Value Added Services: The Second Wave of Disease Management

Demonstrating value and capturing that value as a revenue stream are key challenges facing Value Added Services creators.



Pharmaceutical companies are facing numerous well documented challenges, including an evolving customer landscape, more restrictive formulary and reimbursement pressures, and technical hurdles to discovering and developing new products.  As one strategy to offset declining revenues, companies are testing a variety of initiatives focused on creating value added services (VAS) for drugs and medical devices. The challenge facing creators of these programs is to demonstrate the value created – whether as a service wrap in conjunction with a product or as a stand-alone service - and to capture that value as a revenue stream.

As the healthcare market evolves, providers are implementing alternative care delivery models (ACOs, PCMHs, population health and bundled pricing, etc.) that impose financial accountability for the cost and quality of care delivered. As a result, they are receptive to solutions that promise to help them manage those outcomes.  Simply put, the concept of keeping patients out of acute care is so radical for most providers that disease management offerings have genuine appeal. Appropriately, the market has responded; existing industry stakeholders, new entrants and non-traditional competitors (i.e. PBMs1, payers2, and large integrated distribution companies3) are studying or entering the competition.

Disease management programs have been tried before by product manufacturers with limited success. This new wave differs from prior experiments in that it leverages emerging mobile/handheld technologies and the Internet to connect with patients, caregivers and physicians through multiple channels.

Two Models for generating Revenue

The initiatives currently being tested are being marketed in two broad ways, in some cases being pursued in parallel within the same company. First are programs marketed as a service wrap around a particular product, generally seeking to promote adherence, resulting in improved effectiveness and increased sales. Several examples of programs exist aiming to improve chronic conditions like diabetes and COPD. Research shows that the revenue opportunity left on the table due to poor adherence in certain chronic diseases surpasses the sales of drugs for some major cancers. If companies can get patients to take drugs as prescribed, the potential incremental revenue would mitigate a long list of other problems squeezing the balance sheet … and it could improve patient outcomes as well.

The second VAS approach encompasses initiatives at organizations looking to value-added services as a way to create discrete new revenue streams. Supported by evidence of improved outcomes, they would like to sell these programs to patients, providers, and payers, who recognize the potential to decrease the overall cost of care or improve outcomes without increasing total cost. These services are product agnostic and therefore don’t depend on driving sales of the company’s products to be a financial success.  To date, most companies with such offerings would describe them as being in pilot phase, trying to prove concept viability and learn how to optimize service design and delivery.  An example is care4todayTMwith programs targeting heart health, orthopedics and mental health solutions.

Operational Considerations

Regardless of the strategic objective, companies have to consider how they're going to operationalize these programs. One such consideration is organizational structure. Many different models are being employed, each with their own challenges and rewards. VreeHealth is a wholly-owned subsidiary of Merck, yet independent. Their products and services are designed to complement hospitals’ processes and existing infrastructure, better connect with patients and providers, and enable quality and outcome improvements related to 30-day readmission rates. Janssen has created a separate group within its walls, but is allowing it to create its own culture and practices. It has been described as a startup within a large organization.Such innovative groups reside in different parts of the organization, often as a result of where they germinated and from whom they receive their funding. AstraZeneca’s Innovative Pharmaceuticals Group is part of R&D, while in other companies these groups are funded by the commercial organization or at the corporate level.

Pharmaceutical companies are not the only segment exploring this potential market.  Others seeking to create and capture value in this area include many non-traditional competitors, such as data management companies, wellness program providers, retail vendors such as pharmacy chains, private payer organizations, insurers and PBMs, as well as IDNs and providers forming ACOs.

Regardless of the strategic and organizational decisions shaping the implementation of such programs, the use of multiple new technologies to deliver these value added services calls for an investment in novel capabilities, requiring skills and disciplines that may not be in abundance.  As companies apply the lessons learned from other industries, they may need to integrate talents and skills recruited externally.

Need To Demonstrate Value

Successful implementation of these disease management programs – regardless of their strategic intent – will require them to demonstrate the value they generate through clear and compelling evidence.  Given the financial pressures facing many healthcare providers, some form of risk based contracting may be required to encourage the adoption of such programs.  Payment models that allow providers and payers to share in the benefits and risks associated with a number of chronic disease management products have been introduced in recent years, raising expectations that these contractual arrangements will become more prevalent in the future.  Merck and Cigna created the first national outcomes-based contract between a pharmaceutical company and a pharmacy benefit management company.  This arrangement demonstrated an increased percentage of type 2 diabetics who were able to control their blood sugar levels by taking their medications appropriately.4 Savings of as much as $8,000 per person were obtained as a result.

The renewed emphasis on and early success in creating value beyond the physical product is an exciting opportunity to improve financial performance. This is a big strategic choice that requires a well-crafted and analytically rigorous strategy to define why, how and where you are going to compete. The operationalization of such programs needs to be supported by the development and implementation of new capabilities, and by leveraging emerging technologies and the behavioral sciences disciplines. Lastly, the cultural requirements for promoting innovation and new skills within existing businesses needs careful thought. 

As companies evaluate adjacencies and complementary businesses in pursuit of enhanced profitability and competitive position, product service wraps and related services are likely candidates for consideration.  A dual focus on strategy and implementation is required to ensure the alignment, infrastructure and capabilities are in place to succeed in a highly volatile global marketplace.


[1]  Implementing a Disease Management Program within a PBM Environment.  J. Berger, CCO, Caremark.  Presented at Annual Disease Management Colloquium, Thomas Jefferson University.  2005.

[2]  Complex Puzzle: How Payers are Managing Complex and Chronic Care.  S. Philip, S. Miller.  California Healthcare Foundation.  2013.

    [3]  McKesson Health SolutionsDiabetes DM Program Reduces Inpatient Stays.  www.McKesson.com.

    [4  http://newsroom.cigna.com/article_display.cfm?article_id=1264.]  


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