa San Diego San Francisco Sao Paolo Asia Pacific Singapore (Regional HQ) Beijing Mumbai Seoul Shanghai Sydney Tokyo Europe London (Regional HQ) Basel Cambridge Istanbul Madrid Milan Munich Paris Warsaw