Business models pharmaceutical industry
What an amazing time to be a champion of new health care delivery models. Three megatrends are driving change at a pace that I only wished for 20 years ago. Back then, I first had the insight that care could be improved, in some instances, if we separate doctor and patient in time and space.
The first trend is provider reimbursement reform. For provider organizations going at risk with their payers, these are nerve-wracking times. What were once revenue streams are now cost burdens and what were once costs are now opportunities to improve efficiency and thus our bottom line.
Secondly, all of the talk and activity around is resulting in sharpened consumer awareness of all aspects of health, including costs, provider options and ways to improve health. A more engaged consumer is almost always a healthier consumer. Though I won’t spend any time on it today, these exchanges are almost as upsetting to the insurers as risk contracting is to providers.
The third trend is the adoption of mobile technologies, which of course gets a lot of coverage in this blog. We see the rapidly growing adoption of smart devices (phones, tablets) among patients and consumers now as inexorable. Their familiarity with these technologies results in an openness to connected health that we haven’t seen before in history.
Three phenomena are at play here. The first is that it is getting harder to find new molecules that represent any true breakthrough for our current disease mix. By some estimates, 75% of costs are due to chronic illnesses that are mostly lifestyle related, so new pills for hypertension or diabetes are of less interest to those who pay the bills. Instead, payers are focusing more on prevention, rather than treatment. Secondly, generics are increasingly prevalent and offered at prices that leave only the smallest margins for manufacturers. It is not hyperbole to say that when Walmart began offering generics at $4/month in 2006, the world of the pharmaceutical industry was turned upside down. Related is the looming ‘patent cliff’ that some large pharma companies are experiencing as blockbuster branded molecules go off patent and the associate margins vanish. Finally, the age-old business model of driving pharma sales through influencing doctors has fallen on hard times. Due to the Sunshine Act and related publicity, many physicians are no longer interacting with pharmaceutical detailing representatives. No more pens, mugs, pads or sales meetings. More importantly no more dinners masquerading as education, lavish trips, etc. Of course this is a good thing for all parties involved, but when your product is ten to twenty times as expensive as a generic and not really differentiated, it makes it harder to get the doctor to write that prescription. These effects are synergistic. For instance, at Partners HealthCare’s hospitals, clinicians are not able to see drug detail reps and our electronic purchasing system reminds us constantly to prescribe generics whenever possible.