The editors of the book introduce Marie Schmidt who is working as Associate Director Market Access EMEA in a global research-based pharmaceutical and device company where she is leading pricing and reimbursement processes of innovative medicines and medical devices. She studied Health Economics at the University of Rotterdam and SDA Bocconi School of Management.
Foreword
In the introduction chapter of the book, the three pillar model for organization and leadership was developed (shared sustainable purpose within the organization, ability to act as a “traveling organization” with high content-based and mental flexibility in an appropriate moving environment and a huge connectivity mindset and skills). The interplay of these pillars can be well observed when studying the development process of medical products and the personal characteristics of project teams responsible for the respective processes for these are never linear but based on the aggregated knowledge of biochemical and other processes and often result from the failure of previous research hypotheses. Accordingly, the sustainable purpose as the general direction and the traveling organization as the necessary explorative and creative flexibility are a necessary precondition for successful innovations.
The case study below explores the need for collaboration across product development stages as well as organizational entities in order to ensure innovations have access to European healthcare markets. It therefore primarily focuses on the third factor “connectivity.” It aims to illustrate the connectivity of markets (environmental) conditioning the connectivity demand on organizations (organizational) and the challenge for individuals (individual) working in this environment:
The mindset and skill set related to connectivity strongly conditions the commercial success of innovations and their availability to patients. The necessary “psychological preconditions for connectivity” are subsequently described in Hannspeter Schmidt’s article “Psychological Capabilities Required for Connectivity” which was originally written as the second part of this article but removed because of its overarching importance for other articles too.
Introduction
Connectivity is a challenge for international, innovative organizations and their employees: International companies are challenged to develop consistent strategies for highly complex and interdependent markets; employees working in these complex structures require the personal abilities and psychological characteristics to successfully implement and achieve company goals. This article aims to illustrate the demands of successfully managing connectivity on companies as well as on an employee’s psychological capabilities. It focuses on implications of connectivity for organizations with the example of a case study from the pharmaceutical industry.
The European pharmaceutical market is highly regulated by supranational and national authorities. In order to bring a new medicine onto the market, the European Medicines Agency (EMA) first needs to grant the market authorization (MA) approval based on available clinical data. The MA acknowledges that the product satisfies all scientific requirements and complies with the relevant European legal and legislative standards for it to be marketed in Europe. However, unlike other markets, MA approval of medicinal innovations does not automatically effect their usage and/or sales. As social security schemes across Europe require citizens to have health insurance, the cost of medicines is mostly covered by public health insurers. National reimbursement authorities in each European member state independently initiate clinical and economic value assessments referred to as Health Technology Assessments (HTAs), in order to determine the reimbursement status of the new medicine. Positive reimbursement status is the prerequisite for market uptake, based on patient usage through prescriptions. Subsequent to the HTA, authorities and manufacturers negotiate the price which is composed of, first, the HTA outcome and, second, the average price of a specific country cluster. The latter component, also referred to as International Reference Pricing (IRP), induces that pricing for pharmaceutical innovations is unique compared to other products as it reflects a high level of connectivity in terms of market alignment. IRP is performed by low-income as well as high-income countries applying different calculations using average prices, lowest prices among specific clusters or other paradigms. Strong connectivity of healthcare markets across Europe precedes the effective application of IPR which, in turn, demands intensive organizational alignment. International pharmaceutical companies are required to reflect the same level of connectivity as the market in order to anticipate decisions and ensure agility as the key to long-term profitability. Horizontal (affiliates) and vertical (departments) collaboration across organizational entities is one key factor to succeed in mirroring connectivity; the other key factor is collaboration across product development stages, which usually goes in hand with vertical collaboration. The following practical example aims to illustrate the connectivity of markets (environmental) conditioning the connectivity demand on organizations (organizational) and the challenge for individuals (individual) working in this environment:
Case Study
Environmental Connectivity (1): The European Pharmaceutical Market Reveals a Considerable Level of Connectivity
More explicitly, when the company applies for reimbursement in Country X, as the first applicant country, the price setting is typically structured by using an existing competitor product (patent-protected or generic) as a price anchor. Sometimes, previous product clusters represent reference price groups to which product A can be allocated in terms of pricing as well. Apart from using competitor prices as a price anchor for product A, authorities in country X would further reference prices of product A in prior determined EU countries. Thereby, economically prosperous countries would reference high-price countries while countries with limited GDP would reference low price markets. In summary, the price is set in relation to the prices of the therapeutic product class including competitors as well as prices of the same product in other countries. This mechanism is referred to as International Reference Pricing (IRP) in the pharmaceutical industry.
Sequencing the launch and reimbursement applications of product A according to pricing potentials in the different countries allows the company to control prices at the time of the initial launch. Throughout the life cycle of product A, countries foresee regular price adjustments whereby the country basket prices are updated and prices in each country possibly adjusted in case of price decreases in other countries. This typically brings about a continuous long-term downward pricing spiral across countries. Recurring price revisions and adjustments are processes that illustrate the continual nature of connectivity.
