Medicare Reform Bill – Why is it such a big deal?

The new Medicare Reform Bill in the conference committee will be a big help – to both the patients and to the pharmaceutical industry. To see how beneficial it will be to the industry, lets take a look at the Insurance coverage of Rxs in United States.

Medicare is a federally funded health insurance program that covers folks over the age of 65, a few disabled young people, and people with End Stage Renal Disease. In United States, the Medicare eligible population, and beneficiaries are listed at 37 million. But Medicare does not cover all the medical coverages, and requires copayments. Among the benefits not covered under Medicare, were the drug benefits.

Most medicare beneficiaries already receive prescription drug coverage from some source or the other. About 31% get it from Employer based coverage, about 11% get it from Medicaid, and about 27% get it from Individually purchased drug coverage, Medicare Risk HMO or some such plan. Owever, according to one study, about 31% of the Medicare population currently does not have any prescription drug coverage at all. That means, there are between 9 and 10 million medicare beneficieries that currently lack prescription drug coverage.

The current bill in House-Senate conference committee is designed to address the prescription drug coverage of these 9 to 10 million medicare beneficieries. The bill sets aside $400B over the next 10 years to accomplish drug coverage in two ways. Medicare beneficieries could choose to stay with the “fee for service” plan (as most of them do currently), and buy seperate drug benefit coverage insurance, or beneficiaries could decide to enrol in private health plan that offers drug benefit along with other healthcare
coverage.

Under both the plans, the beneficiary would have a co-pay, and meet the annual deductible before the government subsidy kicks in. Besides, the drug benefit would be capped for most beneficiaries except a few patients who would be disadvantaged due to extremely large drug expenses.

The drug benefits bill should add about $40B per annum to the drug industry sales. So why hasn't the drug industry thrown their weight wholly behind the bill? Because the devil is in the details. Both the drug industry, and the insurance industry is eying this bill with suspicion. The drug industry is particularly concerned about provisions that might limit its ability to price the drugs, or negotiate discounts with PBMs, and the competitive disadvantage any form of price control this bill might cause. On the other hand, the insurance industy is skeptical of government reform that gives patients the choice of joining or not for the fear that they might end up with only high risk patients who have large prescription bills already.

The details of the bill are still being negotiated, so it is hard to say what the final outcome would be. One thing is clear. If the bill ends up restricting pharmaceutical companies ability to negotiate the terms of the deal, it will end up being a bad prescription for both the elderly, and the drug industy.

An article in Wall Street Journal put the price tag on rep-based pharmaceutical promotion at $12 billion. $12 BILLION! Why do the companies spend this kind of money? Well, the answer is, competition. Companies, inorder to maintain the sales growth trajectory plotted for wall street, need to make sure that their message gets through to the physicians. So, in early 90s, when the wave of big-block buster medicines hit the markets, companies beefed up the sales forces. I know this because I was there. In 1991, I had a sales territory comprising of several zipcodes, all to myself. Then in 1992, they gave me a “pod partner” A pod partner is nothing but another sales representative selling almost identical set of drugs. At first it was fine because I bought into the corporate spiel that the pod partner would help me grow my business. But then increasingly, the customers who used to see me regularly started making excuses for not seeing me. Often their excuse would be that my partner had just been there, and therefore the doctor would not need to talk to me that day. I began to realize that instead of helping me, the POD partner was really getting in my way. This demotivated me and took away any ownership of results I had in my own performance.

That was then. Today, the situation is ten times worse. Companies have any where from four to six representatives covering the same territory. The representatives may carry different portfolios but the portfolios are very very flexible. Companies today don't think twice about changing the rep portfolios to suit the needs of the corporation – whether it is to launch a new product or to gain an incremental $100 or $200 million worth of sales before the end of the year. As a result, doctors are bombarded with reps touting the same drugs, some times many times during the same day! Their reaction? Increasingly the doctors see the reps fewer and fewer times, and for shorter and shorter periods. Average call time has gone down from 4.5 minutes to less than 30 seconds. Average number of face to face interviews have gone down significantly, and the number of physicians who will not see representatives has gone up dramatically.

And what is the industry response to the inability to get the marketing messages across? More reps. Mama Mia! Doesn't anybody understand that the model is inefficient? The docs to rep ratio has been getting worse and worse, and today what used to be the most efficient way of communicating your message, has become the most inefficient way of wasting money.

My advice to the industry is...go back to the old days and take some lessons from then. The old adage is true: its not the number of times you tell the message that sell the products, its relationships with the customer that sell the product. Its not the "share of voice" that generates the sale, its the "quality of voice" that generates the sale. Here is my five point plan to fix this problem:
1) Give the reps something to be accountable for. Having more than one rep per territory leaves all four, and no ONE accountable for sales
2) Hire and retain experience. Too many of the young and beautiful prance around like they know the business, the science, and the customer - when the truth is otherwise. Hire people who are experienced, who come from science back ground, and then train them well to discuss weighty matters
3) Give reps an opportunity to build relationships - and don't promote them out of the territory, incent them to stay in the same territory for life long.
4) Train the reps to add value: a 30 second call does not add value to anyone let alone a medical graduate who is used to erudite discussions. No wonder docs think reps don't add value
5) Stop competing with each other on value less markers like "share of voice". Focus instead on "quality of voice"

Well, the industry better get its act together before they are forced by the market forces to do so. The current model of communication is broke and it ain't gonna fix itself. There is still time to develop better models of communication to get the message out.

According to a report out by PHARMA, Diabetes is the next big health challenge to confront the nation. [Diabetes Report] There are an estimated 17 million diabetics already, and 1 million new diagnosed each year. By 2050, the diabetes population will have grown 165%! Clearly, the challenge is huge, but so also is the opportunity to do something about it. Already, the spending on diabetes treatment has gone up from $1.3B in 1992 to 7.3 B in 2002. Companies such as Bristol-Myers Squibb, Glaxo Smith-Klien, Novo Nordisk and Lilly took up the challenge and profitted by developing newer therapies. However, the next wave of new technologies seem to be coming from Bio-tech. Companies such as Amylin, Genrex, Nobex, Nektar etc are developing new drugs which act in a variety of different vays to curb the same problem. The holy grail in this area of course is either inhaled or oral insulin. Pfizer and Aventis have placed a bet on technology from Inhaled Therapeutics and Aradigm Corp. (inhaler technology), which if it makes it to the market (the drug was first supposed to come to the market in early 2003 but has been delayed due to safety concerns - projection $1B peak sales), could revolutionize the way uncontrolled diabetes is treated.

Amyln announced that Ginger Graham, who was on its board of directors for seven years, will become the new CEO of the company. Amylin has a strong connection with Lilly; most of its upper management has been with Lilly at some point or the other for a long time. Ginger Graham is no exception. Ginger started with her career Lilly, and rose through the ranks in variety of functions to become the President of one of its subsidiaries, which eventually became Guidant. Recently, Ginger had been managing the strategy at Guidant, and was perhaps not very happy with her role. In April she chose to leave Guidant to pursue other interests.

Appointment of Ginger bodes well for the relationship Amylin is forging with Lilly for its Excendin-4 compound. Ginger Graham, having managed Sales and Marketing operation in US and abroad for Guidant, brings top quality management experience as the company gets ready for the launch of Symlin.

This is a new thing for me. I have opinions about a lot of things about the pharmaceuticals, biotechnology industry, but haven't really shared them with any one yet. So, in future, this will become my sounding board for ideas and I hope you will join me in contributing to this blog.