01/22/2015

Doubling down: The new focus for pharma


by Homi Kapadia, Vice Chairman, U.S. Life Sciences Leader, Deloitte LLP

The trend of “pure play” business strategies is rising in popularity and redefining the way many life sciences businesses compete in the broader health care market. And for many, this focus and simplicity is paying off. A focus on fewer therapeutic areas yields higher returns, according to recent Deloitte research. But smaller can often be more difficult and it doesn’t work for everyone. What should business leaders leaning toward a pure play approach to the marketplace first consider?

Steve Jobs was said to have built his career around the mantra of focus and simplicity. Both are important for companies in any industry. While the life sciences sector seems to be in a perpetual state of change and adaptation, one trend over the past year or so has caught my eye. And it pertains to exactly that: focus and simplicity versus breadth and portfolio diversity.

Amidst all the change and adaptation in the sector, “pure play” business strategies are rising in popularity and redefining the way many life sciences businesses compete in the broader health care market.

Over the last year, many of the major life sciences companies have begun re-aligning to develop specific and separate operating companies—ones that play to their market strengths. In essence, these companies are concentrating more than ever on what they do well, and more importantly, what their customers, alliance partners and investors think they do well. They are “doubling down” in select areas that they have primary “brand permission” and divesting other areas.

The move toward refining the business model and focusing on fewer, more specific therapeutic areas hasn’t been driven primarily by changes in national health care policy and legislation or by regulatory pressures. It’s also not strictly a result of new strategies forced by the Great Recession. There are other factors at work. For example, the cost of research and development (R&D) is increasing as companies strive to replace products that are approaching their patent cliff. This trend is fundamentally rooted in the basic and increasing need to show value—to become identified and known for a specific brand in a particular market. It can be hard to do this really well when a company has many competing priorities for several different types of businesses and they’re not necessarily known as a market leader in all of them.

Some companies are spinning off new enterprises and businesses that are targeted to specific therapeutic areas or types of customers. Others are forming separate standing companies so that efficiencies and savings can be achieved across the entire value chain. This is crucial in a time when national health care expenditures continue to grow (the latest calculations project more than 5 percent growth in health care in 2014) and consumers face even more out-of-pocket spending.1

There is a lot to gain for those who make the move toward a more pure play strategy. Having deep therapeutic area expertise can help drive more effective conversations with health plans around pricing, reimbursements and market access. Smaller, more flexible companies could avoid some of the complexity and bureaucracy challenges that are more prevalent in larger companies and which often overshadow the benefits of scale. More agile companies may also be more apt to place emphasis on simpler systems and data interoperability. Companies that achieve the most successful outcomes may be those that match pure play strategies with a focus on patient support, disease management and demonstrating positive outcomes to health care providers that are moving from volume to value.

Is this a smart move for organizations, or could it be too big a risk for some? It may be too soon to say definitively, but it could be a game-changer for many companies. Deloitte’s recent research, Measuring the R&D Return on Investment, discovered there is a compelling business argument for focusing on a specific product or line of research. Interviews with industry leaders on their business strategies found at companies with four or fewer therapeutic areas were the ones with the best ROI on their R&D investments.

We found that often when companies went beyond four therapeutic areas, their return actually diminished. Our take was that it could be a sign that a company’s mission was unclear or perhaps too fragmented, or that their brand recognition wasn’t as crisp.

So, while breadth and scale continue to be a successful model for some well-known life sciences enterprises, it doesn’t work for everyone. Business leaders leaning toward a pure play approach to the marketplace should consider the following:

  • · Does the business have the brand recognition in the given therapeutic field to out-perform the competition?
  • · Has organizational leadership undertaken sufficient risk assessment before making the move?
  • · Is there enough capital available to sustain the transition to a pure play business model?
  • · Is there leadership in place committed to making this change in competitive approach?

These are important, timely questions to address. The fact is, for companies that believe their value rests in being sharply focused businesses as part of a larger whole or operating on their own, this path can make sense in a shifting industry environment.

