With Value Added Services, to Whom Are We Adding Value?
I think we can all agree that providing medications alone is no longer enough. Customers are looking for more, and so value added services are becoming an ever more important part of pharma’s value proposition.
There is another strategic imperative that is growing alongside services that will have significant impact on the types of services pharma will offer - Patient Centricity.
If pharma is to expand into value added services, these services should centre on the patient. But it is critical to be clear about why pharma wants to expand into service provision in the first place. Here’s my take on why the industry is taking a very serious look at services.
The environment is changing: as healthcare becomes increasingly unsustainable in its current form, economics grows in importance. Payers need to make critical choices about which treatments deliver the most value. Most importantly from pharma’s perspective, payers are becoming much more influential and are replacing the physician, at some level, in deciding treatment regimes and choices.
While payers have always been on pharma’s radar as an important stakeholder, most in the industry are directing a greater level of attention to this group today, with more resources and in a myriad of different ways.
The issue then, is what is pharma going to offer? And how will it engage with this customer, what is the value they bring?
Typically pharma has focused on improving patient outcomes through innovative medicines and provides data that demonstrates patient outcomes supported by clinical trials as well as some economic data that typically focuses on the longer term - the size of the prize - in terms of numbers of patients, those not at goal together with the potential benefits and outcomes.
The big risk in this approach is that it allows payers to focus on cost, meaning pharma runs the risk of being evaluated primarily on cost – the benefit to patient at what cost equation (one example of which would be Quality-Adjusted Life Years). As we are seeing more and more today and in this commoditized world that means the price you can demand for your product is driven down.
And one of the ways to avoid this catastrophic danger is to add value.
For me, this is at the heart of the value added services approach. The unresolved challenge is this: Can pharma continue to provide value add for free, having seen the ROI come from increased product sales, or should they charge for these services?
We will discuss this in detail at another time, but for now let’s stick with the fact that this is primarily a major play directed at payers.
So why would pharma want to provide services to payers?
- To ensure access for our medicines - help get product approved/on formulary?
- To differentiate ‘us’ - the company or the product, from other pharma companies and their competitor product in the eyes of the customer.
- To build new sources of revenue.
- To be known for service as an integral part of the product offering – provide additional benefits in addition to clinical benefits of the product.
- To encourage physicians to prescribe your product.
- To encourage patients to use the product or continue to use the product.
- To enable pharma to have more/broader discussions with payers and thereby better engage them.
Clearly this is a critical strategic choice and will determine how the company should develop and focus its’ services with each choice demanding a different approach.
So what is value add for payers, what are they looking for? Without doubt, they are looking for solutions that address their specific problems. They are not looking for more information or more clinical data – customers everywhere, in every industry, you and me, don’t need more data, we want solutions to our problems.
For me, when pharma is looking at what problems to address and what solutions or services to deliver there are three criteria that need to be met at the same time:
- Improved patient outcomes
- Cost effectiveness – no increase in the cost of healthcare delivery and preferably a reduction in cost over current approaches
- Patient and community satisfaction with care
Better patient outcomes do not have to come with a higher price tag. More money thrown at healthcare does not always result in better patient outcomes. The US healthcare system is a great example of that.
If one takes a system view of healthcare then it is possible to deliver better health at lower cost while providing a better experience to patients and the general public, but it requires a broader view than typically the industry is used to.
Cost effectiveness needs to be demonstrated in the real world – providing data around a new treatment in isolation – in a clinical trial for example, is no longer enough. Pharma needs to compare its innovation with what is happening today, understanding what this therapy will replace, how it is more effective then other treatments and how its use will drive down costs.
Finally, patient and community satisfaction are important to payers as they need to demonstrate to their constituents that they are caretaking the healthcare system, ensuring its sustainability while engaging patients in living a healthier life, providing superior patient outcomes and delivering a good patient experience.
By providing services and delivering value beyond the pill, pharma can certainly develop additional revenue streams and extend their engagement with the healthcare system, but it is unlikely be as profitable or as big as the traditional pharma blockbuster-based model.
Where then, does this leave the traditional model - focussing on the pill, and what role will the pill play in the future value proposition of pharma?
Do value added services come in addition to what pharma does today, or do they actually replace some current activities and behaviours? What is pharma going to stop doing if it wants to focus on services?
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