Environmental Connectivity (2): Further Harmonization Efforts Are Required from Reimbursement Authorities to Ensure Equal Access to Innovations
The demand for increased connectivity of European reimbursement bodies is a consequence of price decisions not only being based on IRP but also on HTA outcomes. This leads to unequal reimbursement and pricing decisions and/or patient access across Europe. National diversity of methodological approaches toward study design and value assignment is criticized as jeopardizing investment in innovations. Currently, HTA decisions as well as prices for innovations are heavily diverging across member states, leading to unequal access to medicines for European citizens and uncertainty around return on investment for companies. Connectivity amongst HTA authorities as well as between HTA authorities and companies is necessary to reduce uncertainty around reimbursement and pricing processes. As a consequence, this would foster transparency in favor of innovation investment and patient care. The European Network for Health Technology Assessment (EUnetHTA) established its joint action 3, aiming to implement a sustainable model for scientific and technical collaboration on HTA between national and regional HTA bodies across European member states by 2020 (EUnetHTA 2017). Throughout the past, EUnetHTA’s working groups have developed various tools to support the conduct of joint assessments with regard to evidence collection, validation, and benchmarking. However, in contrast to the common practice of centralized regulatory assessments performed by the European Medicines Agency (EMA), joint HTA assessments so far remain a theoretical concept. Member states are concerned that, by committing to a common methodological framework which defines thresholds and study requirements in relation to the additional benefit of innovations, they would forfeit their sovereignty with regard to price setting as well.
The flexibility of negotiating country-specific prices in relation to the assessed benefit and against the background of national ability-to-pay leads to strongly diverging prices across Europe, which would certainly be challenged when implementing a consistent HTA concept. Previous efforts to homogenize HTA approaches to increase connectivity showed that voluntary connectivity amongst European HTA bodies is perceived as being beneficial to gain transparency and improve information exchange but, when it leads to the establishment of binding concepts as a consequence of inconsistent access to innovations across Europe, authorities or member states prefer to preserve the sovereignty of evidence evaluation practices. This conflict of interests can also be transferred to the individual connectivity level, where individuals support connective action that does not conflict with their personal goals. The individual scope of connectivity will be addressed in a separate section below.
Organizational Connectivity: Companies’ Response to Increasing Environmental Connectivity
In the interest of companies’ revenues, Market Access departments require strong expertise with regard to formal and informal price setting, whereby long-lasting relationships with national and regional authorities and other key decision-makers support the anticipation of pricing and reimbursement developments due to political trends and referencing practices. In addition to relationship building with external parties, companies foster horizontal and vertical collaboration across their own organization. Companies intensifying the level of connectivity between the different affiliates are referred to as “horizontal connectivity” in this article, while the establishment of cross-functional decision-making structures bridging early to late product development stages is referred to as “vertical connectivity.” While R&D is commonly allocated on a global level, Medical Affairs and Market Access often drive their activities from a regional or even local level. Traditionally, the different departments have been engaged in different product phases which did not demand such high levels of organizational connectivity. In the meantime, Market Access departments have become increasingly involved in new business opportunity assessments and early product development processes in order to ensure that clinical study design and product characteristics are appropriate when coming to the market, allowing for broad (non-restricted) reimbursement and optimum pricing. Recent developments have shown that the more companies experienced difficulties in safeguarding the return on investment for innovative products by achieving adequate pricing and reimbursement decisions at launch, the more the focus was drawn to including pricing and reimbursement insights in early product development stages. The early alignment regarding reimbursement benchmarks primarily aims to anticipate, and subsequently influence, future HTA outcomes as a major basis for price setting. The effects of study design on reimbursement and subsequent pricing decisions are increasingly the subject of political debates within companies and European politics.
Individual Connectivity: Its Challenges and Drivers
The awareness that over 10 years of R&D efforts may not translate into commercial success if the study setup does not fulfill HTA requirements has placed market access at the center of pharmaceutical activities. It requires various departments such as R&D, Medical Affairs, Marketing, and Market Access to collaborate much more closely and create connectivity across all organizational levels. Successfully establishing Market Access for innovative products relies heavily on the level of connectivity of the respective functions within the organization and to external decision-making bodies.
Looking at pharmaceutical companies, pricing functions typically allocated within the Market Access departments require strong connectivity with country affiliations or other organizational entities as well as external partners across markets to anticipate pricing decisions and envisage holistic pricing strategies. Increasing regulations for pricing and reimbursement processes across member states and their growing impact on core pharmaceutical business planning necessitate increasing connectivity of Market Access employees, who constitute central functions in traveling organizations (Definition in introduction), clearly advocating given reimbursement requirements across product stages while ensuring flexibility when facing political changes in healthcare systems has a strong impact on reimbursement opportunities. Compliance with reimbursement standards increases the likelihood of subsequent commercial success; however, flexibility with regard to reimbursement success is required when negotiating reimbursement. Achieving optimal reimbursement coverage for the majority of patients eligible for specific medical innovations represents the sustainable purpose of individuals and requires a well-balanced personal approach between adherence to standards and a considerable level of agility to be able to respond to political dynamics. Establishing a successful balance between regulation conformity and negotiation flexibility necessitates strong personal sensitivity with clear benefit awareness.
Discussion
The conflict between the loss of “information sovereignty” induced by strong connectivity and the divergence of political interests that need to be pursued constitutes a barrier to connectivity, between departments, organizational entities, and HTA authorities. Connectivity will ultimately be experienced by organizations and individuals when the consequences of connectivity are perceived to leverage value for them. Therefore, it is crucial to discuss the consequences of connectivity for people’s behavior as much as the personal prerequisites. The psychological challenges for individuals working in high connectivity-demanding environments are described in Hannspeter Schmidt’s article “Psychological Capabilities Required for Connectivity.”