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In the new health ecosystem, pharma needs to know a lot more about population health

By Rita Numerof on Feb 26, 2018

It’s no secret that healthcare is under growing pressure to reduce the cost of care while improving quality. Linkage of payment for healthcare to the cost and quality delivered – the idea behind value-based payment frameworks – is the driving force behind today’s rapidly changing healthcare landscape.

Such linkage will likely be achieved using a population health model, where a provider contracts to deliver designated services to specific quality targets at an agreed-upon ‘all-in’ price. The arrangement makes the contracting provider financially accountable for cost over-runs and quality shortfalls.

The services may be an acute care episode, such as a knee replacement, or the management of a chronic condition, such as diabetes, on a monthly or annual basis. Either way, the provider is responsible for delivering the services at a per-patient or per-episode price, and for treating defined adverse events (like surgical site infections, falls or hypoglycemic episodes) without additional reimbursement.

This new level of accountability puts a premium on the efficient use of health resources, encouraging providers to intervene with patients at the earliest point in time and least costly site. Wellness is better than outpatient treatment, which is better than emergency or acute care. It also puts providers in the risk-management business – knowing that they will bear the direct costs of mistakes and unanticipated adverse events.

Tough times ahead
The growth of population health programs is dramatically changing the business environment for pharma companies in several important ways.

First and foremost, financial pressure on reimbursement has significantly raised price resistance to new products or product innovations associated with incremental costs. Buyers want a solid economic and clinical value narrative – data-based evidence of marginal benefit over the current standard of care. And they are growing bolder about refusing to reimburse or use products without one.

A case in point is Novo Nordisk’s Tresiba (insulin degludec). From its initial EU release in 2013, Novo struggled to convince European buyers that Tresiba’s incremental benefits warranted a 60-70% price premium, until Novo dropped the premium to 20% in 2016. In the US, price resistance was even stiffer, forcing the company to accept a list price just 10% over existing options, and leading it to slash its long-term profit-growth forecasts by two-thirds for 2017.

More broadly, providers facing margin pressure are looking for ways to make it up by reducing costs. This has been compounded by dramatic consolidation across the industry, shrinking the number of prospective buyers and increasing the potential volume of those that remain. What’s more, consolidated provider organizations are changing the way purchase decisions are made.

As acute care organizations buy private practices and make physicians employees in the US, administrative and corporate influence in purchase decisions has grown at the expense of clinical influence. This calls for a whole new approach to business development. No longer about the physician–sales rep relationship, business development increasingly requires new skills and fluid command of the product’s economic and clinical value case.

These changes are not happening uniformly across the US market, and there are significant differences in the pace of adoption of population health across and within regions. What this means is that the commercial approach used by pharma can’t be one-size-fits all. Indeed, a nuanced understanding of the pace of adoption, associated concerns and where a given organization is on its journey becomes critical to segment and key the commercial approach to each prospect.

Where is pharma with population health?
We offer some insights from Numerof’s recent State of Population Health Survey conducted in collaboration with David Nash, Dean of the Jefferson College of Population Health.

1. Population health is seen as inevitable, and a way to improve margins and quality
The vast majority of respondents (95%) said that population health was important for future success, and nearly half (43%) said it was critically important. Virtually all (99%) saw the new approach as an opportunity to better control clinical costs, quality and outcomes.

2. Most organizations are wary of risk-based agreements
Although the majority of organizations are experimenting with risk-based models, more than half of these arrangements are ‘upside only’ and only a small proportion (<10%) have more than 40% of total revenues at risk.

3. Organizations are restructuring to implement population health
Nearly three-quarters (74%) of respondents indicated their organization had a designated division, department or institute for population health programs, a significant increase over 2015. As ownership for population health activities becomes more defined, organizations will be able to focus on making needed changes to their processes and accelerate their transition to a value-based environment.

4. Most healthcare executives recognize that they aren’t yet prepared for downside risk
Although MACRA and MIPS have encouraged greater focus on value-based care, only 17% of survey respondents said their organization was ‘very prepared’ to take on risk today. Making population health work requires a dual focus on improving clinical costs and patient outcomes. Most organizations have a high degree of variability in both areas making it difficult to assume risk. Delivery organizations must continue efforts to identify ways to improve costs and outcomes if they are going to be in a position to assume downside risk.

The bottom line
In the face of growing pressure to reduce costs and improve quality, providers will continue to restructure their business practices toward population health in response. Here are some key implications for pharma:

• Get your economic and clinical house in order – a compelling case for each product relative to alternatives will be critical to maintain sales volume and ensure continued access.
• Develop the capabilities your business development team will need to work with purchase decision making committees whose criteria include strategic goals and other factors that need careful evaluation and nuanced response.
• Develop a plan to segment your client and prospect base that helps you match your commercial approach to each organization based on their progress toward population health.
• Ensure that product development decisions give appropriate weight to the issue of marginal cost and benefit. Price increases and new products will need a solid, data-based case for incremental benefit to justify incremental cost. If you can’t create one, it’s best to cut your losses sooner than later.
• Providers wary of taking on risk management will likely look to their suppliers to share in that risk. Get ready now to modify the cost of your product to reflect instances in which it fails to deliver the promised benefits.

Pharma companies that are able to demonstrate their understanding of provider issues and concerns, adapt their commercial approach based on the provider’s progress in the transition to population health, and provide strong evidence of how their product supports providers’ needs will be in the best position to create an effective and lasting commercial relationship.

Rita E. Numerof, PhD is Co-founder and President of Numerof & Associates, Inc. 

Rita would like to thank Michael N. Abrams, MA, Managing Partner, and Kimberly E. White, MBA, Vice President at Numerof & Associates for their contributions to this article. For more information, visit our website at www.nai-consulting.com.