Pharma Execs Can Do More to Address Industry's Reputation

By definition, ethical pharmaceuticals are medications that require a prescription, and corporate reputation is measure of a company's ability to meet expectations. However, the terms “ethical” and “reputation” in the pharmaceutical industry appear to be at odds these days if you listen to either side of the political debates on healthcare taking place in Washington.

Despite big pharma's continued investment into risky research and discovery of new, innovative and life-saving medicines, why do pharmaceutical corporate reputations continue to suffer — and take the brunt of the blame for rising healthcare costs?  

See also: Finding a Better Strategy for Pricing Drugs

After all, in the past two decades alone pharmaceutical innovations have contributed to declining cancer death rates, cure rates for hepatitis C reaching upwards of 90%, and premature death rates from HIV/AIDS dropping by 85%, according to pharmaceutical industry trade group PhRMA.

Those statistics represent people who benefited from the pharmaceutical industry's commitment to innovation. According to a 2016 Harris poll, only one-third of U.S. citizens have a positive opinion of the industry; and an August 2016 Gallup Poll found that no industry is held in lower esteem by U.S. citizens (the sector's worst showing in 16 years). In March, only one pharmaceutical company ranked among the Reputation Institute's top 50 companies with the strongest reputations in the world. (It was Johnson & Johnson, at number 44.)

So, how did we get to this low point?  

1. A stagnant pharma business model

It is telling to consider that the pharmaceutical industry continues to operate under a largely unchanged business model (steadily increasing prices of existing drugs, pricing new drugs so high that many cannot access them through insurance plans, and spending billions on advertising and marketing). Virtually every stakeholder in the healthcare ecosystem is being forced to change their business model to address the new realities of today's healthcare economy.  

See also: It's Time for Trump to Make Good on his Drug Pricing Promises

Unlike many consumer product prices that tend to drop over time, drug companies routinely increase the pricing of branded medications for products that do make it to market. According to a 2016 report from the IMS Institute for Healthcare Informatics, brand price increases are expected to continue in the 10% to 12% range through 2020. At the same time, direct-to-consumer advertising increased 62% since 2012, with spending reaching about $6.4 billion last year, according to Kantar Media. Critics say that the ads promote new, high-cost drugs to consumers who may not need them, instead of using those budgets to lower drug costs, providing greater access to life-saving medicines for more patients.  

To understand how to repair the industry's reputation, it's important to analyze how the health ecosystem is evolving and changing key stakeholders' expectations.


Health ecosystem

Previous state

Current/future state

Patients

Insurers cover majority of patients' costs; nominal out-of-pocket costs for drugs and medical costs

Higher co-pays, high-deductible health plans, greater “first dollar” responsibility for all healthcare

Providers

Prescribe drug of choice with little knowledge of actual price-to-patient, assuming coverage by patients' insurance companies or government

Prescribe drug only on formulary, to avoid appeal processes; more requirements for reporting outcomes, like electronic health records; transient patient relationships and lack of care continuity

Payers

Pharmaceutical expenditures relatively steady – and paled in comparison to hospitalizations and provider costs

Pharmaceutical expenditures are higher for many insurers than patient hospitalizations; increased prior authorization requirements and administrative burden

Policymakers

Free market pricing


Regulated pricing based on outcomes

Product Innovators

Promotion practices drive high prescribing for maximum revenues; steady post-launch price increases

Refund programs for medicines that do not fulfill treatment expectations; increased scrutiny over sales and marketing practices



2. A faceless industry

In the minds of many consumers, the pharmaceutical industry has become just a pill, an injection, and pharmacy counter payments. Unlike other prominent, consumer-facing leaders who have come to represent their industries (think: Apple's Tim Cook, Virgin's Richard Branson, or Amazon's Jeff Bezos), pharmaceutical companies have little or no public identity. Many may not know the company that discovered the prescription they're taking or asking their doctor to give them.

Instead, the industry continues to tap PhRMA to be the “face” of the industry and has started its own ad campaign to explain its commitment to innovative research.

See also: 4 Ways to Create a Sustainable Pricing Model

Some leaders have stepped up, and this serves their companies – and the industry – well. For example, Brent Saunders, chairman and CEO of Allergan, has been a vocal advocate for greater transparency and pricing restraint, as described in Allergan's Social Contract with Patients. Others have also begun to take steps toward bringing their voice to the reputation challenges facing their companies and industry, including Johnson & Johnson chairman and CEO Alex Gorsky and Merck chairman and CEO Ken Frazier.  

The court of public opinion and a Congress in which both Republicans and Democrats see the pharmaceutical industry as an easy target will continue to judge the industry's reputation. The key question remains: when will more leaders in the industry step up to earn trust and confidence through sustainable actions that serve the evolving interests of all stakeholders in the healthcare ecosystem?  The trend suggests that others will find courage by the example set by the early voices that are leading the way.



Michael Heinley is partner at Finn Partners.