Disruptive forces reshaping healthcare business models

Several elements are coming together to transform companies’ approaches to meeting health needs. Successful companies will be those which focus on improving patient outcomes while taking account of scientific breakthroughs, reimbursement requirements and technological advances, say Anne O’Riordan and Jeff Elton.

Anne O’Riordan and Jeff Elton

New socio-economic realities, fundamental changes in how healthcare is financed, scientific breakthroughs, real-world data, and the digital revolution are all redefining health and how healthcare will be delivered and experienced. For life science companies, patient-centricity means financial incentives are linked to the outcomes realised by patients and the value delivered to healthcare providers and risk bearers.

Catalytic change

Digitally-aware patients are becoming increasingly engaged and active in determining their own health outcomes. Many factors are catalysing this change, including the availability of genomic, health, and lifestyle data, financial incentives, and an abundance of technology solutions that help patients monitor, measure, and adjust their habits to self-manage their health and the outcomes of treatment.

Health care providers, pharma companies, medical device manufacturers, diagnostic services providers, and payers are seeking to integrate and align data for a broader end-to-end view, from diagnosis to treatment response monitoring. Nurses, health care personnel, family caregivers, patients, wellness companies, and digital device and services disrupters are joining forces in innovative ways, centered on sustaining and improving health and promoting improved outcomes critical for realising population health and personal outcomes goals.

Only the most agile and responsive will find success in this new healthcare ecosystem, in part by building value-enabling partnerships and by embracing new collaborative technologies. Industry leaders will have to comprehend the implied redefinitions of markets, the evolution of service-centred approaches, and the parameters of outcomes- and value-centric performance models, as well as how fundamentally these models will impact their organisations.

Volume to value

The shift from volume to value is leading to the development of new roles in the healthcare ecosystem value chain. Volume drivers, with their emphasis on revenues, market shares, and gross margins, are giving way to value drivers, with their emphasis on increased patient outcomes, decreasing avoidable healthcare costs, and broad, multi-year population outcome improvements to payers and risk bearers.

Payers are moving into the direct provision of care; technology companies are connecting remote clinical monitoring technologies together as a service; and medical device companies are providing direct patient care management services. Health providers are managing financial risk, making tradeoffs among the services they offer, and pursuing payment through ‘alternative’ or outcomes-based approaches.

Each organisation is working with other partners to create, advance, or deliver their services. The relationships are extending back from early drug discovery, right through clinical development, to commercialisation and patient use.

Digital impact

The new value-based healthcare paradigm is emerging in part from digitally-enabled patient services. Currently, value propositions focus on the clinical attributes of products compared with those of competitors’ and physician prescribers. In the emerging healthcare ecosystem, value propositions will focus on delivering outcomes-based health and therapy management services that have been enabled through the use of connected devices, sensors, services, and social engagement.

Then and now

‘Evidence’ of effectiveness used to mean the results of clinical trials and regulatory post-approval studies that took years to complete. Pharma and device companies commercialise their products, but are often challenged by why real-world results differ from what the trial data indicated should be expected.

Now, continuous sources of clinical and real-world data can track activities and outcomes in near real time, so companies can identify the factors in people’s lives that influence the effectiveness of treatments, and that enhance the ability to treat remotely and self-manage. Armed with this information, they can contemplate new strategies to fill those gaps for patients, often in partnership with large health systems, which increasingly bear risk for achieving outcomes targets or for the health of entire populations. Healthcare providers and health services partners can extend their involvement with patients beyond the office or hospital, digitally track progress in real time, and adjust treatments as necessary.

From inputs to outputs

There is a move from an input-based approach (number of patients seen, or drugs and devices sold) to an output-based approach based on attaining patients’ best possible health outcomes. When reimbursement or payment is based on inputs, there is a built-in adverse incentive to do as little as possible and receive the same compensation. But when payment is based on outputs, the incentive is to optimise productivity and maximise system benefits.

Europe is increasingly favouring value-based reimbursement, with health authorities and providers focusing on approaches to improve the health of populations as a whole with the care requirements of individuals. Variants of this approach are advancing in the US as part of the next phase of the Affordable Care Act as post-Pioneer model accountable care organisations (ACOs) and health providers initiate or acquire health plans.

A pivot to the patient

The patient’s power as a consumer is also evolving. The priorities of an individual patient with a specific disease or health condition can drive a real determination of value in therapies, interventions and services. In part by becoming more digitally-aware, the patient is taking on more direct responsibility for outcomes, viewing them as a beneficiary and active customer. Healthcare is pivoting to the patient.

Emphasise outcomes and value

To thrive in this new environment, the future leaders will have to address several core areas of their businesses. They will need to:

Clarify their company’s market positioning regarding patient outcomes and value to the healthcare system;
Define the differentiating capabilities necessary to deliver on those goals;
Create a high-performance enterprise of partners, collaborators, and talent.

Emerging models

As part of this catalytic change, new business models, with fundamentally different economics, are forming and setting precedents and standards for others to follow. There are four business models, centered on patient outcomes and value:

Lean innovators: companies that combine generics-efficient manufacturing and supply chain best practices with M&A to facilitate rapid growth and challenge existing cost structures, productivity, and operating models.
Value innovators: companies that improve patient outcomes and system efficiency through integrating drugs, devices, and digital services with clinical processes.
Around-the-patient innovators: companies that put patient value and outcomes at the centre of their strategy, leveraging analytics to create novel speciality therapeutics and complimentary services.
New health digitals: non-healthcare companies that change the ‘how’ and ‘where’ of patient care through cross-industry collaboration, rooted in digital innovation.

These models represent the potential strategies and direction companies may take.

Technological impact

Technological advances are foreshadowing breakthrough opportunities in medicines and business models. In August 2015, the FDA approved the first 3D-printed drug, Spiritam, developed by US-based Aprecia Pharmaceuticals. Used in treatments for epileptics, Spiritam is made by layering powdered medicine with liquid to create a pill that dissolves almost instantly when taken with water.

By making the pill easier to swallow, more patients will stay the course with their treatment. But the implications of the technology are potentially even greater. It may be possible to localise production ‘to order’ in the dosage form best suited to individual patients. The therapeutic combinations needed to manage a specific patient’s comorbidities might be made in a single dose to aid compliance and lessen medication errors. Visualise streamlined ordering and manufacturing processes, and delivery within hours that would disrupt traditional retail pharmacies, pharmaceutical generics, therapeutics distributors, and patient adherence services.

Another technological advance is a cloud-based, data-driven digital health solution for hospitals to help improve patient outcomes and reduce costs to treat patients with chronic cardiovascular diseases.
It is designed to help providers make proactive and informed decisions based on insights into the patient population, ultimately improving the care a patient experiences from hospital stay through post-discharge care and in-home support.

These two examples are illustrative of how technologies surrounding the patient and interconnecting a previously disconnected healthcare ecosystem are transforming value in healthcare and demanding the new disruptive models.

Fortitude required

Executives will need persistence to shape the healthcare environment and transition successfully. They will have to explore business and operating models that go beyond their traditional products or services. They will have to consider questions of privacy and use of sources of data for the benefit of the patient, advancing new levels of trust and operating competence.

Internal company operations will need to be integrated, with responsibilities to patients as the priority. Collaborations founded on trust and courage may even prove as important as having economic fundamentals and a winning business model.

The move to a value- and outcomes-based healthcare system will make the system a proactive force for health maintenance and health solutions. The next few years are crucial for companies in transition, as they are buffeted by a changing healthcare ecosystem, market pressures, and regulatory demands.