It may be a bit early to tell whether it’s a trend that works for many companies reconsidering their business model and whether it’s a good development for the industry, for individual organizations and for the consumer overall. That said, there is one thing on which many can agree. As Jobs said, “Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But it's worth it in the end because once you get there, you can move mountains.”2

Read the entire Health Care Current here and subscribe at: www.deloitte.com/centerforhealthsolutions/subscribe.

  Homi Kapadia Sign

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Sources:
1 Andrea M. Sisko, Sean P. Keehan, Gigi A. Cuckler, Andrew J. Madison, Sheila D. Smith, Christian J. Wolfe, Devin A. Stone, Joseph M. Lizonitz, and John A. Poisal, Health Affairs, “National Health Expenditure Projections, 2013–23: Faster Growth Expected With Expanded Coverage And Improving Economy,” September 2014
2 Business Week, “Steve Jobs: ‘There’s Sanity Returning,’” May 1998

Homi Kapadia, Vice Chairman, U.S. Life Sciences Leader, Deloitte LLPHomi Kapadia is the vice chairman, Deloitte LLP, and leader of its national life sciences industry practice. A principal with Deloitte Consulting LLP, Kapadia has more than 28 years of experience at Deloitte. He has an extensive client-service background advising market-leading organizations in the areas of strategy, operations, enterprise applications and supply chain management, among others

 

01/20/2015

What should businesses be mindful of as they plan for growth?


An interview with Mitch Morris, M.D., vice chairman and U.S./global health care providers leader, Deloitte Consulting LLP; Greg Scott, U.S. health plans leader and vice chairman of Deloitte LLP; and Homi Kapadia, U.S. life sciences leader and vice chairman of Deloitte LLP

 

Question 2

Dr. Mitch Morris: As patient rolls lengthen and networks narrow, providers will need to adapt to a realignment of market forces. Smaller players (e.g., single hospitals, independent physician groups) may be in danger of exclusion from narrow networks. In contrast, market-dominant players are likely to be immune from exclusion and can negotiate from a position of strength. Dominance comes largely from being big, and the need to be big is driving sector consolidation.

Consumers are realigning the health care market, as well, using their increased purchasing power and access to information to drive health care decisions and purchases. Providers will need to identify and employ innovative ways to satisfy the unmet needs of these consumers, who want transparency, value, and convenience. In this way they can help strengthen their consumer relationships to build future brand loyalty and market share.

Greg Scott: Capitalizing on new opportunities, either at home or abroad, will require innovation. Health plans have traditionally not been known as innovators. But in the new and redefined health care landscape, those that innovate – in the form of new products, better technologies, collaborative business models, and enjoyable consumer experiences – will position themselves well for the future. Efficient, scalable and rapidly deployable technology and sophisticated analytics will likely be key for health plans to bring their strategies and consumer experiences to life. Today’s health plan technology is incapable of enabling the strategies needed for enterprise growth and margins tomorrow. Like never before, technology will be a differentiator and health plans making the right bets and investments today will be well positioned for tomorrow. As health plans grow, it will also be important for them to manage the increasing regulatory pressures. Compliance, security and privacy will become more challenging but also more important.

Homi Kapadia: As the health care industry shifts and transforms so, too, must the life sciences sector. In 2015, this may require companies to recalibrate business models and research priorities, and retool commercial practices to better articulate their value proposition. In addition, companies increasingly will need to use real-world evidence to demonstrate a product’s clinical, safety, and economic impact (e.g., comparative effectiveness), and robust data analytics to improve marketing strategies and effectiveness. They should consider M&A transactions to scale up within particular areas of specialization and exit others, and expand into new markets. Organizations also should engage in more proactive risk management and regulatory compliance.

In another key focus area, life sciences companies could improve R&D efficiency, diversify risks and costs and use their human capital better by employing open innovation and other novel development approaches – for example, hosting companies on site or establishing innovation centers that incubate 30-40 companies to broaden future possibilities. In pursuit of innovative new products, they should look to develop patient-centric suites/portfolios of products and services to improve the overall health of their customers. For example, there is growing interest in wearable technologies and sensors to monitor vital signs; digital medicines such as ingestible smart pills with microchips; and novel drug delivery systems.

