Focus on Value 1: The “Tsunami of Change”
Part 1 of a 3 part series on value in health.
The concept of “value” rules the day, undoubtedly. The transition from the old fee-for-service model is by no means complete but it is game changing, according to industry figures like Dr Jeffrey Farber, CEO of Mount Sinai Care. So what’s in store for the healthcare landscape over the next few years?
Dr Farber, who runs a Medicare shared savings program ACO (accountable care organization) in the United States, sums up a market in a state of flux: “The market is moving very rapidly in, what I believe, is a major transformation from a fee-for-service model that has dominated the landscape for the past 40-50 years to a real change to fee for value. The purchasers – the ones that are paying over $3 trillion a year in healthcare services in this country – are no longer capable or willing to tolerate the poor value that they’ve received for their money.”
Jeff Elton, Managing Director in Accenture Strategy and Global Lead of Accenture Predictive Health Intelligence and Accenture Intelligent Patient Solutions, who has recently co-authored a book with Anne O’Riordan, Global Industry Senior Managing Director of Accenture's Life Sciences industry group, tells eyeforpharma: “There is only one direction that healthcare and healthcare payments are going, and that is actually having some outcomes-value basis to healthcare.”
In their just-published book Healthcare Disrupted – Next-Generation Business Models and Strategies, the pair describe a “tsunami of change”. The authors write that healthcare is on the brink of monumental change, pointing out that the relevant disruptions are already underway. These forces are causing a fundamental shift in how we approach healthcare and consequently the way life sciences companies need to engage the market.
“The move to value- and outcomes-based compensation changes the way the healthcare system positions itself with respect to the patient,” the authors write. “Whereas to a large extent, today’s healthcare system is reactionary, giving us the health services that result from our persistence, our phone calls, our queuing, our waiting in waiting rooms, and our calls to healthcare insurers, tomorrow’s system can be a force for health maintenance and health solutions.”
Elton highlights three key industry trends. First, value-based healthcare is here to stay, although the situation is shifting and moving, and moves at different pace in different sub-geographies. “We don’t see any scenario where there’s going to be a return to the volume-based or fee-for-service-based models of the past and we will see whole regions that are entirely value-outcomes based. That has huge implications for the industry. Everyone needs to accept that; everyone needs to have readiness for that, and everybody needs to have their response to that.”
Secondly, this transition will have a massive knock-on effect for the talent that life sciences companies employ, particularly at a leadership level. He stresses that business leaders will need a different mind-set from the past, when their thinking was dominated by products, volume and fee-for-service models.
“The moment we think about value, we’re not just selling a product; we have to think about solutions. Such solutions are going to involve digital services and other attributes that go with the chemical or biological entity or the device that may have been their product; and, if I’m thinking in terms of solutions, that indicates I need new capabilities in my organization.
“I need the ability to be a highly effective partner to syndicate the pieces to drive value for a health system or a country or whatever business-to-business context I’m in. It will be very difficult for one company to own all of the different aspects that need to be done to deploy that kind of solution. It’s too big because we’re extending beyond that 10-20% of cost that’s purely therapeutic cost and we’re engaging with the health system. I actually need a leadership profile of people who think in terms of outcome.”
Thirdly, he explains: “We do see a discrete number of business model archetypes emerging.” The authors have dubbed these four groups: “Lean Innovators”; “Around-the-Patient Innovators”; “Value Innovators”; and the “New Health Digitals”.
“We describe one of them as being the Lean Innovator. These are the successors of the former generics companies – incredibly strong on transaction and cost management and getting very large and broad.
“We see another set that is very focused around the patient and the consumer. We’re terming them the “Around-the-Patient Innovators.” Such higher science companies really understand the concept of value as part of where things are moving; they are seeking to redefine themselves and drive value with a real focus around what systems and interactions around patients and the consumer are going to drive value and outcomes.
“We see another group that is almost becoming a service company – we’re terming them “Value Innovators” (see case-study 1 in “Focus on value 2: How data and analytics is facilitating outcomes-based health”).The business isn’t actually selling the “product”; it’s selling a service that helps drive the outcome.
The sequence and timeframe of change in the marketplace is such that, when you start combining a digital service element, you can add more value more quickly than via your next therapeutic launch – and that’s actually going to change competitive dynamics.
The final group comprises the digital firms. “These are folks who were health companies that have now refashioned and reshaped themselves to be highly digital.” Elton includes companies like Philips and GE that have publicly announced they are moving themselves out of certain businesses, shedding consumer businesses, and reshaping and redefining some of their capabilities. In addition, there are the digital companies such as Google, currently involved is setting up operating divisions exclusively focused on life sciences, as well as other plays from the likes of Apple and Samsung. Such players will cross cut with the other models and bring very large-scale innovation capabilities.
