However, life sciences companies are also facing an unprecedented range and intensity of challenges. In Europe especially, the global economic downturn has hurt many pharmaceutical companies who have struggled to be reimbursed for their medicines. Reforms introduced by healthcare systems in desperate need of restructuring have contributed to persistent downward pricing pressures worldwide that have unfortunately coincided with a period during which patent expirations continue to wipe billions of dollars off balance sheets.
KPMG’s Global Head of Life Sciences
The industry still finds itself in the press for all the wrong reasons as historical sales and marketing indiscretions are exposed and multi-million dollar fines levied. There has clearly been a cultural shift across the industry but we are at the start of a long process of rehabilitation.
However, our contention is that the industry has not yet properly addressed one of the most pressing global challenges – the rapidly changing healthcare landscape. This is partly understandable given the need to manage patent expirations and retool research and development (R&D) but it is now time to start to consider this important issue. The new healthcare ecosystems focus on value, and reward better outcomes at the same or lower costs. Accordingly, the interests of the life sciences industry could converge with those of healthcare providers and payers in increasingly integrated delivery and financing models, provided the products and services are of sufficient merit.
How should the industry approach this new healthcare landscape? There are broadly two options. First, business as usual but this is an untenable strategy. The historic adversarial supplier model is only going to get tougher. Payers, more active and influential, are rightly demanding a greater degree of evidence before approving or reimbursing new drugs and the relatively easy wins in primary care in developed markets are no longer available in an era of high quality generics for many chronic diseases. In the emerging markets, there are personal income and budgetary challenges, and specialized markets such as oncology are, in many cases, highly competitive.
However, there is an alternative approach for the industry: be part of the solution, positioned as a partner in the system, rather than a supplier to it. Medicines constitute just 10 percent of the total healthcare bill in the US (Figure 1) and 9 percent in the UK. If healthcare systems need to achieve better patient outcomes for less money, significant savings could be achieved from the other 90 percent of the budget, in particular, on the amount of money spent treating people in hospitals. The industry is ideally placed to work with providers and payers to achieve this, not least because better medicines keep people out of hospital, but also because its expertise in market access could be very valuable to new groups of healthcare organizations. Combining the global access infrastructure of the industry with the care experience of providers and risk management experience of payers could create new ways to deliver improved value to the patient. Co-morbidity is a complicating factor that vertical disease models fail to address: the industry could use its extensive disease knowledge to help develop better treatment pathways for the co-morbid patient.
We see three crucial strategies that the industry must consider in the new healthcare environment:
- Understand the customer and what they want
- Reshape R&D to provide reimbursable drugs and devices that deliver shareholder value
- Anticipate shifting power structures in the wider healthcare system
In Part 1 of this report, we first analyze in more detail what is driving the trend towards healthcare ‘convergence’. Next, we outline our vision for more successful partnerships between different stakeholders in the healthcare ecosystem. In Part 2, we expand on the three strategies for future industry success given the new healthcare reality.
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