Analytics in Managed Markets: Negotiate Like a Pro

Analytics in Managed Markets: Negotiate Like a Pro WHITE PAPER SAS White Paper Table of Contents Executive Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Analytics – the Secret Sauce for Success in Managed Markets . . . . 1 The Risk of Doing Nothing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Effective Application of Analytics in Managed Markets . . . . . . . . . . . 4 The Benefits of an Analytical Approach to Managed Markets . . . . . . 4 . . How SAS® Can Help . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 SAS in Health Analytics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 About SAS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Analytics in Managed Markets: Negotiate Like a Pro Executive Overview To make the most of their extensive data and create value regardless of economic conditions, organizations must consider the critical role of business analytics to set future direction, navigate the changing health care landscape and seize opportunities to differentiate themselves. However, for these initiatives to succeed, organizations need more than technology. They need a strategy to coordinate and align key dimensions of their organizations. This paper provides a comprehensive overview of the need for, structure and benefits of using advanced analytics to gain insight and to inform fact-based business decisions within the managed market landscape. Analytics – the Secret Sauce for Success in Managed markets are Managed Markets undergoing a dramatic In recent years, commercial pharma has increased the use of advanced analytics – transformation due to market particularly in managed markets – to develop differentiating strategies for contract rebate factors and legislation that discussions with insurers. A few progressive organizations began to understand the value and power derived from analyzing data to make fact-based decisions, validate illuminates a critical issue for assumptions and identify the root cause of business problems. These organizations life science organizations: how are beginning to achieve higher levels of business performance, improve their market to optimize the mix of contract positions and weather industry changes by looking for ways to operate more effectively and identify new market opportunities. rebate dollars across product portfolios, market segments However, many organizations are still struggling with several aspects of using analytics and geographies to balance – including how and where to start, how to take the next step and how to change their internal culture to understand the value of analytics so it becomes integral to decisions maximum revenue, market that matter most. These critical decisions could be automated, enabling others to take share and profitability. the best course of action, i.e., one-time decisions that inform executive strategy or a range of decision types in between. Managed markets are undergoing a dramatic transformation due to market factors and legislation that illuminates a critical issue for life science organizations: how to optimize the mix of contract rebate dollars across product portfolios, market segments and geographies to balance maximum revenue, market share and profitability. The magnitude of the annual budget for rebate expenses attracts senior management scrutiny, and market dynamics call for ongoing what-if scenario analyses to prepare for contract negotiations. Most of this analysis is currently done with spreadsheets on laptops or shared drives. To clearly understand the market and prepare for critical contract negotiations, you must first integrate disparate data sets, assess the company’s product portfolio, measure the payer’s presence and control effectiveness within a geography. Contracting strategy 1 SAS White Paper development requires data consolidation and analysis to determine optimal rebate levels to achieve market share, revenue and profitability objectives. It is a complex, resource-intensive process that is currently underserved, based on the following current processes and tools: • Analyses not integrated.  Spreadsheet-based.  Best practices remain within products/geographies or account teams. • Analyses not automated.  Data integration, what-if modeling, optimization and forecasting processes.  Difficult to repeat and standardize. • Not predictive.  Doesn’t incorporate historical performance in future market-share analysis.  Considers few variables and uses simple algorithms to allocate contract spending. • Lacking market impact.  Treats every health plan life equally.  Treats every health plan’s utilization management strength and capabilities equally.  Treats every tier copayment equally. • Inefficiencies in operations.  Valuable resources spend as much as 60 percent of their time preparing data for analysis.  Key insights and information are captured as single “point in time” initiatives and are not managed as intellectual property assets.  Increases analysis and recommendation costs. The Risk of Doing Nothing What is at risk from doing business as usual? Profitability! Restructuring has made the market more complicated and transparent. Organizations that fail to address these challenges risk: • Creating partnerships with nonperforming payers. • Paying for utilization without benefits to patients. • Blindness to the purchasing patterns and health status of the unknown patient population. • Increased exposure to government pricing thresholds. • Arbitrary rebate thresholds institutionalized without substantial basis. 2 Analytics in Managed Markets: Negotiate Like a Pro Figure 1: Prescription cost sharing 2000-2010 Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2000-2010 For 10 years, insurers have developed analytic capabilities to evaluate portfolio and product offerings, apply analytic techniques to formulary and rebate pricing strategies, and segment member populations to gain insights into cost management and risk mitigation strategies. These efforts continue to refine plan offerings and benefit options and challenge the pharmaceutical industry to successfully negotiate desired formulary tier status. Plan options including stratified copays and pharmacy benefits, utilization management techniques (such as prior authorizations), step edits and quantity limits are variables insurers consider when negotiating with pharma regarding desired rebate scenarios. While pharma contract structure remains relatively the same (e.g., one average copayment fits all), the benefits have shifted. Over the past decade, major plans have moved from two-tier to three-tier plans. Imagine the variance in copayments for a tier two or preferred product across all those offerings. These types of insights are available to pharma organizations with advanced analytics. Why would you pay a health plan for a member paying full price within a high-deductible health plan? Why encourage a health plan to incorporate a very restrictive step edit for units that made it through the gantlet? What if you paid two health plans the same rebate to remove a step edit, only to find one step edit was not effective due to the weak health plan controls? 3 SAS White Paper Effective Application of Analytics in Managed Markets Analytics can add significant value to other business processes. When analytics is applied as a closed-loop process, the stage is set for continuous learning and improvement. The application and effective use of analytics for managed markets requires more than just technology. In practice, technology is the easy part. To succeed with analytics, organizations should consider the following four critical components of what ultimately constitutes the analytics infrastructure: • Human capital and skills. Having skilled analytical resources can provide a significant competitive advantage if those resources are placed in the right position, allowed to continue to develop their skills and empowered to create a competitive advantage. • Internal information and knowledge processes.