Population Health and Its Implications for Pharma
As healthcare delivery organizations continue to evolve, pharma must respond.
It's no secret that the global healthcare industry is increasingly challenged to reduce costs while still delivering innovative, high-quality care. This transition toward a value-based framework for healthcare delivery and payment is the driving force behind today's rapidly changing healthcare landscape.
In past columns, I’ve discussed the growing importance of “population health” in the journey toward value. Population health has been defined many ways by different groups, but is typically focused on managing the health of a defined population by providing the earliest and least costly intervention for each patient at a predictable price with quality guarantees.
There’s been growing consensus that population health is the goal. What has been unclear is where healthcare delivery organizations across the US are in their journey. To address this void, my firm partnered with the Jefferson College of Population Health in a survey of healthcare delivery organizations across the US. This study provides the first in-depth, national look at the pace of transition from fee-for-service to population health models based on fixed payments linked to outcomes.
Our survey results paint a picture of an evolving healthcare delivery landscape, with organizations across the country at different stages of transition to population health. Here’s a snapshot of what we found.
1) Everyone’s thinking about population health
Nearly all (97%) respondents said that population health was important to the future success of their organization, and 54% said that it was critically important. Healthcare delivery organizations recognize, now more than ever, that they must move away from the fee-for-service (FFS) payment models that have been the norm for years. However, successfully shifting to a new payment model will require significant changes in organizational culture, how care is delivered and coordinated across the continuum, and patient engagement.
2) Progress has been slow, but looks to pick up pace
To date, population health has been a lot of talk and a little bit of action - the majority of respondents reported that 20% or less of their organization’s revenues come through a risk-based agreement with a payer or employer today. But movement is happening more quickly than some expected - nearly half of respondents expect that number to increase to over 40% within 2 years. As public and private payers increasingly commit to shifting reimbursement to risk-based payment models in the coming years, healthcare delivery organizations are scrambling to meet the challenge.
Some programs, like CMS’s Comprehensive Care for Joint Replacement bundled payment program, are forcing the transition by requiring providers to take on downside risk for specific procedures at certain delivery organizations. Other programs in development by public and private payers allow for a more gradual transition, providing opportunities for providers to earn incentive payments (upside risk) before imposing penalties for missing goals (downside risk). We expect that risk-based payment models will continue to become more prevalent, and increasingly require providers to accept downside risk, as the market continues to transition toward value.
3) Managing variation in cost and quality remains a significant hurdle
The ability to manage variation in cost and quality is critical in value-based payment models, yet remains a roadblock to progress among many provider organizations. Interviewees were asked about the status of activities like establishing predictive care paths, building those paths into order entry systems, tracking cost and quality at the physician level, and engaging physicians in the change process. Most respondents admitted they’ve made slow progress, and two-thirds of respondents rated their organization’s ability to manage variation in cost at the physician level as “average” or worse.
As healthcare organizations work to develop the capabilities required to succeed under risk-based reimbursement models, they will continue to focus on ways to better manage variation. In many cases, this means streamlining the decision-making process about both patient care and product selection. As a consequence, pharma must be prepared to demonstrate the economic and clinical value of products and portfolios to new stakeholders (e.g. C-suite and supply chain executives as opposed to individual physicians) in order to gain access to increasingly restrictive formularies.
4) Progress varies by region
Some parts of the country are further along in the transition to value than others. This variation tends to align with the regional political and regulatory climate. For example, there have been significant efforts by state governments in New England to transition to value-based care models, and organizations in those states are more likely to have a risk-based contract with downside risk than organizations in regions that have not focused on transitioning to value at the state level. In other words, healthcare delivery organizations in New England are more likely to have moved past the “planning” stage and are now in the “doing” stage.
As your customers evolve, so must your commercial model
These results have significant implications for pharma manufacturers, who are selling into a sea of customers with drastically different and evolving business drivers and risk tolerance. As healthcare delivery organizations continue to evolve, pharma must respond. Successfully navigating this sea will require developing new capabilities and processes to support an adaptive, targeted commercial model.
A “one-size-fits-all” commercial model won’t adequately address the needs of customers that are in different stages of taking on risk across the care continuum. As you segment your customers, ask these questions to ensure you’re meeting them along their path to population health:
- Where are your customers in this evolution?
- What matters most to them today?
- Where do you fit in this transition?
Once segmentation is complete, determine where you can bring the most value. This might include data demonstrating meaningful outcomes, value-added services that help manage variation, or products that address unmet needs in key therapeutic areas. Success in this evolving landscape means being prepared in advance: when pharma can bring products, data and services that meet the specific needs of organizations to the table, they’re more likely to create an effective and lasting partnership.
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