Read more about the 2015 outlook for life sciences and health care at www.deloitte.com/us/2015lshc_outlooks

01/15/2015

The opportunity in do-it-yourself health care


By Harry Greenspun, M.D., Director, Deloitte Center for Health Solutions, Deloitte Services LP

Like many people, I got caught up in the DIY movement of the 1990s. But I had a somewhat unusual motivation. One day during my neurosurgery rotation, I spent 12 hours in the operating room assisting a complex brain tumor case. As I was driving home that night (in the middle of winter), my car's heater stopped working while the temperature gauge continued to rise. I called a friend, and he immediately diagnosed that the car was low on coolant. I was really impressed, but he said, “It’s not brain surgery.” Having just done it, I knew he was right.

After that, I learned basic auto mechanics so I could do my own preventive care and simple repairs. Still, one day my check engine light came on, forcing me to bring the car to the dealer. For $100, they hooked it up to their computer to read the codes I could not access and told me about the $900 repair they could do for me. I was completely at their mercy.

Over the years, my cars have become increasingly more sophisticated and the data held within them even more elusive. At the same time, however, consumer technology has come much further. Driving home last week, my check engine light came on. Instead of taking my car directly to a mechanic, I plugged a $20 scanner into the port under my steering wheel, connected my phone to it via Wi-Fi, read the code and diagnosed the problem.

Consumerism in health care appears to be following a similar trend. Early emphasis on educating individuals about prevention and wellness is helping to empower them with data to make better choices about the health care providers they choose and the care they receive. Patient advocates have long called for greater participation in their care through access to their own health information (somewhat infamously captured in the music video “Gimme My DaM Data,” in which I was honored to perform).

More recently, consumers have gained access to more sophisticated diagnostic tools: genomics sequencing, home laboratory testing and wearable devices that measure everything from cardiac function to brain activity. A wide array of these new devices were on display at the Consumer Electronics Show last week. This week, companies and investors convene in San Francisco for the annual JP Morgan Healthcare Conference—an event that some have coined the Super Bowl or mecca of the biotech and medical device industry.

The last several weeks have seen a whirlwind of press releases and announcements from companies leading up to the conference, which comprises a myriad of educational and “speed dating” sessions. For those wanting to know where health care is going, this is an opportunity to follow the money. And there is a lot of it to follow. Recent data from Startup Health reflect a 125 percent increase in investment in digital health from 2013-2014, with emphasis on population health and big data/analytics (see the January 6, 2015 Health Care Current).

As innovation marches forward, some interesting – and important – opportunities could come to the surface at the intersection of patients and providers:

  • New and disruptive care models: Innovation expands capabilities, freeing consumers from their exclusive reliance on providers and providers from their reliance on      traditional delivery settings and roles. As the industry shifts toward value, new concepts could require big bets, but they might also result in new ways to achieve greater quality and service.
  • Tools combined with expertise: As any mechanic will tell you, simply knowing how something is done does not mean you are capable of doing it. Similarly, simply having access to information does not mean you are able to process it. Providers go      through decades of training to help them separate the spurious or benign data point from the serious. It is important for consumers to have access to this information, but that information should be accompanied by context.

Amid the excitement and deal making, one should not lose sight of the context in which these companies operate. As consumers have gained access to increasingly sophisticated devices, the regulatory waters have become murkier. Stakeholders will be looking to the U.S. Food and Drug Administration (FDA) and other government agencies to provide clear guidance amid rapidly evolving technologies—this is no easy task. Moreover, investors and innovators will likely need patience and diligence to navigate the complex regulatory environment while achieving impact and assuring safety. Innovation stems from many industries—some that are less familiar with health care’s unique requirements and business model challenges.

