Two years ago, the Global Life Sciences group at
Almost every life sciences company, regardless of their product or offering, will soon be expected to help change behaviors and deliver better health outcomes." EY Progressions 2012: The third place: health care ‒ everywhere (PDF here)
Today, EY released the 10th edition of their "Progressions" report titled "Navigating the Payer Landscape." This year's report digs deeper on that proclamation from 2012 by focusing on the emerging and critical importance of the relationship between big pharma and health insurers (aka ‒ payers).
What has changed is that health care is being reshaped by a move to outcomes and value. This is a revolution led by payers ‒ who are the focus of this year's report. EY Progressions 2014: Navigating the payer landscape (here)
As the life sciences industry (and pharma in particular) focuses on this new landscape, the shift from providers to payers and patients raises an entirely new set of questions.
- How soon will the move to outcomes and value be tangible?
- How does one make sense of complex and changing payer landscape?
- To what extent, and in what ways, should pharma companies move beyond the product?
The report suggests an urgent call‒to‒action around three imperatives that EY believes are critical for successfully engaging the payer community:
- Develop customer‒centric solutions
- Develop data‒driven insights and interventions
- Restore trust
"The focus for this year's Progression report has logically shifted to the payers ‒ which are clearly the most influential of all stakeholders in the evolution of the industry's business model. As the era of the blockbuster drug focus and development comes to a close, we continue to see a big opportunity for what we're calling "radical collaboration" as a way for the pharma industry to develop new relationships with payers, provided they manage to restore the trust needed in such instance. Not all will succeed, but with global pricing pressures ‒ and new transparencies in every direction, the stakes ‒ and potential rewards ‒ couldn't be higher." Patrick Flochel ‒ Global Pharmaceutical Leader, EY
The report also identifies two mega-trends that EY believes are fundamentally disrupting healthcare. The first revolves around new payment models designed to put costs on a sustainable trajectory and the second is new technology designed for big data and the new "blockbuster drug of the century" ‒ patient engagement (as referenced by Leonard Kish here).
The report further emphasizes the disruptive nature of these two trends and suggests that pharma needs to innovate around multiple new business models ‒ simultaneously. These are not skills that pharma typically has (or fosters) in‒house which is where EY introduces the concept of "radical collaboration." The idea here is to accelerate the development of multiple new business models through collaborations with companies from a much more diverse set of healthcare industries and communities ‒ including those from analytics, mobile‒health and social media.
EY also suggests that where Pharma 1.0 was focused on the blockbuster drug and Pharma 2.0 around increasing operational efficiencies, Pharma 3.0 will need to develop multiple business models with new skills around analytics, social media and customer segmentation. As the current blockbuster drug model reaches a financial zenith ‒ the sheer scale of the economics is forcing a strategic shift in thinking.
As we all know, pharma companies are faced with the daunting reality that most of the treatments we develop might never make it to market. As a result, developing a new medicine costs around US$1.5 billion on average and takes 10–12 years to reach patients. But while these costs haven’t gone down, payers’ willingness to pay for drugs at historic levels has. Joseph Jimenez ‒ CEO,
Accentuating the turbulence are the recent headlines announcing mega-deals, partnerships and acquisitions. Here's just a quick sampling:
Merck Sells Consumer Care Business to Bayer for $14.2 Billion ‒ 5/6/2014
Novartis and Glaxo Agree to Trade $20 Billion In Assets ‒ 4/22/2014
The Three Questions Pfizer Must Answer About Its $99 Billion AstraZeneca Bid ‒ 4/28/2014
The collaborative partnerships are also becoming increasingly evident ‒ and necessary.
Big Pharma Opens New Chapter On Big Data Collaboration ‒ 4/08/2014
Big Pharma superteam joins NIH to share data, discover new drugs ‒ 2/4/2014
As measured against the top three EY imperatives ‒ these mega‒deals and collaborative efforts are perhaps the easiest two. The third ‒ trust ‒ is far more difficult and where the biggest disconnect around perception was in clear evidence with the results of an EY survey. For the report, EY surveyed 30 US payers, 30 European payers and 18 pharmaceutical company representatives from a broad range of business functions including market access and managed markets. The results of the survey were summarized in this chart.
Like Progressions from 2012, this 80-page report is comprehensive and represents unique insight from an organization that sees the financial mechanics behind many of the biggest players and headline deals.
Five years from now, whatever the fate of this one piece of legislation [PPACA], payers will be sharing more risk with providers, employers will be more proactively involved in their employees’ health decisions and patients will have more financial responsibility for their health care costs.
Engaging with payers may be challenging, but it is also critical ‒ for the health of patients, the financial health of pharma companies and the fiscal health of health care systems.
EY Progressions 2014: Navigating the Payer Landscape (here)
