How can pharmas amid VBP reform ‘make elephants dance’?

Volume-based procurement (VBP) of drugs and medical supplies is the new normal in China’s medical sector to ensure reasonable prices and steady supply. To pharmaceutical companies the reform means a massive internal switch, which is easier said than done

Failed negotiations to include Paxlovid on China’s public medical insurance reimbursement list has again brought the centralised procurement of drugs to the forefront of public discourse. Healthcare system reform is changing how and where the pharmaceutical industry operates.

Drug-focused policies concerning clinical inspection, the marketing authorisation holder (MAH) system, consistency evaluation of generic drugs and priority review of innovative drugs have transpired one after another. Centralised procurement of generic drugs and medical insurance negotiations for innovative drugs are progressing at an accelerated pace, while a performance appraisal system for public hospitals is also around the corner.

In the era of volume-based procurement (VBP), massive drops in drug prices in exchange for coverage under public medical insurance have become a new normal for major pharma players, which find themselves facing a dilemma: Either significantly reduce prices, even without guaranteed increased sales volumes, or fail by not winning any bids.

China’s pharma market is enormous, and the redirection of prescription drug distribution from hospitals to the market is driving up competition among new retail and internet healthcare industries.

Lou Gerstner, the former chair and CEO of IBM, compared the transformation of the tech giant to “making elephants dance”, something China’s pharma leaders by now certainly hope to emulate.

INEVITABLE JOB SHIFT

Under the new market environment, pharmaceutical companies have explored a number of options for business and structural reform. These include:

(1) Dual-track approach, where academic promotion and business co-ordination are both conducted by the sales team, ensuring professionalism and flexibility;

(2) Grid-based approach, where marketing, medical affairs and market access are further co-ordinated to enhance regional performance, with reference to provincial and regional procurement policies and requirements. Online channels and marketing teams are established on top of existing hospitals in order to gain access to areas not covered by large and medium-sized hospitals of the core cities; and

(3) Set up departments based on mature product portfolios, and optimise existing team structures by regions.

The tier-3 city, county, rural and new retail markets are highly sought after as companies rush to build platforms to provide patients with one-stop services fitting their respective therapeutic journeys.

Sales representatives, traditionally the chief promoters of pharmaceuticals, are affected by the reforms most directly. As drugs and/or medical devices are sold via centralised procurement instead, their sales activities, performance indicators and appraisal criteria will all be different, forcing sales reps to transform from customer service to professional medical consultant.

BEST PRACTICE

Both personal and corporate performance are affected by centralised procurement. Employees must accept a change of role and work details, even the possibility of disappearing from the company’s future, while decision-makers must strive to keep the process legal, smooth, efficient, respectful, fair and cost-effective.

Thorough preparation and communication, combining compliance, sympathy and rationale, are two key factors to success.

During preparation, companies can take note of the best practice from peers, evaluate staff expectations, and refrain from avoiding key issues.

It is imperative to interview the employees and other interested parties, learn their true opinions, make best possible judgment of the situation, and incorporate their feedback into the plans of communication, compensation, implementation and contingency.

ART OF COMMUNICATION

In many cases, widespread speculation and trepidation over an impending reform precedes any official announcement, which puts enormous pressure on management costs and has serious impact on the original corporate culture.

It can be a rigorous test for decision-makers and management to be reassuring during preparation, emotionally and rationally present during reform, and inspiring after reform is completed. Decision-makers are simultaneously required to adapt to the climate of reform and achieve managerial goals, while also managing interested parties and communicating with employees in order to achieve a win-win scenario where understanding is reached between both sides.

In such delicate circumstances, the author suggests that management should:

• Ensure that strategic decisions and reform directions are open, clear and transparent, allowing employees to know where they stand;
• Treat employees as important participants to the process, maintaining effective communication channels that convey objectives from top to bottom, and feedback the other way around;
• Avoid managerial path dependence, maintaining both determination to the goals of reform and a respectful attitude to those affected;
• Strive to be swift and direct in reform. Employees at pharmaceuticals are well tuned to news related to centralised procurement and will anticipate reform once news breaks out. The speed of reform and communication is therefore crucial in ensuring a smooth transition, and companies are recommended to complete the announcement of major restructurings and personnel communication within three weeks;
• Consider the personal ramifications of the reforms. For employees who will remain, management should begin communicating with them from the very beginning, so they can work towards goals together. For those who will be let go, management will have to conduct challenging exit communication, during which it should gently ease the employee into accepting the decision in a professional and respectful manner.

When faced with large-scale changes in a short span of time, or significant early grievances from employees, enterprises may find support by engaging experienced external counsel who can help open up a uniform, professional and gentle line of communication with employees from an objective and neutral standpoint.

Alex Xing is a partner at Labour Consulting (LABOURS). He can be contacted by phone at +86 10 8225 5618 and by email at xingguang@laibei.com