Raven Pearson

HCM 421
02/21/2015
Abstract 1
Health Care Changes
Practical Health Care Reform and the Impact of Change
The goal of healthcare reform is to improve health outcomes while lowering
costs. The authors discuss how recent healthcare reform has resulted in providers facing
increasingly financial pressure, affecting a much-needed change. In imperative to
accomplish the objective of healthcare reform, CMS (the Center for Medicare and
Medicaid Services) has begun reducing provider reimbursement and penalizing delivery
organizations that fail to achieve certain performance metrics. The article also gives an
understanding that on November 27, 2013, CMS announced new physician payment rates
for 2014, which was a 20.1 percent rate reduction due to the Medicare Sustainable
Growth Rate. In conclusion, a few positive outcomes have emerged from the change
including, a spike in the percentage of physicians who have opted to become healthcare
system employees and hospitals accelerating the hiring of physicians with a significant
growing percentage of between, 25 to 50 percent.

Reference
White, K. E., & Wolff, C. D. (2014). Practical Health Care Reform and the Impact of
Change. PM 360 The Essential Resources for Pharma Marketers. Retrieved from
http://www.pm360online.com/practical-healthcare-reform-and-the-impact-of-change/

Practical Healthcare Reform

and the Impact of Change
Feature Articles by Kimberly E. White and Christopher de Wolf on
February 14th, 2014
As a consequence of recent healthcare reforms, providers are facing increasing
financial pressure. This pressure has resulted in new market structures and dynamics
that are affecting pharmaceutical and medical device manufacturers commercial
business models. In this article we will explain how reform has altered the landscape,
why manufacturers need to develop a new commercial model, and explore the skills
and capabilities needed now by manufacturers to position their products for
commercial success.

Healthcare Deliverys Rapidly Changing

Landscape
The goal of healthcare reform is to improve health outcomes while lowering costs. In
an effort to accomplish this goal, the countrys largest payer, CMS (the Center for
Medicare and Medicaid Services), has begun reducing provider reimbursement and
penalizing delivery organizations that fail to achieve certain performance metrics. In
October 2012, CMS began withholding up to one percent of reimbursement to
hospitals with excessive readmissions for acute myocardial infarction, pneumonia and
heart failure. These penalties will be expanded in 2015 to include chronic obstructive
pulmonary disease, total hip arthroplasty and total knee arthroplasty. Also, on
November 27, 2013, CMS announced new physician payment rates for 2014.
Although some specialtieslike psychiatrists, clinical psychologists and clinical social
workerswill see an increase in their rates, the overall change is a 20.1% rate
reduction due to the Medicare Sustainable Growth Rate (SGR).
In response to these pressures, there has been significant consolidation among
hospitals, and a spike in the percentage of physicians who have opted to become
healthcare system employees. Some estimates predict that in the next five to seven
years, 20% of the nations 5,000 hospitals will merge. In 2012, 105 deals were
reporteddouble the rate prior to the Patient Protection and Affordable Care Act
(PPACA).1
Additionally, hospitals have accelerated the hiring of physicians. A significant and
growing percentagebetween 25% and 50%2 depending on the sourceof
physicians are now employed directly by hospitals or integrated delivery systems.
These factors compound the existing and well-documented trends that have reduced

sales representatives ability to reach doctors, such as insufficient time for physicians
to see reps; employers restrictions on rep visits; and recent laws limiting physician
and medical staff compensation (e.g., Stark Law and Anti-Kickback Statute).
A significant component of PPACA was the creation of accountable care organizations
(ACOs). ACOs consist of groups of physicians and other providers that work together
to manage and coordinate care for Medicare fee-for-service beneficiaries, and to
meet certain quality-performance standards. Through shared savings programs,
ACOs will receive a portion of the shared savings if they sufficiently reduce costs and
simultaneously improve quality. Commercial payers are also working with healthcare
delivery organizations to develop similar models for non-Medicare populations.
Another approach gaining significant attention is population health management.
Population health management implies design and implementation of systematic
programs to improve the quality and lower the cost of care for a defined population.
This really is a paradigm shift requiring a new approach to quality improvement and
how its measured, greater focus on the continuum of care and a payment system
that is aligned with these goals.

How Health Systems are Responding to the

Changes
Faced with the prospect of shrinking margins, health systems are becoming more
focused than ever before on treatment costs and quality outcomes, and are giving
more attention to the concept of value.
The influence of institutional management over decisions about what products to use
or prescribe is growing at the expense of the clinical perspective. As a result, the
responsibility for decision-making regarding what drugs to include on the formulary
has shifted dramatically from individual physicians to committees comprised of
clinicians and various administrative functionspharmacy managers, financial
analysts, formulary managers and others. Using established research and historical
insight, many organizations are developing predictive care paths for physicians to
follow to ensure consistent care and measurable outcomes.
With these care paths, health systems can establish a total cost for treatment
without creating an additional administrative cost burden by boring down into stepby-step detail and paying separately for those component parts. This new approach
means that manufacturers must understand how care paths are developed and how
they can influence them to ensure their products are represented.
As hospitals become more focused on their own bottom lines, and are under
increased scrutiny for the health outcomes they achieve, they are increasingly
demanding that manufacturers demonstrate how their products can help them meet
their goals. For example, in 2012, Memorial Sloan-Kettering Cancer Center
removed Zaltrap from its treatment protocols claiming the incremental survival did
not justify the incremental cost relative to the existing gold standard, Avastin. To
gain access to Sloan-Ketterings patients, Sanofi announced rebates of up to 50%.

