Value-Added Services: The impact on the pharma business model
So what is stopping pharma from jumping wholeheartedly into providing value added services?
After all, it has a long history of providing services and solutions to various healthcare players particularly physicians – CME, patient support, patient identification and of course adherence, but these have historically been provided for free.
The need seems real enough. Stakeholders are actively looking for help and pharma is looking more like a good partner than it has ever before.
If pharma is to expand the services and solutions it provides to an ever-widening customer base, how can it do this without negatively impacting its cost base and revenues unless these services are tightly aligned with product sales? And if they are not going to be tied to product sales where will the funding come from?
Clearly, pharma today is in the business of reducing costs not increasing them, so that means pharma will need to sell services. But, would healthcare stakeholders be prepared to pay for services from pharma? Who would pay? Where would the money come from?
These are real concerns and obviously need to be addressed, but, I think that these questions and concerns hide the real overarching challenge for the industry. It is not about who pays, it is more about “how will offering and charging for services impact our current business model and revenues?”
To sell or provide for free
It is a question of loss aversion. If pharma moves into selling services, will their focus and resources be diverted and diluted? Will this move impact the current business model? How much will selling services dilute their profitability?
In my opinion, these are the questions that continue to hold pharma back from selling services; it is not about will customers, such as payers or patients even, pay for these services. Customers are usually willing to pay for services and solutions that they value. If pharma was to develop (and they are currently developing) solutions that payers and others really value, that address real needs of stakeholders then the money will be reprioritized from elsewhere in the health budget.
We can’t definitely predict the impact on the pharma model but the strategic questions remain, should services be sold or provided free, or a combination of both. Can selling services coexist with the for-free model? Is there a future in this?
Whatever the strategic decision, to sell or for free, the impact on the pharma business model is going to be profound.
Several pharmaco’s have established new business units to manage the structural issues, like Pfizer and its Integrated Health BU which delivers services for free, while others have chosen to build partnerships and new entities like Merck with its Vree business that is built to sell services.
The question then is how to seamlessly integrate services into the core value proposition, as an integral part of the value pharma brings to healthcare so that the ‘Pill’ is not the only source of value".
Whichever course the company chooses, the challenges inherent in delivering services are not to be underestimated. And not just the medical legal issues.
For me, the big challenge for pharma is how is it going to use value added services to fundamentally change its business model. In most cases today, services are tacked on somehow but the core business model remains unaffected.
The question then is how to seamlessly integrate services into the core value proposition, as an integral part of the value pharma brings to healthcare so that the ‘Pill’ is not the only source of value.
The industry has a long way to go to achieve this objective.
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