I did read a tweet from Bernard J. Tyson “Why Pharma Must Change Its Model”. The article had my interest as in The Netherlands you see similar movements.
It’s time to re-examine how the prescription drug market is operating. We must work towards affordability. http://t.co/q1X0T5EkTg
— Bernard J.Tyson, CEO (@BernardJTyson) 30 July 2015
I liked his analysis and would like to add some thoughts.
The forces at non-mutual interests
Imho this is the point: “The forces at non-mutual interests” and especially non-mutual.
Let me explain.
We have stock-exchange companies which are primarily sent on increasing shareholder value. Thus, under every action taken one can hear and feel the meaning: “Show me the money”. Which is understandable as that is what a shareholder is aspecting.
And those companies have customers acting in the public area, for example hospitals.
The hospital’s main task is to help patient in the best way they can. Mainly with a difficult budget system. They use Government prices and further they need to negotiate every year with the healthcare insurance companies regarding their “selling” price for a number of hospital treatments.
Due to the way how hospitals do function financially, one can see some differences and changes in time:
- Not buying a stone-crusher but hire it pro treatment
- Not buying capital equipment anymore but only disposable pay and have the equipment “for free”
- Kit-packing solutions for OR (like Allegiance / Cardinal Health): to reduce hospital stock, logistic movements, lower disposable product prices through smart use in several kits, reduce setup time etc.
All kind of business/operational solutions are developed to follow the forces within the hospital marketplace. Mainly driven from a cost point of view. You cannot blame the industry as they do follow the doctor and hospital administration.
And it goes truly further
In The Netherlands you have the cost of sterilization and sterilization safety issues (like prions). So one can argue to shift to disposable components from a treatment time, cost or safety point of view.
However, in Belgium they don’t.
The costs of sterilization is within the hospital budget. As disposables are payed from a different budget. So a doctor has no motivation or financial possibility to consider other options from his professional point of view.
- The supplier (stock exchange company) needs to show (higher) shareholder value
- The hospital shows KPI’s, turnover, the volume of patients and kinds of treatments performed
Bernard Tyson stated:
“In an integrated system like Kaiser Permanente we see the entire health care dollar, so we can assess the outcomes of new drugs and related costs over time.”
If you want to change you do not want to have the current mechanics/reflexes anymore.
So one must see the added value in relation to volume, the total hospital treatment traject and mainly the end result which determine the buying price.
- Now you have a different dynamics of pricing and negotiating
- A supplier delivers everything for a treatment (like the kitpacking tray for OR’s)
- The supplier manages in costs and product optimization in the total treatment
- The hospital reduces suppliers
- Hospital admin/logistic pressure reduces
- Responsibilities are deeper in the chain laid back
- There is more sent on added value and knowledge input. The doctor is still medical responsible.
- The treatment tray supplier is build patient specific (JIT)
And most of all:
the supplier now truly has a mutual interest. In this integrated system we see the entire health care dollar, so we can assess the outcomes of the treatment and related costs over time.
Of course there are still a lot of questions:
- Is everybody in those marketplaces willing to change?
- Can this type of workflow be managed, also from a responsibility and legal point of view?
- Will the Government support this change?
- Are the own interests of the parties in the marketplace sufficiently covered?
I would like to end with the same 2 alinea’s from Bernard:
This is just a start. The conversation should include ways we can reward the value these companies bring to our members. At the same time, our goal should be to incent new innovation rather than reward yesterday’s advances.
The choice is clear. The focus on providing value to each and every consumer means embracing reform and setting prices that reflect what’s truly needed to optimize innovation. The reward would very likely be sustainable success over the long term for everyone in healthcare.
Do you want to improve non-mutual interests in your organization?