Health Care Business Models in Transition Open Doors for Connected Health
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 consumer health insurance exchanges 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.
Another force-multiplier is that as we health care providers take on more risk, we are pushing our suppliers (e.g., the device and pharmaceutical manufacturers) to lower our costs. One of the first things we signed up for during the journey from fee-for-service to fee-for-value was targets around generic prescribing. We’ve been doing far less branded prescribing for the last several years.
At the same time, here at the Center for Connected Health, it’s been a privilege to have a steady stream of visitors from most of the high-profile pharmaceutical companies. Some come in for a ‘pick-your-brain’ session, and many have hired us as consultants to help them examine how they can respond to these market changes via connected health solutions. The phrase we keep hearing from our pharma colleagues is that they want to move ‘beyond the pill.’
We’ve shared insights into how to use sensors and devices to improve patient engagement and accountability. We’ve talked about our experience with various technologies to improve adherence. Lately, we have been sharing our insights into how important motivation is and how assessing motivational state and individualizing messaging around that is critical for success in patient engagement and outcomes. With a couple of notable exceptions (which I cannot share because of non-disclosure), we have largely gotten lots of blank stares or polite head nodding. I kept wondering whether we just don’t get their industry, aren’t articulating our view of the solution or they simply aren’t ready to embrace it yet.
I had an insight recently that helps me put it all into perspective. We’ve been thinking a lot about the power of data analytics and targeted messaging of late. We have several very promising studies in progress to demonstrate that we can develop personalized messaging programs and keep patients/consumers engaged in healthy behaviors for long periods of time. This work breaks down into three areas (I guess this is the blog post of threes). One is data collection: what new sensors and tools can we use to capture more finely-textured information about you that relates to your health state? The second is the analysis of those data – the realm of predictive analytics and machine learning. The third is the psychology of engagement, an area well known to marketing professionals.
The insight is that pharmaceutical firms know how to do marketing and messaging, having done direct-to-consumer marketing for years. When they had the chance, they were frighteningly good at changing physician behavior to write prescriptions for their drugs.
Health care providers don’t have these skills in the work force and I dare say payers do not either. If the goal is behavior change in chronic illness management, which equates to skillful use of engaging messaging, the pharma companies should have a leg up.
Their challenge, however, is that pharma companies think of that skill and knowledge as an expense to support the sales of molecules. For decades, molecules have been the source of revenue and all of the marketing/messaging is an expense item. In order to transform their businesses ‘beyond the pill,’ they will need to turn this thinking on its head.
The engagement becomes the product. The therapeutic is almost a give away or ‘marketing expense.’ There aren’t many better ways to develop a relationship with a patient than through a prescription for a medication to treat a chronic illness. I’ve taken Simvastatin for years now and no one yet has leveraged that Trojan horse to upsell me other products, get me to do other things to lower my cholesterol, bring me additional diet and exercise opportunities or anything like that. Once a drug becomes a generic, it becomes a forgotten step child. But at $4/month, that molecule should be viewed as an inexpensive tool to develop a relationship with a patient around which to sell other services.
Health care providers are scared of the consequences of taking financial risk. Some bright, strategic-thinking pharmaceutical executive is going to come up with a service package that includes engagement tools, perhaps some connected health devices or an app and is centered around a therapeutic area but not a brand. Gillette did it with razors and blades. Bill Gates did it with computer hardware and the operating system. I know the pharma industry will rise to the occasion.
What do you think?