Armed with diagnostic codes from my car, I can often assess what work needs to be done and what repairs I should not tackle myself. But when I cannot tackle it myself, I can use available tools to determine what a repair should cost and who would be able to do it. Down the road, I expect to be able to do the same thing with my doctor, and I’m excited to see this week who is up to that challenge.

Read the entire Health Care Current here and subscribe at:www.deloitte.com/centerforhealthsolutions/subscribe.

 

Harry Greenspun, MD, Senior Advisor, Health Care Transformation and Technology, Deloitte Center for Health Solutions, Deloitte LLP

 Harry Greenspun, M.D. is a director with Deloitte Services LP and the senior advisor at the Deloitte Center for Health Solutions. He has held a diverse range of clinical and executive roles across the health care industry, giving him a unique perspective on current and future challenges.

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01/12/2015

Where do you see opportunities for growth in life sciences and health care?


An interview with Mitch Morris, M.D., vice chairman and U.S./global health care providers leader, Deloitte Consulting LLP; Greg Scott, U.S. health plans leader and vice chairman of Deloitte LLP; and Homi Kapadia, U.S. life sciences leader and vice chairman of Deloitte LLP

 

  Question 1

Dr. Mitch Morris on opportunities for growth for health care providers: A significant opportunity in the evolution of the U.S. health system from volume- to value-based care (VBC) is under way, spurred by widespread efforts to control/reduce costs, improve outcomes, and obtain more value for money spent. While this evolution impacts all health care stakeholders, VBC’s future depends most heavily on physicians, due to their integral role in health care delivery.

It has become more common to hear the phrase “get big or get out” as it relates to health care. The need for health systems to aggressively grow, often by rapid consolidation of providers, seems critical to survival. Significant regulatory changes, technological innovations, financial pressures and market dynamics are setting the stage for this type of activity. From 2009 through 2013, hospital deal volume increased 14 percent annually. Physicians are rapidly moving from private practice to an employed model and are being acquired by health systems and health plans. Both vertical consolidation (health systems acquiring physician practices, ambulatory centers, diagnostic centers, home care services, and durable medical equipment and wellness companies) and horizontal consolidation (hospitals acquiring other hospitals) has been increasing, despite heightened regulatory scrutiny.

Greg Scott on opportunities for growth for health plans: We are witnessing unprecedented regulatory, financial and competitive disruption in the health care industry. Roles of players are changing rapidly and strategies that made health plans successful in the past will not likely suffice for the future. While traditional employer group business is atrophying, new opportunities for growth are emerging. The rise of the individual consumer is one example. There are significant opportunities that health plans can capitalize on as consumerism takes shape in the health care industry. Both government (Medicare, Medicaid and dual eligibles) as well as commercial individual insurance are on the rise through public health insurance marketplaces, private exchanges, and off-exchange models. Health plans that understand consumers’ wants and needs, and are able to activate the right behaviors in the right consumers at the right time, will likely prevail and grow in the redefined, consumer-centric health care marketplace. Integration along the value chain also presents opportunities for growth. Collaboration between health plans and providers to drive value-based care and better health outcomes offers tremendous opportunities to expand and increase market share.

In addition to these U.S. opportunities, international expansion also offers potential for growth, even though most health plans are still opportunistic in their global strategies.

In 2015, health plans need fresh ideas and relentless execution of new sources of growth, both organic and inorganic, at home and abroad.

Homi Kapadia on opportunities for growth for life sciences: U.S. life sciences companies operate in a dynamic environment that presents numerous opportunities for growth. To capture these opportunities, companies in 2015 should focus on areas in which they excel, improve areas that are important to achieving their goals, and let go of elements that might be holding them back.

Market reconfiguration and consolidation are driving companies to search for the right scale. This could mean narrowing to a core set of capabilities or therapeutic areas or building them out by acquiring and managing a large portfolio of businesses. Each approach is resulting in an unprecedented level of deal-making in the form of mergers, acquisitions, joint ventures, divestitures, and licensing agreements. In addition, emerging markets are fueling the growth of local companies that are expected to shift the U.S.-centric “skew” of the global competitive landscape and open up new M&A opportunities for U.S. companies.

