We are about to witness a revolution in healthcare enabled by technology that will be able to manage and modify medication, monitor compliance and trigger reimbursement. This revolution is being prompted by Health Technology Assessment agencies, facilitated by new commercial models and pursued by new entrants into the healthcare arena.
Drugs accounting for many billions of dollars in sales are due to reach the end of their patent life over the next few years, opening up the market to generic competition, triggering price and margin erosion. Meanwhile, product development pipelines are weak, and the industry is increasingly relying on mergers and acquisitions, emerging markets and reformulations of existing molecules to sustain sales and boost pipelines.
The industry also faces external cost challenges driven by ageing populations in developed countries and increasing patient expectations, which are placing a growing cost burden on healthcare systems, whether they are universal social providers, such as the UK’s National Health Service (NHS), or privately operated insurance systems, such as in the US. The problem is that healthcare costs rise with age, while the ability to pay generally diminishes, particularly once people have retired.
Drugs account for only a small proportion of the overall healthcare bill (approximately 10%), but are an easy target for cost cutting. The news headline from the UK’s BBC in 2008 cites a typical example of the problem: “Call to curb rising NHS drug bill: More must be done to curb NHS spending on prescription drugs in England, which has more than doubled in a decade to £8.2 billion a year, MPs say”.1 In recent years, the increase in health spending has outpaced the increase in GDP and will eventually reach the point where we can no longer afford to pay.
Choice of treatments and equivocal efficacy
One challenge for healthcare providers is in managing the choice of treatments available. Often, it is not immediately obvious which course of treatment is best for the patient, as clinical efficacy evidence can be ambiguous and the costs of competing therapies can vary substantially. For rheumatoid arthritis, for example, which affects about 1% of the population,2 there are numerous drugs available that will alleviate the symptoms and even halt disease progression. However, they range in cost from approximately €0.6 per week for an older, generic treatment such as methotrexate, which, while generally effective, can have some severe side effects, to more than €220 per week for some of the newer biopharmaceutical therapies. The more expensive therapies work exceptionally well in many patients, but the doctor has to decide whether to spend less than €60 per year or commit to more than €11 000 per year for a single patient. This is not a one-off cost either; once started, it is likely that patients will be taking the therapy for the rest of their lives.
The increase in the cost of therapies has given rise to the need for Health Technology Assessment (HTA) agencies in the developed world. The UK’s National Institute for Health and Clinical Excellence (NICE) leads the field and primarily uses the Quality Adjusted Life Year (QALY) afforded by a treatment to decide whether it should be reimbursed. This evaluation is usually (although not exclusively) made at the patient population level. Unfortunately, many treatments do not work in many patients. “The vast majority of drugs — more than 90% — only work in 30–50% of people,” Allen Roses, Worldwide Vice President of Genetics at GlaxoSmithKline (GSK) once said.3 “I wouldn’t say that most drugs don’t work. I would say that most drugs work in 30 to 50% of people. Drugs out there on the market work, but they don’t work in everybody.”
However, it is now increasingly technologically possible, and economically desirable, to single out patients where the treatment is working and to identify those where it is not. The evaluation of drug cost effectiveness can then be made at the individual patient level and the payer can reject reimbursement when the treatment is not successful. The first drug this model was adopted for was Millenium Pharmaceuticals’ Velcade (bortezomib), a treatment for myeloma (bone cancer). NICE states: “the manufacturer rebates the full cost of bortezomib for people who, after a maximum of four cycles of treatment, have less than a partial response”.4
A few treatments also have companion diagnostics; for instance, Herceptin, Genentech’s treatment for breast cancer, is only effective in 20–30% of patients who have Her‑2 positive cancer. Consequently, there is a test before the drug is administered — this is the first step towards genetic classification of patients and personalised medicine. However, it does not make the linkage to payment for results, as the manufacturer has paid for the companion diagnostic whether the results are positive or negative, and for the drug, even if it fails to work in a Her‑2 positive patient. The cost of the drug is approximately €1340– 2700 per month, depending on the dose.
We are about to witness a revolution in healthcare enabled by technology that provides individual patient information; it is prompted by the HTAs and facilitated by new, evolving commercial models. As is commonly the case, development within one sector is often driven by developments in another, seemingly unrelated sector. In the future, drugs, devices, diagnostics and data communication will coalesce and be integrated to enable reimbursement to be based on outcomes in individual patients. Information will be used to manage medication, monitor patient compliance, modify treatments in response to real-time diagnostics and trigger reimbursement. This is all driven by the integration of electronics and the generation, communication and analysis of data in near real-time. Increasingly, the same technologies will also provide patient coaching, education and stimulus. The industry standards for interoperability are already emerging to enable communication of devices from a variety of suppliers, removing barriers to entry and reducing costs.
