How to Price a New Drug for Health Insurance

Entering the market with a new drug can be a competitive experience for pharmaceutical companies—particularly if they lack established connections with major companies in the industry. Although there can be many barriers to entry, it is possible for emerging companies to navigate the financial market successfully and pitch their products. By reaching out to brokers and analyzing their leverage points, pharmaceutical companies can remain on an equal footing with their competitors and push their products to market. Establishing Relationships with Major PBMs Creating ongoing relationships with the top pharmacy benefit managers (PBM) is crucial for pharmaceutical companies looking to put new drugs on the market. PBMs are companies that provide prescription drug programs to end payers. Of the existing PBMs in the healthcare industry, there are three primary companies controlling roughly 80% of the market share: CVS Health, Express Scripts, and OptumRx. Because these PBMs handle almost all prescription claims, it is necessary for pharmaceutical companies to build a relationship with these key players to get their drugs out to patients. If an emerging company cannot develop a relationship with a PBM, they risk being pushed out by competitors with better rates. To establish a relationship with a major PBM, pharmaceutical companies should consider hiring consultants or brokers with a background in PBM relationships to guide them through reaching out. Once a relationship is in place, pharmaceutical companies can use their connection with the PBM to negotiate rates, rebates, and additional discounts for their drugs. This is a considerable advantage for an emerging pharmaceutical company because it allows them to break into the financial market and compete with more established companies. Accounting for Rebates Another point of consideration for emerging pharmaceutical companies is the effect that rebates have on the net cost of drugs. For instance, if a pharmaceutical company develops a new drug that is cheaper than the drugs of their competitors, they may still end up breaking even with their competitors because they did not account for competitive rebates. This is because rebates provide PBMs with an incentive to supply the drug with the highest rebate. It is therefore important for emerging pharmaceutical companies to maximize their rebates to remain competitive within the financial market.  Leverage Points for New Drug Companies There are three primary leverage points that emerging pharmaceutical companies should consider when negotiating rates and discounts for their drug products: Incidence of Disease Incidence of disease is the rate of new cases of the disease. If there are many patients with the disease that the drug targets, a pharmaceutical company may use this to their advantage to negotiate a favorable rate with the PBM. Options in Therapeutics Class We can find another leverage point in the therapeutics class. If there are a lot of competing drug companies occupying the same market, or if a key player dominates the market,