Ross Perak is a senior principal with IQVIA’s Market Access Strategy Consulting practice. He brings 16 years of experience to his work guiding contracting, support, and sales strategy for biopharmaceutical manufacturers. In this interview, Ross reflects on the ongoing evolution of payer segmentation considerations and approaches as today’s pharmaceutical industry grows increasingly complex.

With so much going on in the pharmaceutical industry – be it the threat of price controls or looming biosimilars – why talk about payer segmentation?

RP: Pharmaceutical manufacturers are well-versed in evaluating and categorizing payers based on their market access impact. Yet the straightforward payer segmentation of the past no longer serves the complexity of today’s industry. The two axes of payer willingness and ability to control are insufficient in a time of expanding control capabilities and access barriers.

One way to think about the evolution of payer controls is to compare the time before a Hepatitis C cure, Sovaldi, was introduced (pre-2014) against the time after (2015 onward), when more sophisticated controls, including exclude-at-launch policies, started to become prominent. Payers did not want to be caught off-guard again, as Hep C treatments, led by Sovaldi, surprised the industry with more than $10 billion of revenue in 2014, and payers shouldered a lot of those costs.

Can you expand on how payer control has evolved over time?

RP: Payer control has grown beyond the traditional tiered copay and basic formulary restrictions. The access secured by a contract is no longer straightforward.

On the pharmacy side, there are other factors to consider beyond willingness and ability to control. Today, there are several medicines with expanded approvals across multiple disease areas, causing payers to introduce indication-based controls. Because an indication-based approach does not uniformly apply to treatment-seeking patients, it further complicates the simple on- or off-formulary paradigm of the past.

Furthermore, payer controls at launch have become the norm. Timing is now a key factor in the long-term contracting strategy of a launch brand, which goes beyond the historic bid cycle we’ve come to know in Medicare Part D, and now expands into the private sector where exclusions, steps, and prior authorizations are expected for nearly every launch. These at-launch restrictions have the potential to be brief but could last well beyond six months and substantially impact a brand’s launch trajectory.

A multitude of other forms of payer control have been introduced in recent years. For one, there is the emergence of payer control over medically reimbursed treatments, which further requires that manufacturers look beyond traditional pharmacy controls. We also are starting to see formularies apply prior authorizations, step therapies, and exclusions where there hadn’t been before. In oncology, for example, not only are pharmacy-administered treatments seeing a rise in formulary-type restrictions, so are physician-administered medicines – most often through the practice of white bagging. Despite being a protected class, even oncology is more controlled with more options and competition available in the market.

Outside of formularies and medical coverage policies, payers influence utilization with incentives to non-manufacturer stakeholders. Clinical pathways typically offer providers monetary rewards in exchange for following a preferred treatment protocol without restriction coverage. And recently, Cigna made news by offering vouchers to any patients that switched from their current treatment to a preferred alternative.

Lastly, the complexity and heterogeneity within payers and their multiple books of business increases the need for more granular understanding of control. Not all books of business or plan designs will follow the nationally defined formulary. Downstream books of business, particularly for major PBMs, have become more numerous and variable in their independence from national formularies.

What are some of the complexities that require a new approach to segmentation?

RP: The industry itself is more complicated. Therapeutic areas are growing in complexity, and treatment options continue to expand across and within various health conditions. Many disease areas can now be treated by multiple drug classes, making direct competition less straightforward and challenging the old paradigm of “1 of 1” contracting. This can be further complicated by generics which can have an effect on the original molecule but also on other brands in the same class. With more clinical options, there are more opportunities for payers to negotiate and leverage controls.

Then there is the issue of visibility. The emergence of specialty markets as the major driver of pharma value makes having a read on payer control tremendously important. The costs tend to be higher, and therefore, the margin swings can be greater. Specialty medicines can be especially challenging to measure because they generally afford less visibility, both in terms of direct stakeholder engagement (mail-order pharmacies are often part of a complex pharmacy benefit manager (PBM) web), as well as data visibility.

How should pharmaceutical manufacturers reconsider payer segmentation?

RP: There are several considerations that will depend on the drug class, but there is still utility in leveraging the willingness and ability paradigm because formularies remain a much-used lever of payer control – most often applied in the pharmacy setting. Manufacturers should use caution when leveraging formulary data and should, in fact, consider using claims data in order to better measure the prevalence and effectiveness of controls.

Defining market baskets appropriately is a key first step. Do you have the right competitive set? Should you investigate or even break out analyses by different indications? Consider how the drug-class- or indication-level controls might indicate a lack of differential utilization management.

Beyond the existence and effectiveness of formulary restrictions, manufacturers must account for differences in control both across and within markets. We talked about expanding markets and indications, which increase competition and complexity. There are also more generics at play than ever before. How do payers take these dynamics into consideration and what conditions within a disease area can play a role in payer decision making? For example, we’ve conducted recent segmentation work in some therapeutic areas where payer control of newer, low-volume therapies is prominent and almost the rule. We found that the spectrum of controls across drug classes required that we use control variability as a key factor in the segmentation.

Payers used to pick a loser, the brand they restricted access to, but today they are often picking a single winner. So how can a manufacturer measure the true impact of restrictions when all but one therapy in a basket is being controlled? The investigation of control must become more sophisticated to adapt to this change, also accounting for other influences outside of the payers themselves. Be it Integrated Delivery Networks (IDN), provider network, or discount cards, the influences on patient access and treatment acquisition are interconnected.