Schering-Plough will finish negotiations on more than 150 contracts with prospective Medicare prescription drug plans (PDPs) over the summer.

The firm is "in an uneasy quiet period," circulating term sheets that respond to requests for proposals it received from health plans and PBMs in the course of three to four weeks, Schering VP-U.S. Managed Markets Jeff Berkowitz said at the Center for Business Intelligence's Strategic Medicare Compliance & Administration Summit in McLean, Va. July 19.

Schering will "get back to our customers in a timely fashion," Berkowitz said. He added that it is negotiating product placement on plan formularies "on an account-by-account...product-by-product basis," while keeping the process "very flexible for our account managers."

The contracts stipulate that the Center for Medicare & Medicaid Services must approve the plans for the prices and rebates on drugs to become effective. The agency has said it will approve plans by Sept. 15.

Schering's contracts involve 10 core products. By contrast, health plans are "dealing with hundreds of products [and] a lot more concerns" during bid implementation than drug companies, Berkowitz noted.

Mindful of those pressures, Schering intends to respond efficiently to their requests for proposals. "We really don't want to be an issue and a problem for our customers," he said.

Berkowitz offered 450 as the number of entities that have submitted bids to CMS under Medicare Part D. Some consultants estimate that the total number of bids for different plan designs could be over 1,000 (¹ Also see "Medicare Rx Bids Could Yield 30 Plan Choices Per Region – Schering Exec" - Pink Sheet, 11 July, 2005., p. 12).

In an attempt to gauge which manufacturers stand to be most affected by Part D, IMS Health/Cambridge Pharma Consultancy reviewed them by product mix.

According to the analysis, Merck may be the firm most invested in the drug benefit, with 40% of its portfolio driven by the Medicare population.

For both AstraZeneca and Novartis, that share is 34%; for Pfizer and Abbott, it is roughly 30% and 27%, respectively.

Johnson & Johnson's portfolio contained the lowest share of Medicare-relevant products at 16%, the analysis showed.

Cambridge Pharma Pricing & Reimbursement Practice Leader Marc Benoff, who presented the data, added the caveat that some products that are prescribed for the Medicare population were not captured in the study because their sales are not driven primarily by that group.

Benoff estimated that the 65-and-older group, which currently accounts for 12.5% of the U.S. population, represents 30% of the prescription-drug market. Including disabled patients, he posited that 35%-40% of scripts are "in play" under Part D.

Acknowledging that not all of the 42 mil. Medicare beneficiaries will enroll in PDPs, Benoff said that over the next three years the total likely will reach or exceed the 29 mil. projected by the Congressional Budget Office.

A Kaiser Family Foundation survey in August 2004 suggested that 16 mil. Medicare beneficiaries are likely to enroll in the first year (² Also see "Medicare Outreach Crucial To Successful Drug Benefit, Kaiser Survey Shows" - Pink Sheet, 16 August, 2004., p. 13).

Notwithstanding the 2006 target for Part D enrollees, federal and state government contributions to the total prescription drug spend in the U.S. will grow dramatically over the next several years, Benoff asserted.

In 2005, approximately 25% of the prescription drug market will be comprised of federal and state agency dollars, he said. However, that figure will grow to 40% by next year under Part D and will reach 50% by 2012.

Given this trend, "there is a very good shot that there will be some type of price controls" within five to 10 years, Benoff told conference attendees.

Such controls could be modeled after drug importation policy, Medicaid "best price" calculations, reference pricing or the Department of Veterans Affairs' federal supply schedule (FSS), Benoff suggested.

Furthermore, "what has Medicare traditionally done as it's taken ownership or budget control of services?" he asked.

"Across the board, from hospitals all the way to ambulances, what we see are prospective payment systems, where Medicare - the government - is dictating what they will pay."

CMS already sets reimbursement rates for drugs covered under Part B. A prospective payment system is applied for hospital outpatient drugs (see ³ Also see "Medicare Aranesp Reimbursement Drops “Equitable Adjustment” To Procrit" - Pink Sheet, 25 July, 2005. ).

Another scenario could be "more aggressive health technology assessment," such as that performed by the UK's National Institute for Health & Clinical Excellence, he said.

Regardless of what shape they take, price controls will require "intense health economics and health outcomes analysis" on the part of pharma "to really demonstrate the value" proposition of a therapy, Benoff concluded.

For manufacturers, it "will become increasingly important that your policy initiatives aren't set off in the basement of some building," he advised. "Policy comes right in the middle of the brand."

Berkowitz observed that drug companies are not the only Part D stakeholders who fear price controls.

In early exchanges with health plan execs, Schering's senior management heard "a lot of talk about price pressure on our managed care customers."

"They really felt the government was not a reliable partner, and they were concerned about how this was all going to play itself out," he said.

Listening and learning from Medicare-savvy health plans should be central to a drug firm's pricing and rebate policies, especially since so many "unknowns" exist, Berkowitz said.

Schering quickly realized "there were going to be a lot of things that we could not know that you would normally want to know in formulating a strategy."

Beyond the financial impact of Part D, the firm lacked clear information on competitors' tactics, "who would win the bids," and how many beneficiaries would enroll, he noted.

To adjust for the handicap, Schering's 150 sales and marketing personnel routinely deployed a questionnaire when talking to customers.

The team asked plans "what were their concerns going to be; what were their benefit designs going to be; how many lives they were going to worry about more; how would they go about enrollment; what kind of marketing needs did they have; how did they see themselves marketing it," Berkowitz explained.

In discussions with Schering, managed care groups suggested "they were going to be looking at...products that had a lot of market share and a lot of utilization in [the Medicare] category," he said. "They bring, in a lot of instances, the market-leader in a category."

"Plans are particularly excited about ultimately focusing on those therapeutic areas where there are strong generics" and step therapies, Benoff added. Much of PDPs' cost control strategy is expected to revolve around generic utilization.

"As we think through our strategies in the therapeutic area, it's going to be more than just 'oh my God, my product's going generic,'" he said. "It's going to be 'oh my God, my competitor's product is going generic.'"

The pharma consultant recalled that in recent talks with health plans, they "were very focused on the fact that they had to be more competitive and more attractive to beneficiaries" in terms of both pricing and coverage.

"They were saying, 'if I put out a product that looked like this, no one would enroll'....They were saying, 'yeah, it sort of sits there as a floor, but I can't operate it at a floor level.'"

To distinguish their products from competitors' in the Part D era, manufacturers may need to pursue therapies for targeted sub-populations, Benoff proposed.

Head-to-head superiority trials also may come to be preferred over non-inferiority studies as firms seek to demonstrate value to health plans, he said.

As another way to reach plans, pharma can mobilize consumers more effectively. To do this, firms should ask physicians to become not only users, but champions of products, Benoff stressed.

"Lots of money is spent in training physicians to go out and talk to other physicians," he said. "Maybe a strategy might be: train the physicians to go out and talk to patients."

Schering Negotiating 150 Drug Contracts With Part D Plans

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