The management of diabetes and other long‑term conditions is an early example of where this might happen in the near term. In diabetes, for instance, insulin, blood‑glucose measurement and other diagnostics are being integrated with multiple options for automated or direct intervention by the healthcare provider to deliver cost-effective healthcare based on outcomes. This is an integration of diagnostics with dosing data and may be facilitated using existing communication channels (mobile phone, smart metering etc.). The data can be collated and analysed, and reimbursement given to the blood‑sugar concentration management service provider dependent upon patients managing their blood-sugar within predefined limits. The subsystems required to enable such services are all currently available, but it is regulation and reimbursement that are the remaining barriers to this transformation.
The regulatory environment in particular will be the main catalyst for change. HTA agencies are evolving to determine reimbursement based on cost effectiveness and how the patient’s quality of life will be improved by the treatment on a population level. However, this is showing signs of evolving to payment on a patient‑by‑patient basis, especially for expensive treatments for life‑threatening diseases such as cancer. Such outcome‑based payment requires the management of compliance, outcomes monitoring and data analysis, which will be facilitated by technologies from other sectors. At the moment, there is a lack of relevant expertise within existing pharmaceutical, diagnostic and medical device suppliers, but this presents an opportunity for new market entrants who can source and integrate the necessary technologies.
Evolving commercial models and the value of data
The era of delivering treatments to patients for whom the therapy is at best ineffective, or at worst harmful, is coming to an end. In 30 years’ time, swallowing, injecting or inhaling an active product without a means of determining its effect and, hence, how much to pay for it will be the exception rather than the rule. The rule will be driven by the status of one’s condition and personalised assessments of safety and efficacy of the treatment in the individual, combined with monitoring and feedback to show whether the supplier should be paid or not. Diabetes management, for example, will not be reimbursed based on supply of syringes, needles, blood glucose meters, insulin, etc. In future, a service provider could be reimbursed for maintaining their cohort of patients within predefined blood glucose targets.
In the above situation, it is the data that are of prime value and other components are reduced to commodities, where the pharmaceutical companies may bid for supply contracts, region‑by‑region, on the basis of lowest cost, and where the integrator — potentially a provider of telephony or web services — delivers an integrated approach to health. Supplier margins will be squeezed by the need to provide healthcare services at the best price, while also delivering returns to the shareholders of the integrator.
For example, many patients with blocked arteries get a stent rather than a quadruple heart bypass. Which is the most cost-effective treatment? And how is it possible to balance the risk, recovery time, quality or duration of life to determine the best approach for each patient? In the US, is it worth a health insurance company investing in a hip implant that lasts for 25 years, rather than the usual 15–18‑years, when the average patient, via their employer’s health insurance scheme, switches to a different insurance provider every few years? These remain moot points, but first movers will have the opportunity to define the future of the revolution.
New entrants in the industry
Broadly, clinicians have three main ways to diagnose symptoms in the body:
chemically (drugs and blood tests) fulfilled by the pharmaceutical and diagnostics industries
physically (orthopaedic implants and blood pressure measurements) supplied by the medical devices industry
electrically or other energy (pacemakers, ECGs, radiation and medical imaging).
These technologies are already beginning to be combined in products,5 a process known as technology convergence, and in future will include communications devices to collect, analyse and disseminate information about the patient’s status.
A number of companies are entering the healthcare industry at different points in the supply chain in order to take advantage of convergence and to extract value from the supply and use of information. Many of these are not small‑time start‑ups, but global giants such as Google, Intel, Microsoft and Cisco, who are now looking to healthcare as the next growth opportunity. It is not yet clear which companies will win and how the industry will look in 20 years’ time. However, it is clear that a company selling chemicals or little bits of metal, which only may make you better, will be unlikely to dominate healthcare in the future.
1. BBC News, “Call to curb rising NHS drug bill” (January, 2008). http://news.bbc.co.uk
2. World Health Organisation, “The global burden of rheumatoid arthritis in the year 2000” (2006). www.who.int
3. The Independent, “Glaxo chief: Our drugs do not work on most patients” (2003). www.independent.co.uk
4. NHS, “Bortezomib monotherapy for relapsed multiple myeloma”(October, 2007). www.nice.org.uk
5. MedApps Mobile Health Monitoring www.medapps.net
Ian Rhodes is head of the technology healthcare group at PA Consulting. Bob Damms is technology healthcare expert at PA Consulting Group.
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To read a previous article by Ian,and Bob in Pharmaceutical Executive Europe, Aug 2010, click here.