Optimizing Managed Care Rebate Strategy to Improve Returns

Abstract

In this age of spiraling health-care costs, it is imperative for pharmaceutical companies to price drugs so that patients can afford them as well as to manage costs to meet margin pressure. Pharmaceutical companies are now spending an average of 20 per cent of annual revenues in rebates to managed care companies – which affects both the price the consumer pays, as well as pharmaceutical profit margins. Hence, it is important for pharmaceutical companies to optimize rebate spend and strategy. This article describes a study that was performed at the request of a pharmaceutical company, to help it devise and quantify a price discounting strategy. In this study, the relationship between patient co-pay and a drug's market share was quantified. This quantification led to a managed care organization (MCO) segmentation scheme that provided insight into the performance of the drug, in terms of market share, within individual MCOs. Segmenting the MCOs on the basis of drug share performance and co-pay helped unearth appropriate rebating strategies for the pharmaceutical company. Questions that this study helped answer included, who to contract with, what should be the type of rebate contract, how much rebate to give to an MCO and how many dollars to spend on other promotion channels.