Innovating in specialty (versus primary care) therapeutic areas may drive considerable pharmaceutical revenue growth in coming years. Meanwhile, some biotech companies are moving to M&A and open innovation models as a way to help overcome organic productivity challenges and spur product and market growth. A number of medtech companies are integrating R&D, marketing, engineering, and other disciplines to more effectively connect customer insights with the biodesign process. In addition, some are looking for ways to wrap health care services (e.g., cellular therapy) around their products.

Read more about the 2015 outlook for life sciences and health care at www.deloitte.com/us/2015lshcoutlooks

01/08/2015

Can health care meet great expectations for 2015?


by Sarah Thomas, Research Director, Deloitte Center for Health Solutions, Deloitte Services LP

For many, the start of a new year brings renewed energy and optimism around resolutions and self-improvement. It is also a time for performance appraisals and goal setting for many businesses and their employees—a time to look back over the previous year and celebrate successes as well as identify areas for improvement. This year, in addition to my personal resolutions, I am focusing on what I’d like to see happen in 2015 that I think could move the health care industry forward and help surpass stakeholder expectations for delivering on value.

Some of last year’s big stories underscored system discontent across the stakeholder spectrum. Headlines like “Out-of-pocket spending continues to burden consumers,” “Hospital Value-Based Purchasing Program has not affected hospital quality performance” and “ICD-10 delayed: What’s next for stakeholders?” rattled the health care industry. As Deloitte surveys have found year after year, too many physicians, employers and consumers grade the U.S. health care system a “C” on its performance. This is not good enough.

At the same time, there was some good news in health care last year. Certainly the continued slow growth in health care spending was one, as was the robust enrollment in health care marketplaces and Medicaid, which helped reduce the rate of uninsurance. Hospitals reduced readmissions across the country.

So in the spirit of the new year and setting expectations for the months ahead, here are some expectations I’d like to see met in 2015:

Value-based care initiatives become overwhelmingly successful
I would love to hear about how accountable care organizations (ACO) are working to improve quality, delight patients and slow the growth in health care spending. I would like to learn what the secret is behind the success stories. Is it analytics? Clinical integration? Patient engagement? My guess is that it may be all of the above and possibly more, but it would be very exciting to see delivery on the promise of value-based care, especially now that 89 more ACOs signed on to the Medicare Shared Savings Program.

Physician payments reformed; Congress passes permanent solution
We most likely will see a “patch” to the sustainable growth rate problem in Medicare; it is certainly what we have seen year after year. Last year, Congress got pretty close to a fundamental change not only to the formula but to physician payment policies. There would have been more incentives for physicians to provide excellent care by working in teams. Although the legislation was supported by both parties in both chambers, it fell by the wayside when it came time to find the budget cuts to offset the increases in spending associated with overturning the update formula.

National health care spending continues trend of slow growth
In 2012, spending grew only 4.1 percent over 2011. It slowed even more in 2013, at 3.6 percent over 2012.1 Many expected spending growth to start picking up as we emerged from the recession, but the continued slow growth has persisted. Experts have attributed the slower growth to different reasons (e.g., the rise in out-of-pocket spending, value-based care initiatives), but I think the jury is still out. The bottom line is that slow growth is good for consumers, employers and taxpayers.

Obesity rate drops; public health efforts show progress
It would be great to see rates of obesity turn around and fewer people experiencing chronic disease. For example, I would love to see the Million Hearts™ initiative deliver on the promise of saving lives and reducing morbidity and mortality. Success might come from consumer engagement efforts, physician focus on exercise and diet discussions with patients or even wider use of wearables. Effective disease management and workplace wellness programs might also lead to positive results.

