During the holiday season when gifts are often exchanged, one might recall the old proverb: Don’t look a gift horse in the mouth — meaning, don’t question its value. But that’s precisely what payers do when manufacturers offer them a bundled contract. Let’s review bundled contracts and then unpack the issues.
Package deals
Bundled contracts — not to be confused with bundled payments for episodes of care — are essentially volume discounts and are not unique to pharma and medtech manufacturers. The bundling of products and/or services is pervasive across industries. For example, through fleet sales to corporations, rental car companies, and government agencies, auto manufacturers offer significant discounts in exchange for aggregate volume across models. The established auto manufacturer with a broad portfolio of vehicles — not to mention demonstrated real-world reliability — has a clear advantage when negotiating fleet sales over a start-up manufacturer with one or two new products.
In the case of drugs, products or indications may be bundled. In exchange for discounts or rebates, payers may give members preferred access to multiple products from a single manufacturer by placing competing products on nonpreferred tiers and/or requiring members to step through a preferred product.
While it may seem obvious, it is important to note that such bundling presupposes that a manufacturer has either a portfolio of products within a therapeutic area (bundled contracts spanning therapeutic areas are increasingly uncommon) or a brand with multiple indications (payers often point to Humira as the poster child of bundling indications). In both instances, an anchor brand with a dominating market share is typically present. This combination of factors limits the number of offers a payer may receive, and confidentiality agreements further limit public awareness of such contracts. Though manufacturers are suing one another over these arrangements, and despite emerging case law and potential Federal Trade Commission (FTC) intervention that may threaten bundling, make no mistake — bundled contracts are alive and well. When payers make difficult-to-explain access decisions, a bundled contract may be at work.
When bundling is a prized possession
Above all, to be embraced, a bundled contract must yield a significantly lower net cost. When payers perceive products to be clinically similar — which is certainly the perception with generics and biosimilars — then economic considerations drive any preferences and pave the way for bundling. But bundling is not necessarily limited to crowded, poorly differentiated markets. Under certain conditions, payers may be comfortable placing a clinically superior product at a disadvantage. When a disease is chronic, its progression slow, and short-term outcomes are not life-threatening, payers may argue that placing a clinically superior product on a nonpreferred tier or requiring a step through a more cost-effective product is appropriate. The incumbent market leader may also have considerable real-world evidence and experience, which, by definition, all new products lack.
Is a preference for a dominant brand due to bundling, other considerations, or both? Determinations of when bundling is anticompetitive is best left to the courts, Congress, and the FTC. But isolating the effects of bundling and real-world evidence and experience on payers’ access decisions to prefer a market leader may be difficult.
Boxed in
There are many instances in which bundling may not be a payer’s best option. When there are no clear economic benefits of bundling, or when real-world evidence makes placing a clinically superior product at a disadvantage indefensible, payers reject bundling offers. Bundling can conflict with payers’ natural tendency to prefer other products for clinical or economic reasons. Placing some products at a disadvantage can also result in provider and member dissatisfaction. And bundling may preclude other contracting opportunities, including value-based contracts.
Through bundling, payers help successful brands become more successful — a reinforcing loop that, over time, becomes increasingly difficult to break, even when lower-cost generics and biosimilars become available. This sticky relationship can hamper payers’ ability to pivot quickly in response to market events like new entrants, new evidence, and new guidelines through formulary or medical policy changes.
To put a bow on it, when the benefits do not significantly exceed the costs, payers avoid bundled contracts in order to retain greater control and flexibility over their access decisions.
Unpacked
A ban on bundled contracts would give relief to manufacturers currently facing the so-called “rebate wall” and give patients and providers more options. However, it is not clear whether such a ban would lower costs. Despite claims that eliminating bundled contracts will lower costs for payers or consumers, there is no proof that greater competition would lower prices — that’s simply a theoretic argument. And if a ban is limited to rebates, then manufacturers can simply apply bundling to up-front discounts to achieve the same effect.
When presented with a bundling offer, payers will look the gift horse in the mouth and critically evaluate the costs and benefits. And like a wrapped gift, they may or may not like what’s inside.
No Comments