Manufacturers can expect that in therapeutic areas with multiple products not
meaningfully differentiated by indication, outcome or application, hospitals will limit
their formularies and use their increased purchasing power to negotiate lower prices.
As a result, some products will likely be shut out of these larger accounts. PBMs are
also scrutinizing product value and making significant formulary changes. Express
Scripts recently announced removal of more than 40 products from its 2014
formulary because there are lower cost alternatives available that are considered to
work just as well as the products it removed.

Implications for Pharmaceutical Manufacturers

As the environment continues to evolve and healthcare delivery organizations adjust
to the changes brought about by healthcare reform measures, its more critical than
ever that manufacturers are able to demonstrate both the economicand clinical value
of their products. Moving forward, a strategic marketing approach is required to
develop and communicate a relevant message for each stakeholder. This will result in
a commercial organization of a much different size and structure requiring new
capabilities, skills and responsibilities.
Unless manufacturers can demonstrate the differentiated value their products
provide and how they fit within the care continuum, payershospitals, insurance
companies and PBMs alikeare likely to treat competing products like commodities
and use aggressive purchasing tactics to drive down costs. This new focus for
hospitals calls for a radically new approach that turns the commercial model upside
down. No longer can manufacturers focus on the detail and messaging about
features and benefits targeted at physicians. Market access must become a dominant
focus, and organizations need to think about how they reach all stakeholders
physicians, patients, payers and even employers.
Increased collaboration between physicians and hospital management means that
pharmaceutical companies will need to have economic and clinical data tailored to a
broader set of stakeholders. Through systematic, segmentation-based market
research, pharmaceutical companies can identify what components of the economic
and clinical value case resonate with each of their target stakeholders.
Pharmaceutical companies also need to ensure that requirements for the value case
are included in the due diligence for merger, acquisition and licensing activities,
considered during early development and designed into clinical trials so that
compelling data is available at the time of market introduction and throughout a
products lifecycle.
Marketing can play a critical role in ensuring that data needs are defined as part of
market strategy, and should work with clinical and HEOR teams to ensure that the
information needed is developed. Representatives will need to understand the clinical
and scientific basis for the development of care paths and demonstrate, with the
appropriate evidence, how their products and solutions can be incorporated into the
continuum of care to help achieve the providers objectives.
Presuming the product value proposition addresses both economic and clinical value,
pharmaceutical companies also need to be able to forge partnerships with providers

(hospitals and physicians) that are based on achieving measurable health outcome
improvements. This is a stark contrast to typical industry-physician interactions.
Providers are interested in how to better diagnose unique patient conditions, how to
determine the overall course of treatment to achieve improved health outcomes, and
how to guide patients to manage their health. Working with them to accomplish
these goals will require a more complex approach to sales than the traditional decile
targeting approach currently used. Sales representatives will need to develop new
competencies to engage in a complex sales processone focused on engaging in
value-added conversations with executive decision-makers to surface needs, craft
responsive non-product solutions, and convey compelling value propositions that
leverage the full capabilities of their company.
In addition, messages, supported by evidence, will need to reflect the overall value
the product providesand demonstrate relevance for the stakeholder. These
messages must address more than the additional clinical benefits the product
provides; they must provide insight on how the product improves patient outcomes,
enhances the physician/patient experience and improves treatment costs. These
messages will be delivered by a much smaller sales force that is able to discuss the
science and economics behind the value proposition of a unique and targeted
solution that may or may not be centered on a pill.

The Future of Healthcare

Healthcare reform is here to stay. There is no doubt that the current system is
broken and recent reform efforts aim to ensure better health outcomes at lower cost.
The changes being demanded of healthcare delivery organizations will have effects
on other segments of the industry. Responding to these changes will require
manufacturers to think differently about how they go to market. Those organizations
that adapt their commercial model and look at and use data in new ways will be best
positioned for success in this new environment.
References:
1. A Wave of Hospital Mergers. New York Times. August 12, 2013
(http://nyti.ms/1bnnd2l).
2. Robert Kocher, MD, and Nikhil R. Sahni, BS. Hospitals Race to Employ Physicians
The Logic behind a Money-Losing Proposition. N Engl J Med 2011; 364:1790-1793
May 12, 2011 published on March 30, 2011, at NEJM.org.