Transforming Life Sciences to Reduce Costs, Increase Value and Improve Outcomes
Recently, I was on a business trip through Asia that took me through Japan, Hong Kong and Western China. The timing was perfect as spring had arrived in all the cities I visited, and my meetings were very enjoyable as I reconnected with co-workers and customers while meeting numerous new people.
I always enjoy my trips to Asia, but this one seemed different. The Life Sciences industry continues to go through a period of tremendous volitivity, and this trip would highlight the current reimbursement challenges across the globe, as I traveled across Asia. It started as I was departing the US where the current administration had been talking about the “astronomical drug prices” in the US and their continued concerns regarding how to reduce the level of reimbursements across the Healthcare market. As a percentage of gross domestic product (GDP), the US has the highest price of healthcare in the world, but is rated in the middle of the pack of mature markets on health metrics, and can no longer continue to spend at its current rate.
Upon arriving in Tokyo, I was greeted to the recent news of an approximate 50% reduction in the price of Bristol-Myers Squibb’s and Japan’s Ono Pharmaceutical’s cancer drug Opdivo while Gilead’s Hepatitis C cure Solvaldi had its price cut by 32%. Further, the drug pricing review board in Japan was transitioning to review all new therapies on a quarterly basis, and all existing therapies on an annual basis to reduce the level of spend across the world’s third largest pharmaceutical market.
As I headed to China, the news was more positive as the pharmaceutical market is expanding with the approval by the Chinese government, to increase the number of drugs covered by the state run medical insurance plans. The second largest drug market in the world announced it would expand the number of products covered to include 2,535 western and traditional medicines, an increase of over 15%, but that the margins for those products would be reduced due to account for the increased volume.
Unfortunately, what’s happening in Asia is not an isolated incident as governments across the globe are no longer able to pay for Healthcare at the current levels of spend. Markets around the world are reducing their reimbursement levels at significant rates that are requiring Life Sciences companies to reimagine their business models, processes and work in ways that create incremental value for the patients, physicians, payers and providers while simultaneously reducing the cost of a therapy, drug or device.
Although this transformation is just beginning for many countries and companies, it’s exciting to see some of the ways organizations are transforming their current processes to improve the value of the products and therapies for patients across the globe:
- Outcome Based Reimbursement: Payers require greater certainty that their capital is having the impact that is intended rather than just simply paying to have a patient consume a drug or product. Further, as patients become more accountable for their own health, they are increasingly more active in the evaluation and analysis of the therapies and treatments available. Today’s technology is now providing the opportunity to create outcome based reimbursements across many of the new drugs and products. For example, many of the new biological drugs provide tremendous innovations, but they also are very targeted to patients who have a specific biomarker. Oncology products like Merck’s Keytruda require a genomic test for a patient’s L-PD1 level as a pre-requisite for taking the drug. Patients with higher levels of the L-PD1 protein are much more likely to have a positive outcome to the test.
- Leveraging Machine Learning: Rapidly evolving technologies are providing the ability to leverage machines across a wide array of process areas. Machines can track a patient’s health metric from a wristband, wirelessly notify a diabetic patient of their glucose levels or follow voice commands in a manufacturing clean room to read back standard operating procedures during a manufacturing process. Machine learning as a science as well as the adoption of connected patients and devices is increasing at a remarkable rate and we will continue to see rapid adoption and growth in this area.
- Enable Operational Excellence: Global regulatory agencies have established operational standards for the manufacture of drugs and devices but many organizations have been reluctant to automate Good Manufacturing Practices (GMP) for fear of non-compliance. That approach is no longer acceptable as organizations must look to improve their quality processes, but in ways that also reduce the cost of compliance. Electronic batch or history records, documents that capture every aspect of the manufacturing process, are still aspirational, but the leading companies recognize the importance of transparency and auditability across the operational landscape and continue to strive to improve in this area.
- Leverage an Outsourced Operational Model: Reimbursement reductions have negatively impacted margins, so organizations have increased the use of third party/contract organizations to reduce the cost of operations. This is a logical response to the margin erosion, but outsourcing in a highly regulated industry like Life Sciences is never easy or simple. The life sciences manufacturer who owns the drug or device patent can outsource the process, but not the regulatory accountability for that process. For example, many Life Sciences companies manage their source to pay processes through Ariba, which allows them to source and buy raw materials, manage the manufacturing of direct materials by third parties that incorporates work instructions including serialized information to meet global pharmaceutical regulations and, most recently, monitor quality processes in real time, in the cloud.
It is truly a remarkable time in Life Sciences and I am excited about the innovations that are and will happen across the industry. Let me know your thoughts and some of the innovations you are witnessing as it would be great to hear about any exciting use cases.