Strategic Payer Engagement
Submitted by EY, containing excerpts from their 2014 life sciences industry report, Progressions: Navigating the payer landscape.
The business of health care is changing dramatically as the focus shifts to health outcomes and behavioral change. Through EY’s industry-focused approach and worldwide reach, they help clients address the challenges and maintain momentum in a new world focused on making health care sustainable in the biotechnology, pharmaceutical and medical technology verticals.
Faced with an evolving and fragmented payer landscape, our medtech, biotech and pharma clients are asking three key questions about how to adapt: How urgently do we need to adapt? What do payers want? How can we change our business models to succeed in this environment? We answer these questions here, pointing a way forward for companies looking to thrive in the new health care.
The Forces at Work
Health care is being fundamentally disrupted by two megatrends:
1. New incentives. First, payers and systems around the world are grappling with the challenge of putting costs on a sustainable trajectory – a task that is exacerbated by a looming chronic disease epidemic, aging populations, expanding access, and rising expectations for health care in burgeoning middle classes across emerging markets, among other factors. To address these sustainability challenges, public and private payers are increasingly moving from fee-for-service payment systems to pay-for-performance models – no longer paying for volume and activity, but rather for value and outcomes.
2. New technologies. Accompanying this shift is the second megatrend: the emergence of big data and new patient-empowering, information-leveraging (PI) technologies such as social media, smartphone apps, wirelessly connected devices, sensors and more. These technologies are empowering patients with transparent information and giving them more control over their own health. They are also potentially game-changing for managing chronic diseases.
These trends are fragmenting and broadening the health care product customer base: payers in different regions are adopting and experimenting with various incentives and reimbursement schemes; providers are taking on more financial risk via new delivery models; and patients, who have their own needs and preferences, are playing a stronger role as customer, due to reforms that tie patients more closely to the economic consequences of their choices, as well as increased transparency into the quality and costs of the options.
The disruption of health care is also attracting non-traditional entrants from a wide range of industries – information technology, data analytics, mobile telephony, retail trade and others. These companies are being drawn by the tremendous opportunity to apply their strengths to the challenge of making health care more sustainable.
Is Adapting an Urgent Priority?
There is no question that the Affordable Care Act (ACA) is gaining momentum and reshaping the way care is delivered and paid for in the U.S. The law has given stakeholders the incentive to make much-needed changes. Provider groups are reorganizing into new groups (Accountable Care Organizations, patient-centered medical homes) that are reimbursed based on their ability to improve patient care at a lower cost. Patients, long shielded from the financial impact of many of their health consumption decisions, are becoming motivated to behave more like consumers, thanks to high-deductible plans, higher copayments, and increasingly transparent and accessible information.
In France and Germany, recent legislation has created systems in which only the more effective drugs are open to price negotiation, while inferior drugs are reimbursed at lower rates, or not at all. Many other value-based shifts are occurring in other regions around the world.
Many of the approaches that will emerge in the new health care – from common platforms for pooling data, to social network-based apps for interacting with peers and motivating behavioral change, to online disease-specific communities for patient interaction and education – are network-dependent. Once standards are established and networks are built, it will be very difficult for latecomers to enter the market.
Also, moving to new models for delivering and paying for health care involves big investments of time and money. Payers, providers and others are involved in years-long projects to upgrade IT systems, develop common platforms, create reporting systems for stakeholders and more. Once these investments are made, it will be very difficult for late entrants to develop their own offerings, because switching to a new solution would involve significant expense and disruption.
Finally, health care companies need to take seriously the extent to which new technologies and the focus on value create opportunities for disruptive new competitors. Drugs and devices will be competing more and more with 99-cent apps and creative IT companies such as Google, whose contact lens to monitor glucose levels is only one of its health care projects.
Regardless of the ultimate fate of the ACA, the move to value and outcomes is a global movement in which many are deeply invested and that is already demonstrating it can save money and improve health – we think there could be little incentive to stop this train.
What Do Payers Want?
Our recent survey and conversations with payers reveal a number of insights about what payers want and need. In focusing on value, payers increasingly are concerned with the overall and longer-term health of patients. As a result, they want drug and device companies to demonstrate the value of their products using data and analytics that pertain to the entirety of the patient experience. They are also tremendously interested in analyses that have population-level data and can help them identify the budgetary and health trade-offs of different interventions, including competitors’.
At a deeper level, in the case of drugs, payers in a recent EY survey ranked comparative clinical trial data, cost-effectiveness data and real-world outcomes data as the most important types of data for demonstrating the value of a drug. In contrast, in our same survey, pharma companies ranked placebo-controlled clinical trial data as most important. Pharma companies did acknowledge plans to shift their priorities in the next few years to be more in line with payers.
New IT companies are fast appearing that can help drug and device companies with this effort, like Symphony Health Solutions, which has a database with the entire health histories of 170 million U.S. patients, or GNS Healthcare, which uses analytics to turn complex correlations into causal data.
While payers consider pharma data to be vital, fewer than half in our survey consider it credible. This is part of a serious trust gap that extends beyond just data. For instance, only 20% of payers think that new pharma products are significantly differentiated from standard-of-care. Payers indicated that publishing all study findings was the number-one way to close this trust gap, followed by increasing price transparency and participating in real-world evidence or comparative effectiveness research partnerships.
Payers are clear that they want deeper and more enduring relationships with drug and other health care companies – relationships that respect the role of payers and providers and help them address their biggest challenges, such as cost containment and adherence.
