Knocking on a Difficult Door
by Mark W. Anderson
July 2008
Selling to managed care organizations requires an entirely different approach than traditional pharmaceutical detailing.
As one of the critical components in the U.S. health care system, the managed care market-place wields a significant level of clout in the health care landscape and has changed the dynamic between care organizations and pharmaceutical suppliers. As the impact of managed care’s growth continues to unfold, questions about how pharmaceutical companies approach and sell to this channel have become increasingly important to drug companies’ bottom lines.
For years, however, drug companies have struggled with exactly how best to approach the managed care marketplace. Despite sustained pressure from organizations and government programs to moderate health care costs, managed care remains a critical and lucrative market, if for no other reason than the potential for volume selling. For many drug makers, however, a number of factors are contributing to the unstable nature of selling to managed care providers, including the second year of Medicare Part D programs in the United States, rapid generic substitution rates and possible increased political pressure from the change of political control within the U.S. Congress.
A Complex Environment
For pharmaceutical sales organizations, the issue comes down in large part to the complex mechanisms managed care organizations use to determine the ultimate relationship between physician, payer, patient and product. For a pharmaceutical manufacturer, the ability to place a product in the first or second line of a managed care organization’s formulary can mean the sales equivalent of life or death. However, in order to achieve this placement, a broader focus and more seasoned sales experience is usually required.
“The increased presence of managed care organizations is an example of the more complex selling environment [pharmaceutical sales reps can face],” says Tony Yost, president of Innovex, a Parsippany, N.J., USA-based contract pharmaceutical commercial solutions provider. “This type of sale requires a more consultative sell as the different stakeholders will all have different priorities and need to be approached differently.”
And therein lies the rub. The problem for pharmaceutical sales organizations lies in the difficulty in determining effective sales metrics for performance. On an individual sales representative level, for example, the effects on a drug product’s sales performance can be severe when a managed care account wins or loses a large segment of its patient population due to changes in its customer base.
“That’s why volume-based metrics at an account level can be a little problematic,” says Bob Davenport, vice president and director of sales force effectiveness consulting for the Hay Group, a global consulting group in Philadelphia, Pa., USA. “The volume itself is contingent on how well that account performs in its marketplace. The issue with profitability today is that some companies are strategically sacrificing profitability for volume,” he says. “First and foremost, they want market share and better formulary positioning.”
Multiple Metrics
The difficulty pharmaceutical companies face when selling to managed care can be seen in how they have struggled in recent years to craft effective sales compensation plans. Within primary care, territory success is often tied to staying on message and increased call frequency. Yet, for any given managed care account representative, the period of greatest opportunity may come around only once or twice a year, about the time the organization considers changes to its formulary.
“Managed care is one of the most challenging areas for compensation plan designers,” says Elliot Scott, a senior consultant in Towers Perrin’s sales force rewards practice in New York City. “They try all sorts of different things, from very vague measures, such as national performance, to some very, very specific ones such as moving market share within a certain group of doctors who have their business covered by certain managed care plans.”
In contrast to the primary care and specialty markets—in which goal-based plans are clearly in the majority—a wide range of metrics are employed within the managed care segment, demonstrating that there is no “magic formula” for effective plan design. “The fact that sales organizations are utilizing multiple compensation plan models shows that they haven’t found the right solution,” says Erich Sachse, a managing consultant at Synygy, a Chester, Pa., USA-based sales compensation plan management provider. “Because there’s a lot of crossover between account performance and formulary positioning, companies are finding it difficult to settle on a single set of compensation metrics.”
The Need for Value
The key to successful pharmaceutical sales within the managed care market may well lie in the ability to offer something more than a volume discount on the product itself. Because pharmacy directors and medical directors in managed care often are responsible for both clinical and fiduciary responsibilities, pharmaceutical sales representatives increasingly seek new ways to bring additional value to the table.
Demonstrating a product’s additional value can mean providing access to new medical research, or emphasizing a new outcome study that will make a difference to the managed care organization’s customers, says David Ormesher, CEO and founder of relationship marketing agency closerlook inc., in Chicago, Ill., USA. “So when an account executive can come to an organization and say ‘I’ve got some really interesting economic outcomes data here on the effect of a drug on, say, employee productivity or how it’s going to affect major employers in your territory,’ that can be very powerful.”
Ormesher also points to an increasing role within the online space for building a relationship or positioning the pharmaceutical brand as an expert within the managed care market, such as developing regular online newsletters that are customized for a particular organization. “The extent that the medical directors feel that a particular brand is creating unique content, such as access to clinical data unavailable any other way, represents some of the new ways that managed care sales—particularly the B2B side of things—is beginning to rethink its role.”
What’s important, Ormesher says, is that despite whatever hurdles may stand in the way, it’s critical that managed care and pharmaceutical sales find a way to work together as much as possible as the industry continues to go through a period of transition.
“These two industries—managed care and pharma—are in kind of a tough spot right now [in terms of public perception],” Ormesher says. “Over the next few years, they’re going to be facing tremendous challenges and pressures. And I really think it’s up to those industries to work together to crack the code on how they provide the most value to employers and patients.”
Send us Your Comments
Web Exclusives
- An Unbalanced Burden
-
A Q&A with Dr. Kathleen Squires, director of the infectious disease department at Jefferson Medical College in Philadelphia, illuminates the gender differences in the diagnosis and treatment of HIV.
- Turning the Corner
-
After decades of neglect, leading to a rapid increase in incidence, tuberculosis started gaining attention from industrialized nations over the past 10 years. With this new focus, TB’s incidence has started to decrease—but barely.