Can Pharma Companies Successfully Transition to Become Integrated Healthcare Providers?
In part 1 of an exploration of valued-added services, we look at the headline figures from an important new industry report.
The debate around value-added services (VAS) has moved on from exploring a services business model to how pharma organizations can engage with services. This switch from “if” to “how” is supported by survey data to show that while some companies are innovating in this space, there is still a long journey ahead together with many unanswered questions – not least concerning how these services are to be monetized and sold.
Patchy success to date may reflect issues in understanding and implementation rather than a fundamental problem with the concept. There are many cases of demonstrable positive health outcomes attributable to services, according to recent research by eyeforpharma. The services programs seem to largely deliver beyond the health outcomes as well. Some companies in the survey express “having completely achieved their primary objective” with their projects (8.6%); another 57% achieved it partly or to a large extent; very few, however, report having not achieved their objective at all – 3.1%.
Perhaps more importantly, however, many companies are showing an ambition to position themselves as integrated health providers. 41.5% of respondents claim that their company’s business model is as “a provider of integrated healthcare solutions in partnership with stakeholders”.
Nonetheless, here is where it gets complicated. Services are delivering positive health outcomes and companies are pushing the envelope in terms of positioning. The stage seems set for rapid advances, but we have this clearly translated into concrete action
These are among some of the main conclusions from a new report from eyeforpharma: Value Added Services Report 2015 – Services as a Key Component of any New Business Model.
Ambiguity
Meanwhile, even the term “value-added services” is itself is ambiguous. According to the authors “'value-added services' is one of those terms that no one really likes, but everybody keeps using; because it is vague enough to include what you want to say, and established enough for everyone to not directly question what you say. Value-added services has come to mean something different in pharma than in other industries. However, exactly what that meaning is, is still unclear.”
To add to this ambiguity, the VAS concept has also evolved to become more inclusive, ranging from traditional pharma services, such as education campaigns, to a wider discussion on a change of business model in the industry.
Services as products
When developing services, companies are trying to escape the shackles of pharma’s product-centric culture. Major therapeutic areas for the pharmaceutical industry are being addressed in service provision – not surprisingly, there is a correlation between the industry’s main areas of focus and the development of services: cancer (46%), diabetes (41%), cardiovascular (39%), COPD (28%), dermatology (26%) and rare diseases (23%).
Although there is considerable diversity and some companies are taking the first steps into a new business model around service provision, the industry is still heavily focused on treatment – adherence being one of the key objectives of most services.
Despite the efforts, adherence continues to be a key issue. The potential financial and health outcomes gains are impressive. However, the industry might have over-estimated the appeal of the win-win in adherence in the eyes of payers, which just goes to show the complexity of the myriad of stakeholder objectives.
Not surprisingly, few companies are looking beyond the more obvious parts of the patient pathway – diagnosis, treatment, and post-treatment/follow-up – and thus there is a close link between services and improving outcomes. All the while, prevention is still a rare occurrence and even more rarely the main focus.
A clear trend identified by the authors is the “productification” of services, whereby the delivery of the service is treated in much the same way as a product – i.e. as something fixed and completed that is handed over to the customer. Even though there seems to be considerable application of co-creation in the initial stages of development, the service is still treated much like a product during the delivery stages of the value chain – once developed, the service is delivered with little or no attention to its uptake and usage.
This may not always be the most-suitable approach, however: “Instead of being a genuine healthcare service process, the ‘service offering’ is delivered as a tool to be used in that process – much like a stethoscope or blood pressure meter. This ‘productification’ of services has several implications, not least for the way reimbursement can be sought. It is also a way of delivering services that is more apt for certain contexts than others,” the authors stress.
Industry environment
This plays into the industry’s perception of its role within the wider healthcare business ecosystem; this has always been highly complex, but such complexity is amplified by rapid changes both in healthcare in general and in the pharmaceutical industry, the authors point out.
Healthcare systems around the world are trying to work out how to curb runaway costs and achieve sustainability – expenditure on medication has received much attention in this context. As part of the cost solution, many systems are looking at outcomes-based payment models for healthcare, with inevitably profound effects on the industry and how it conducts its business.
Add to this the fact that decision making and prescription power are changing and the role of the physician is diminishing in relation to payers and patients. In addition, there are questions around who will be able to pay for future innovation under the current industry model: the price tag for pushing a drug through the R&D pipeline is increasing and most healthcare systems are showing reluctance to continue paying for me-too drugs.
The result is that pharma’s perception of itself as an integral component of the wider healthcare ecosystem is increasingly contested by other stakeholders. Their assessment is instead of the industry as a peripheral provider of medicines; yet, perhaps surprisingly, the industry at the same time has a perception of its own activities as fairly safe from outside competition – but the near future is likely to reveal important, new actors competing for a piece of the healthcare cake, the authors warn.
Value Added Services Report 2015 – Services as a Key Component of any New Business Model written by David Laws and Magnus Franzen, with research by Rob Halkes, is published by eyeforpharma. Download an extract here.