Next generation of health care tools target consumer behavior
We have excellent platforms that help consumers find restaurants, flights and hotels. Health care is a lot more complicated and people think about it differently than other services. New tools could help consumers choose health plans (e.g., through the insurance marketplaces and private exchanges) and to find doctors, low-cost scans and tests and good deals on prescription drugs. Developers are working on these tools already, but it would be great to see consumer adoption increase. Then we may see an increase in respondents who say they have the programs, online tools and incentives that help them monitor their health and/or make health care decisions.

Supreme Court rules on health insurance subsidies in the federal and state marketplaces; Administration and new Congress work together on health issues
This spring, the U.S. Supreme Court will hear King v. Burwell, a major case that could impact the availability of subsidies through the federally facilitated marketplace (FFM). The plaintiffs in King v. Burwell challenge the government’s authority to issue tax subsidies through the FFM and argue that the ACA only allows the government to provide subsidies to individuals who purchase insurance through a state-based marketplace. While I don’t pretend to be an expert on the legal nuances of the case, I do know that the ruling will make a difference to the millions who are getting access to care this way and to the health plans, providers and life sciences companies who are seeing more customers with this type of coverage.

The midterm elections stirred the pot around Washington. A new Congress with both chambers held by the same party is likely to mean that more bills make it to the president’s desk. But, it’s too early to tell what such legislation might look like. It’s my hope that both parties can come to agreement on some of the major issues facing health care.

Health care makes enormous strides in Ebola outbreak
Last year, the headlines were riddled with concern, heartbreak, a bit of panic and many accusations surrounding the Ebola outbreak in the U.S. and abroad. This year, despite recent flare ups causing worry about more infections to come, I hope that the many efforts surrounding the control and prevention of Ebola pay off and that we begin to see Ebola drop off the news wires. This could come quickly in the new year as policymakers, scientists, researchers and many other stakeholders watch with bated breath as early vaccine trials are completed.

ICD-10 implementation goes off without a hitch in October
Hospitals, states and health plans have worked hard to put new systems into place through training and running simulations. It might be best for policymakers and others to stay the course. I recognize this has been challenging for some physician practices, but ICD-10 could help create a platform for higher quality information that helps stakeholders better understand health care and solve its problems.

New technologies, drugs and products help solve health care’s toughest problems
I saw many promising ideas at TEDMED (see the September 23, 2014 Health Care Current) and heard of many more at Singularity University’s Exponential Medicine conference last month. Deloitte’s surveys of U.S. physicians and consumers are finding that the market is demanding these products, and consumers and physicians are beginning to catch on to the value of mHealth. These ideas have great potential, and I hope many of them catch fire.

Health care industry moves closer to interoperability
Early last year, I attended a briefing on health IT that featured hospital chief information officers. I was struck by how often the theme of interoperability came up. There has been an enormous investment in building up the health IT infrastructure, and health care could benefit from technology that facilitates sharing and communicating information across systems and settings.

If all these expectations come to fruition, it might do a lot to shift course toward a better health care system. I look forward to a year of policy and research, where we continue to learn from the success stories as well as the wrong turns and setbacks.

Read the entire Health Care Current here and subscribe at: www.deloitte.com/centerforhealthsolutions/subscribe.

Sarah Thomas signature

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Source: 1Micah Hartman, Anne B. Martin, David Lassman, Aaron Catlin, the National Health Expenditure Accounts Team, Health Affairs, “National Health Spending In 2013: Growth Slows, Remains In Step With The Overall Economy,” December 2014 http://content.healthaffairs.org/content/early/2014/11/25/hlthaff.2014.1107.full?sid=9e390584-c485-43a4-b818-221e66681afe

Sarah Thomas, Director of Research, Deloitte Center for Health Solutions, Deloitte LLPSarah Thomas is a director with Deloitte Services LP and the director of research for Deloitte's Center for Health Solutions. Sarah has experience in public policy, ranging from reimbursement to addressing issues such as quality in Medicare, Medicaid and the private health insurance market, including health insurance exchanges and marketplaces.She has more than 13 years of government experience.

