2 ways for pharma companies to adjust to the changing field of play
For more than a decade, industry experts have been claiming that health systems will inevitably need to undergo a significant transformation. Established healthcare delivery frameworks have become untenable due to increasing budget pressures on the one hand, and escalating costs resulting from, for instance, aging populations and the rise of incurable chronic diseases on the other.
Whereas these were long perceived as rather hollow claims (nothing seemed to drastically change), we have come to a tipping point, more specifically with the rise of value-based healthcare. If you now think, “people are talking about value-based healthcare for years, tell me something new,”, I must acknowledge you are absolutely right. Value-based healthcare in itself is not a novel concept. What is new, though, is that we have come to a point where the concept actually starts to be applied, and both consumers and healthcare providers start to witness changes in the way care is delivered.
We believe this breakthrough is the result of two forces coming together: the health system’s pressing need for high-quality cost-effective healthcare delivery, and technological innovations enabling new ways of providing and monitoring care.
What is value-based healthcare?
Value-based healthcare, or VBHC in short, is a healthcare delivery framework where care providers are rewarded for the achieved outcomes of the treatment they provide, rather than the effort they make to deliver the services.
There are a plethora of different arrangements that can be designed in VBHC. Let’s restrict ourselves to two illustrations for the sake of this article. If a specific treatment for a chronic disease enables a significant number of patients to go into remission, and consequently reduces the number of hospitalizations, this treatment introduces cost savings in the care ecosystem. A value-based arrangement between a payer/insurer and the care provider could entitle the latter to share in the cost savings. Inversely, if a patient does not show an adequate response or even shows intolerance to a specific treatment, a value-based arrangement could stipulate that the care provider (and in second order the pharmaceutical company providing the treatment) only receives partial reimbursement for the treatment.
In short, this means that care is only fully reimbursed when it is shown to be effective, and that patients should receive better care at lower cost, because healthcare expenditures are directly linked to patient outcomes, quality of care, and cost efficiency.
The shift towards VBHC arrangements is especially prevalent in non-universal healthcare systems such as, for instance, the USA or the Netherlands. The reason for this is that market forces in these countries amplify the need for cost reductions even more than in universal healthcare systems (remember, this is the first force of the intersection needed to enable VBHC). Health insurers transfer fierce cost pressures to care providers, who in turn search for mechanisms to cope with this. As a result, they for instance join forces in group purchasing organizations (GPOs) and explore alternative payment models.
How technology is making a difference in VBHC
To make this shift to VBHC happen, it is crucial to have a reliable view on patient outcomes, meaning that these outcomes need to be structurally reported and benchmarked. This is exactly where technology steps in. The reason why we are witnessing an uptake of VBHC arrangements now (and not a couple of years ago), is because technological innovations such as mHealth and digital health have become mature enough to enable care providers and health insurers to gain insight in patient journeys, engage patients in a structural way, and analyze data like never before, all in a user-friendly way.
A typical application of mHealth is a condition and symptom tracking app. The RA Monitor from RPM Healthcare, for instance, provides patients with rheumatoid arthritis and their specialist with objective measures of how their condition evolves over time. Digital health solutions such as the companion suite OneDrop take it even a step further. OneDrop combines a mobile app with a medical device for diabetes patients to manage their condition, but also to reliably track the self-administration of their medication.
When linked to the treatment administered, mobile and digital health solutions can facilitate the decision whether to continue a treatment or switch to a different one. Patient outcome data and insights can as such be leveraged to determine if a treatment is effective and therefore merits full reimbursement.
The role of pharma companies in VBHC
If VBHC implies cost reduction because treatments are only reimbursed when they are effective, does this mean pharmaceutical companies should perceive value-based healthcare as a threat?
The short answer is no. As becomes clear from the examples above, VBHC involves the complexity of defining and measuring value (be it a target treatment outcome or cost reduction in the broader health system), and in case of chronic treatments, it requires reliable measurements of treatment adherence.
This is a challenging puzzle payers, insurers and care providers struggle with, and where pharmaceutical companies can step in as an important reliable partner. Data science is at the core of what they do, and with their extensive experience in collecting and analyzing clinical data, they are well positioned to co-shape value-based outcome models.
VBHC can be a means to differentiate beyond price, and innovative contracts with care providers and insurers/payers can help avoid price battles. This is especially relevant when pharma companies operate in a competitive market with many alternative treatments and a high risk of downward price pressures, as opposed to a monopolistic market in which their drug is for instance the only one on the market with a specific mode of action.
2 ways for pharma companies to adjust to the new reality
It is clear that the evolving market dynamics strongly impact pharmaceutical companies and urge them for a mindset change. To successfully transition along with the industry, they need to rethink their offering and shift their commercial focus, adapting their internal organizing accordingly.
1. Become a solution provider rather than an asset provider
Since ever, pharmaceutical companies are driving healthcare forward by inventing and developing therapeutic assets. Think about the invention of antibiotics during World War II, the scientific progress in cancer treatments over the past decades, or more recently, the development of the COVID19 vaccines.
This product-driven approach will undeniably remain relevant for high-volume and low-cost treatments. However, for more expensive and chronic treatments, pharma companies who complement their assets with other valuable offerings can tremendously increase their impact on patient lives, by improving care quality in a cost-effective way for the health system.
