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Health Care Business Models in Transition Open Doors for Connected Health

February 26, 2014

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. Reimbursement reform_cHealth BlogFor 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 exchangesconsumer healthcare exchange_cHealth Blog 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,Adoption of mobile_cHealth Blog 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.

There is another story, though, and that is how the world is changing for the pharmaceutical industry. Pharma industry_cHealth Blog

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?

17 Comments leave one →
  1. February 26, 2014 10:53 am

    “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… 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.”

    So. Very. Smart.

    But besides the patient’s, to whose benefit? (I’m not suggesting that the patient’s benefit isn’t valuable-it’s the only thing that I care about. But financial realities drive and impede progress.) My guess would be to payers, not pharma.

    PS: there are plenty of unbranded apps, sites and communities underwritten/sponsored by pharma that gently nudge users towards a particular therapy. If FitBit were acquired by pharma, I wonder how the brand would respond?

    I think about this every day.

    • February 26, 2014 11:26 am

      We should be clever enough to create economic models where value to the patient accrues to others. These days, the more engaged my patient is, the better I do as a provider.

  2. February 26, 2014 11:01 am

    Engagement science – and the market place – has shown that we need to move away from the “gadget” mentality of single utility devices and pills to systems of care with virtuous cycles of renewal.

  3. February 26, 2014 11:13 am

    I think I have seen some very bright pharma executives with very bright ideas tripping over the realities of business models and remuneration schemes. The scepticism with which pharma companies are regarded by payers does not help. The result so far has been some great innovations not realising their potential.

    Two changes could help.

    First would be legislative and aiming to liberate the market for people wanting to bundle pharma products from different pharma companies into a solution. This is a huge change and will be very controversial.

    Second is to put the purchasing power back into the hands of consumers and away from the insurance companies. This is the fastest way for solutions that merge many components from different suppliers to emerge but again you come up against vested interests and legitimate concerns regarding patient safety.

    In the meanwhile I believe more in the potential of pharmacies than pharmaceutical companies to put together solutions that work for savvy patients on the retail level.

  4. February 26, 2014 11:27 am

    Both are solid ideas. Thanks.

  5. February 27, 2014 10:57 am

    Joe, great insights, as usual! I’m biased, being on the Board of Clay Christensen’s nonprofit institute, but believe you’re describing some intriguing manifestations of disruptive innovation in business models as well as technologies/enablers that indeed make this a time of opportunity. Some upcoming discussions with the Cleveland Clinic, with Australia’s largest private health insurer, & in Abu Dhabi may help test some of these ideas…

  6. monica permalink
    February 27, 2014 12:55 pm

    We seem to all be in the starting gate to the Healthcare “Hunger Games” though there is a vibe radiating out with a focus on quality not quantity in this new healthcare world. Here change is good in my opinion, the new old school. These conversations bring me back to my nursing school days reliving instructors of 20 years past drilling the importance of the holistic approach to care…Our every thought had to be in holistic format, treat the whole person. Instead of turning out to see how other companies are succeeding we should turn in and gather insight form what we all inherently know to be true and good. Consider the Whole person. Let that lead our practice in helping patients understanding themselves and helping them achieve their own wellness potential, personal best.. Do you think there is an App for that? 😉

  7. Garry Welch permalink
    February 27, 2014 1:45 pm

    Focusing on one part of your blog, I agree that aligning stakeholder behavior with the public good and not just the short term business goals of the individual stakeholders will be key. I hope the ACOs and medical homes can start the ball rolling. As you say not easy to change behavior in US healthcare as most stakeholders have made a lot of money over recent decades and like the way things are with no price transparency and a blind and toothless consumer. The FFS / volume of care behavior of providers is entrenched in law by CPT codes it should be noted and is a riggged system with huge financial conflict of interest for the American Medical Association specialist groups who set codes and reimbursement for each code so why do we not challenge this deep seated structural problem? Fee for service with biased CPT codes has largely created the system we have that focuses on episodic acute care and unlimited specialist care to fix broken bodies. I worry going to the mHealth conferences recently that there are so many innovative startup companies with talent that struggle to get decent initial funding as there are weak billing codes for prevention and wellness and thus a weak business case for investors in these companies unless the main goal for now is a direct play to consumers and not the providers. What do you think?

  8. February 27, 2014 5:06 pm

    You raise good points. I guess I’d say that disruptive innovators have faced these challenges for years and some of them always succeed. if it was easy, it probably would not be innovative.

  9. Nayan permalink
    March 1, 2014 2:03 am

    For pharma to change there are quite a few hurdles. Internally – the business model that is based on long-term revenues rather than short-term is not something the organisation knows how to deal with, Shareholders are not challenging pharma to innovate beyond the product, externally – there is scepticism about pharma’s intention. But pharma does have capabilities like running trials, demonstrating effectivess of interventions both clinical & cost, global reach, understanding of regulations that can be leveraged to deliver ‘value-based’ healthcare at scale.

  10. March 3, 2014 5:44 am

    Umm … this content’s very useful and very interesting.

  11. March 3, 2014 11:42 am

    At the very moment when pharma brands could innovate, move beyond the pill, and differentiate their generic drugs with a bundle product that improves outcomes, they are under great pressure to do more with less and manage budget cuts. There’s an opportunity for someone here to show pharma they’ll get a return from moving beyond the pill, but who will do it?

  12. July 26, 2014 4:13 pm

    Another thought related to the”beyond the pill” discussion and new business models for Pharma is that it would be great to have a clearer virtual marketplace to connect emerging innovation companies/change agents and the big pharmaceutical companies to highlight new solutions that are now available to Pharma. It seems to currently be a case of a lot of shoe leather and networking to find the right group within these large Pharma companies to find the right people to spark new collaborations. Do you have Pharma coming to you at CCH or do you work to find them?

  13. July 27, 2014 9:32 pm

    We have many pharma organizations coming through our center, some as consulting clients. They have varying degrees of insight into this issue.


  1. The Doctor Weighs InHealth Care Business Models in Transition Open Doors for Connected Health

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