This means not only more information sharing, but risk sharing based on a thorough understanding of the needs of patients and providers. For example, we recently helped a company that was negotiating a managed entry agreement in Europe for an expensive new oncology drug. We analyzed more than 300 sequences of treatment for the disease and prioritized them. We then developed a strategy based on a risk-sharing agreement to foster the use of six of the sequences that included the company’s product. The company has now positioned itself as working with the payer on improving treatment protocols for the disease to improve health outcomes. The payer loves it, and views the company as a partner with a deep understanding of patients and the health care system.
Helping payers achieve their goals also means pursuing customer-centric solutions, including being open to adding services (adherence, m-health, decision support). Payers are aware that product companies have a valuable combination of data, product expertise and disease knowledge that could be leveraged to develop services that improve outcomes and reduce costs. Take, for example, the DePuy Synthes Geriatric Fracture Program. The company collaborated with multiple health care professionals to outline a treatment protocol for the entire episode of care for hip fractures and to standardize treatment, leading to reduced stays and improved outcomes. GE Healthcare, Medtronic, and many other device companies are expanding beyond the product. Some drug companies are creating new, independent business lines that improve health care delivery (e.g., Merck’s Vree Health). But companies should note that the door is often open to include services as part of the negotiation over product reimbursement. In Switzerland, for instance, both drug and device companies negotiate with insurers to add services to enhance the effectiveness of treatments. Payers would like to see this become more widespread.
To meet the needs of this broader and more fragmented customer base and play across more fragmented channels (social media, m-health, etc.), companies will need to develop multiple business models simultaneously. Building multiple models across diverse channels to serve diverse customers will require a broader set of skills than companies can hope to have in-house – sophisticated analytics capabilities, social media platforms, customer segmentation experience and more. Much of this will therefore be achieved through collaboration, often with companies from a wide variety of industries – something we refer to as “radical collaboration.”
The challenge is that it is very difficult for incumbents to disrupt their own business models. Disruption typically comes from the outside. To help address this challenge, we have offered numerous paradigms for business model innovation over the last few years, which could collectively be thought of as a business innovation toolkit:
- To facilitate the development of multiple business models, we described a process of commercial trials. Much like clinical trials for drug development, commercial trials would consist of multiple phases, to encourage a large number of experiments, find out which ones work in concept, and then commercialize and scale up the ones that succeed.
- To help identify the best market opportunities for these new business models, we introduced the concept of value pathways. These disease-specific pathways map the patient journey in a certain disease, identify the biggest value leakages (opportunities to improve outcomes) and provide a starting point for identifying solutions for these leakages, often through radical collaboration.
- To help companies think through all the aspects of business models, we suggested they use the business model canvas developed by Alexander Osterwalder. This canvas provides a template for analyzing nine key aspects of every business model.
- To enable the development of patient-centric solutions, we encouraged companies to use lessons learned from the field of behavioral economics, and to conduct “behavioral trials” to customize their offerings.
To help companies succeed in the current payer environment, we’ve recently added a new paradigm to the toolkit: strategic payer engagement. This is aimed at creating valuable relationships with payers and involves four components:
1. Screening payers (and providers) to identify the most relevant markets for particular offerings is the first step. We like to use a geospatial mapping tool to help clients with this. For example, a manufacturer preparing to launch a new diabetes product could start by creating a couple of base layers: analyzing publicly available data on disease incidence and then identifying the payer and provider systems that have the most covered lives for this disease. Then various layers can be added for more information, such as the relationships between different specialists.
2. Segmenting payers according to their values and behaviors then helps the company see which payers might be more receptive and which marketing approaches might work best. This step relies on information such as third-party surveys, interviews and analyses of leading indicators.
3. Sequencing assesses how payers are likely to evolve over time. This helps companies develop a road map for expanding their offerings to other payers. Information such as legislative timelines and forward-looking surveys prove helpful here.
4. Sustaining relationships with payers is then vital. The steps above replace ad hoc experimentation with a deliberate process for identifying, segmenting and scaling up opportunities. But maximizing opportunities, as with any customer, requires sustained relationships. As mentioned above, payers are looking for enduring, collaborative relationships. Big payers also want these relationships to be high-level, sustained by the appropriate senior executives.
Building these relationships requires companies to take three actions to make themselves valuable partners, all touched on above:
- Expand into (customer-centric) solutions. While not all companies will choose to expand into services, it is critical that new approaches are designed to meet the needs of payers – not just to sell more product.
- Develop data-driven insights and interventions. To meet the needs of payers, companies need comprehensive data and analytics that cover the entirety of the patient experience.
- Build trust. The most creative solutions and insightful data will go nowhere if companies are not trusted. Such companies will not be considered serious players in the outcomes business. This is no longer just about doing the right thing, but also about doing the right thing for business.
Your New Business Partner
It’s hard to imagine a more challenging payer landscape. But this is likely to be the landscape we’re walking through for quite some time. Strategic payer engagement, supported by other tools in the business innovation toolkit, points a way for companies to become valuable, trusted partners.
As you think about the power of trust and relationships, we leave you with this quotation from a payer: “We may be choosing between two identical products. The first has inferior rebates but is made by a manufacturer with which we have a good relationship. The second has better rebates but is made by a manufacturer with which we have a bad relationship. I’d still try to work with the company with which I have a better relationship.”