Strategic choices now
Elton emphasizes that it is vital for companies to make strategic choices. “It is not a matter of watching. The sequence and timeframe of change in the marketplace is such that, when you start combining a digital service element, you can add more value more quickly than via your next therapeutic launch – and that’s actually going to change competitive dynamics; it’s going to change how you contract; it’s going to change who wins contracts; it’s going to change everything in the business-to-business component, so we really think there is an imperative for people to make some of those strategic choices now.”
You’d like to see a reduction in complexity in how some of the life sciences companies operate, because there is going to be a need for tighter, more responsive decision-making.
How does the speed of change affect getting the strategy to the market? “That is a really core, central question of the capability of an operating model. I think you could argue that you’d like to see a reduction in complexity in how some of the life sciences companies operate, because there is going to be a need for tighter, more responsive decision-making.
“Second, this notion of business to business is really not trivial. You will actually need to be more in touch with your hundred largest customers around the world and have that rich interaction so you’re not taken by surprise.
“The third part is your partners themselves become part of that nimbleness – so how you choose to partner, how you put together relations with a partner, the clock speed, and how they actually work with you to syndicate and deploy and scale at a population or a health system. It’s a really tough capability for some of these organizations; some recognize it but that will become a typical characteristic for sure.”
Health system perspective
Looking at the landscape from another perspective – as CEO of an ACO – Dr Farber sees three similar trends but with a slightly different emphasis:
1. A blurring of the lines between providers and payers with increasingly sophisticated providers capable of taking on the bread and butter of the insurer world. At the same time, there will be increasing consolidation at the physician and hospital level with more integration among providers, and a move towards models that provide better quality for patients.
2. A very ramped up effort towards physician engagement, partly driven by the way Medicare is going to pay doctors: in 2015, the physician value-based modifier was a radical change which said: “Medicare’s no longer going to pay doctors the same rate for the same service which they have done since 1965.” The focus will be on value-based metrics such as patient experience, quality, care efficiency, and total cost of care. Doctors will be paid differently and the new model will be phased in for every doctor who participates in Medicare by next year with the aim of addressing both sides of the value equation: quality and cost/efficiency.
3. Consumer-centricity. “I think that more and more provider organizations will start to think of themselves and behave as a truly customer-centric organization as opposed to the very traditional system where it has been about the providers.” Patients will have more access to useful information and choices about where to go and what to do.
Pharma and device companies should anticipate further pressure on cost and be able to understand the impact that use of its product will have on cost and quality, according to Denise Prince, CEO of Keystone ACO. “A pharma or device company has to show that it can deliver meaningful change in the total cost of care in order to get the attention of the ACO.” This is particularly relevant in the case of more expensive drugs or devices that affect many beneficiaries.
“If it’s a drug or device that many people use and there is evidence that use of the drug or device reduces use of hospital services or improves the quality of care, then that is going to be meaningful for the ACO.”
Elton concurs and points out that changes in healthcare’s economic model are taking place in the United States, Europe and also increasingly in Asia. “We’re seeing that throughout the world.” With the consolidation of health providers and payers – providers are also acquiring payers and writing risks themselves – the customer groups are becoming larger.
Room for collaboration
He highlights the fact that health systems (such as ACOs) are setting policy and putting in place infrastructure. In terms of articulating value, there is one fundamental issue for life sciences companies, according to Elton: can I be more efficient at addressing the problems at hand – being more effective remotely, integrating digital tools and doing things that keeps people away from very expensive facilities? “There’s a lot of room for innovation and collaboration between providers and life sciences companies,” he contends.
At the same time, with electronic health records (EHR), data and information are now available electronically in formats that can be aggregated and this was simply not possible before. The significance is not just that this allows us to measure and hence manage healthcare more effectively but it also provides a very large data set that enables us to see what a country, state or metropolitan looks like, for example. Moreover, we have only had this capability for the past four years at the outside.
The fact that we can now measure “value” is highly significant, Elton suggests. It opens up and liberates new models for pharma, bio-pharma and medical device companies. (See “Focus on value 2: How data and analytics is facilitating outcomes-based health”. We discuss some of the ways that life science companies’ commercial organizations can adapt to this new paradigm in “Focus on value 3: how does this affect life sciences companies’ sales efforts?”)
Elton summarizes: “You need to ask a seemingly simple question: how are you going to be relevant to a customer group?” As with other industries before, the selling process is becoming more B2B oriented and moving towards a solution sale. “You actually need to be representing a solution in that context.”
Healthcare Disrupted – Next-generation Business Models and Strategies, by Jeff Elton and Anne O’Riordan was published by John Wiley & Sons, Inc., February 2016.
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