Risk management and risk mitigation are two important factors any business organization must have in their armor especially in a challenging and competitive environment. The pharmaceutical industry is a constant battlefield between the pharma companies, the FDA and the payers. These pharma companies need to device risk mitigation strategies to successfully market their drugs. This week's reading, Risk: Seeing around the corners, by Lamarre and Pergler describes the risk cascade and how to avoid by thinking two steps ahead. A business's value chain is exposed to various risks, which can derail the production and ultimately, the delivery to the customers. In the pharma industry, the existence of a drug in a market hugely depends on whether there is a payer or insurance company. Without a payer, there will be no reimbursement resulting in the pharmaceutical company and the physicians not getting paid. The position of the insurance sector can significantly affect the value chain and cause a risk cascade starting from the early R&D stages. For instance, after a drug goes through the clinical phases and is proven not to be efficacious as the currently marketed drug, but still have positive prognosis on the patient, the insurance company have the right to not pay for it. All the investment in R&D, pre-clinical studies and clinical phases are at stake and the product itself is at the risk of failing to making to the market. Lamarre and Pergler explain how companies should mitigate direct and also indirect risks, which affect the value chain and business's livelihood. This example shows the influence the insurance sector can have in this industry The figure below depicts the how different indirect risks influence the direct risks and subsequently, the impact on the company.
In this specific case, we are evaluating how the public policy/regulation of the FDA and insurance companies can affect the customer's attitude toward their spending on medical drugs. An article written by Eric Hill explains how pharmaceutical companies and patients can mitigate the risks of not being able to pay for the highly expensive drug therapies. Hill explains that there is significant variation in the cost of the same therapies across the nation. For example, an hemophilla therapy per patient for a year can vary between $1,000 to $3 million with the average being about $130,000. Many other drug therapies including immunoglobin treatments face the same risks. As the range of cost increases and insurance sector decreases its pay to the patients, more of the patients on the higher end the scale will difficulty affording their medicine. This is will affect the pharmaceutical industry heavily.
The pharmaceutical companies are focusing on large therapeutic categories of cancer, multiple sclerosis and inflammatory conditions. There are more niche disease markets that can be managed much more efficiently, which can be a ideal place to form self-funded plans and sharing plans. This article mentions a small self-funded plan of four hemophiliac patients annual average cost was $120,00 per patient per year. Moving forward, these type of self-funded plan must be established on proper screening of the patients by mapping the risk parameters of the respective population. Self-funded plans will allow to either capitate or share risks or take pro-active steps to reduce cost, such as 'off schedule pricing,' and various patient education and adherence training by the patients. By exploring the risks of these niche drug populations, these plans can find opportunities to prevent unnecessary risks and cap the expenditure on drugs.
I would like to ask the class, should the insurance sector have this much power in determining the health of these patients? With increasing R&D costs and lesser number of drugs being approved by the FDA every year should patients, physicians and pharmaceutical companies try to decrease the influence of the insurance sector by covering more costs by themselves?
Hill, Eric. "Speciality Pharma Risk Mitigation." Self Funding Magazine. 14 Jan 2011: n. page. Print. <http://www.selffundingmagazine.com/article/specialty-pharmaceutical-risk-mitigation.html>.