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Rethinking Pharmaceutical Business Models

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ZURICH – The world’s health needs are changing dramatically. Demographic trends, shifting patterns of disease, and strained public funding are placing new burdens on health-care systems. For developed and developing countries alike, the new demands cannot be met if health care continues to operate in the same way. What is required are new business models that spread risks, take a broader view of health, and address the needs of the world’s poorest people.

Demographic changes will present significant challenges for countries’ long-term health planning. By 2050, the number of people worldwide who are 60 or older will exceed the number of children under 15. Moreover, an additional three billion people will join the global middle class over the next two decades, altering the types of health issues that countries will face, and the way health care is financed.

At the same time, non-communicable diseases, such as cancer, heart disease, and diabetes, are rising, while previously deadly conditions, such as HIV/AIDS, are now more treatable and have been deemed chronic diseases.

Keeping up with these changes would be difficult in the best of times. But a stagnant global economy is straining health-care budgets to the breaking point. Governments, insurers, and other health-care payers are becoming ever more concerned about getting value for money. In response, pharmaceutical companies and policymakers are looking for innovative ways to reduce these pressures, not just by developing new drugs, but also by rethinking how the industry operates.

My company, for one, has tested three business models that have shown encouraging results. One involves risk sharing, in which the user pays for the drug only if his treatment turns out to be successful. If it is not, the pharmaceutical company refunds the cost. We have used risk-sharing programs in Germany, where we cooperate with two major payers on the pricing for Aclasta, an osteoporosis treatment. If a patient suffers a bone fracture after treatment (signifying that the drug has not worked), Novartis repays the cost.

The payer benefits from this system, because risk sharing minimizes the cost of failure. The pharmaceutical firm gains as well, because the effective guarantee underpins public confidence in its products.

The risk-sharing model has limitations, though. Some payers find that the system is too complex, especially when trying to define a successful outcome, and that they must wait too long for refunds. Nevertheless, risk sharing is a good starting point from which to develop a fairer and more efficient business model – and one that can be refined or simplified over time.

A second business model brings patients, payers, and health-care professionals together to provide an integrated program to complement treatment for a specific illness. In Brazil, for example, our Vale Mais Saúde program uses this approach to treat chronic obstructive pulmonary disease (COPD), a potentially fatal lung condition forecast to be the world’s third biggest killer by 2030.

In addition to providing Onbrez Breezhaler, a daily treatment to improve lung function in COPD patients, the program provides a comprehensive treatment package covering all symptoms. Patients can receive discounted flu vaccines, nicotine replacement therapies, help in enrolling in pulmonary rehabilitation sessions, and health information sent to their homes. These interventions alleviate symptoms, prevent other illnesses from exacerbating them, and help patients continue their normal daily activities.

But it is in the poorest countries with the least developed health-care systems and weakest infrastructure that new business models are needed the most. In the past, corporate philanthropy has gone some way to help, but such an approach is neither sustainable nor scalable. If companies are to make a significant difference, they must find ways to work with existing health-care systems over the long term.

One way to do this is through social ventures. For example, our Arogya Parivar (or “Healthy Family”) program reaches millions of India’s poorest citizens. It is organized around four principles: awareness, acceptability, availability, and adaptability.

Arogya Parivar raises general public awareness of health issues by training educators to teach disease prevention and treatment in villages, helping some 2.5 million rural inhabitants in 2012 alone. The program reaches more than 45,000 local doctors through a network of 90 medical distributors, ensuring that medicines are available in 28,000 of India’s remotest pharmacies. To ensure affordability, especially to those on a daily wage, we sell smaller, over-the-counter doses. The program is also flexible, adapting medicines, packaging, and training according to the different health and cultural needs of India’s diverse communities.

These three examples demonstrate that, with innovative thinking, we can meet the world’s changing health needs. Pharmaceutical companies are doing what they can – but they need help. Most important, governments, payers, and physicians must come together to test, support, and roll out the best and most cost-effective ideas. Only then can we improve the health of all people, rich and poor alike, regardless of where they live.

Joseph Jimenez is CEO of Novartis.

Copyright: Project Syndicate, 2014.

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