The most basic way to support patients and care providers beyond the therapeutic itself, is to offer patient follow-up services. Alexion, for instance, staffs nurse case managers who are available 24/7 for patients who are being treated with Soliris, an expensive therapeutic used to treat rare hematological and neurological diseases. While these services support patients in a reactive way, a more fundamental way to make a difference is to help patients and care providers pro-actively manage the patient’s condition. As explained earlier in the article, digital solutions and companion aids are great tools to effectuate this.
It is crucial to understand that the development of such digital solutions requires completely different capabilities than those pharma companies excel at today. Beyond the clinical setting, you first of all need to embrace patient centricity to the fullest and have a thorough understanding of whom you are developing the digital solution for, which fundamental need(s) you are exactly solving, and how exactly you will be solving them. Besides this, you need to be able to develop a user-friendly solution that is inviting for sustained use, you need to be able to grasp and process the generated data flows, and you need to be sure which stakeholder is willing to pay for the solution.
Many pharma companies nowadays struggle to combine these new types of activities with their core business of developing, launching and commercializing therapeutics. This is an understandable phenomenon, as the activities are completely different in nature than what these companies have always been used to do.
One option to cope with these struggles in the short term is to acquire or collaborate with a third party who already developed a digital solution that serves the purpose. To really develop the capabilities in house though, pharma companies can rely on a venturing model with independent tiger teams who develop and test the solution. This ensures that the solution is developed at a high speed, while the commercial business can retain its focus on the therapeutics for now. In a more mature stage, when the digital solution is ready to be commercialized, the product can be integrated in the mother organization, requiring a mindset shift in the commercial organization.
2. Become a partner to the health industry rather than a supplier
When pharma companies broaden their offerings with, for instance, digital solutions to monitor patient outcomes, this change obviously needs to ripple through to the commercial organization to ensure successful rollout.
Historically, the main commercial focus of pharma companies was on providing prescribers with adequate product information and convincing them about the quality of the treatment. The health industry conceived of pharma companies as suppliers who develop, manufacture and deliver therapeutics, and price was oftentimes only a secondary argument for care providers, as long as it was in the same range as the cost of alternative treatments.
Nowadays, however, pharma companies need to shift towards a relentless focus on their contracting partners, to help them reach the best possible patient outcomes at the lowest possible cost. This can be pulled off through partnerships, and by applying win-win value-based contracting models.
To that end, it is crucial to define VBHC opportunities early in the lifecycle of a therapeutic asset.
By initiating VBHC partnerships early on, even before the drug is launched, pharma companies can build goodwill and trust, and lay the foundations for sustained collaborations.
Keeping healthcare costs under control: what’s next?
While we already stressed the challenge of keeping healthcare costs under control, we haven’t even talked about the elephant in the room yet: the evolution towards a system relying on precision and personalized medicine.
Overall, the pharmaceutical industry is making a transition from small molecule therapeutics over monoclonal antibodies to targeted therapies such as cell and gene therapy. Recently, the brand redesign of Pfizer nicely pointed this shift out, replacing their pill-shaped logo with a new design placing the DNA at the center of the company. With the redesign, they positioned the company as a reliable partner embracing the power of science to strive for disease cure and prevention (rather than chronic care).
Even though cell and gene therapies are commercially still in their infancy, their economic impact is increasing at a staggering rate. In the US, CVS Health calculated in 2020 that for as little as eleven gene therapies approved by 2022, the cost impact for the US health industry could range between $14.85 billion and $45 billion between 2020 and 2024.
With prices as high as $2 million for a single treatment, an extreme cost often striking as a one-time hit, insurances are struggling to find ways to cover for these treatments without jeopardizing their services. In Belgium, there used to be a highly mediatized case in 2019, where almost 1 million citizens together raised €1.9 million for baby Pia who suffered from spinal muscular atrophy (SMA). Her life could be saved with Zolgensma, a one-time in vivo gene therapy treatment, but the treatment was not approved nor reimbursed in Europe. The crowdfunding campaign enabled the family to travel to the US and have the treatment administered.
In the US, insurers and employers sometimes decide to exclude these treatments from their plans because of the ultra-high short-term costs. If these treatments can, however, be proven to be effective in the long run, they can turn out to be quite cheaper than the chronic treatment alternatives that exist.
This means that with the uptake of cell and gene therapies, also VBHC and the accompanying mindset shift will only become increasingly important. Long-term patient monitoring as well as value-based contracts that for instance work with installed payments can reduce the risk for payers, insurers, and care providers.
About Venture Spirit
Venture Spirit is a consulting 2.0 firm, applying scalable tech-driven methods to outperform conventional approaches for tough problem solving in strategy, innovation, and culture.
We support corporates in the healthcare and life sciences industry in their adaptation to evolved market dynamics. Our experiences range from blending in digital strategies and roadmaps to ensure future-proof offerings (solution- rather than asset-focused), to developing targeted commercial strategies and translating them into action. The latter requires a mindset shift in commercial organizations (becoming a partner rather than a supplier), while strengthening the team’s belief in the mission. Interested to learn more about how we accomplish this with our tech-enhanced methodologies? Feel free to reach out!