01/06/2015

Infographic: Measuring the return from pharmaceutical innovation


The Deloitte UK Centre for Health Solutions, in collaboration with GlobalData, has released its latest annual study of the pharmaceutical industry's performance in generating a return from its significant investment in R&D. Based on the 12 largest life sciences companies by R&D spend, this year's report helps industry leaders understand the drivers of successful R&D strategies that are tangible and, most importantly, actionable.

Check out the infographic of key findings below and click here to view the full report.

Deloitte | DeloitteHealth |Measuring the return from pharmaceutical innoation | #CHSBlog

 

12/29/2014

Orchestrating a harmonious health care system


by Bill Copeland, Vice Chairman, U.S. Life Sciences & Health Care leader, Deloitte LLP

Recently my family and I attended a Philadelphia holiday tradition at the Kimmel Center for the Performing Arts—a performance by the largest standalone pops orchestra in America, which also included the POPS Festival Chorus, Philadelphia Boys Choir and a guest appearance of the African Episcopal Church of St. Thomas Gospel Choir.

The acoustics of the Kimmel Center are nothing short of an IMAX movie on steroids, which gives way to goose bumps and holiday magic for two and a half hours. Each instrument in the 70-piece orchestra blended with the chorus in such an incredible way that even the audience sing-along sounded better than Bing Crosby’s best cut of “White Christmas.”

At the center of the stage stood David Charles Abell, a renowned British American conductor who led the group with eye contact, body movements and his magic wand. All of the amazingly talented individuals performed their role in perfect harmony and true fidelity. All remained in sync with their conductor.

It was hard for me not to drift into thoughts of what it would be like for our health care system if we could create that kind of alignment and harmony. Now that the first year of the marketplaces is nearly over and major provisions of the Affordable Care Act (ACA) mostly implemented, it is obvious that health care delivery systems and health care financing players are making strategic choices to better position their organizations for long-term success.

This has never been more true than in 2014. This year, there were nearly 1,400 transactions across the industry, including mergers, acquisitions, trades and divestitures.1 The number of accountable care organizations (ACO) reached an all-time high, as 89 new ACOs joined the Medicare Shared Savings program yesterday.2 In the health insurance marketplaces, 25 percent more health plans signed on to offer products in 2015.3 Along with this, the industry saw continued hospital consolidation, new entrants in health care from retail and financial services, Apple Inc. and Google entering the scene with new technology and major pharmaceutical players divesting and swapping assets to focus on specific therapeutic areas.

While many health care executives see that today’s operating model is not likely to work in the future, many are less clear about how to navigate the changes required to be successful. It is much easier to do nothing than it is to make a calculated risk and invest in a new operating model.

We know from business researchers like Michael Porter, Clayton Christensen and Deloitte’s own Michael Raynor that when the customers’ needs are not met, an industry goes through a period of massive change and disruption. Retail, airlines, banking—these are all good examples of industries that have experienced this restructuring.

Deloitte The Great Consolidation

Restructuring requires great leadership. There are many strong leaders in health care, but health care could benefit from leaders that orchestrate the various instruments of the financing and delivery system to work together harmoniously. We have a complex regulatory maze but that isn’t helping align each of the pieces and players. Today, market leaders make moves without the benefit of an industry vision, a roadmap or even a hint of what is to come.

Leadership can help align the customers, patients, health care providers, suppliers, life sciences and health plans so each fits together like a system, focused on cost, quality and service. This would be magic.

The question is, who can provide that leadership? Maestro, please!

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Read the entire Health Care Current here and subscribe at: www.deloitte.com/centerforhealthsolutions/subscribe.

Sources:
1 FactSet Research Systems, Inc.
2 CMS, “Medicare Shared Savings Program Accountable Care Organizations,”http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/MSSP-ACOs-2015-Starters.pdf
3 HHS, “Health plan choice and premiums in the 2015 health insurance marketplace,” December 4, 2014, http://aspe.hhs.gov/health/reports/2015/premiumreport/healthpremium2015.pdf

 

Bill Copeland, Vice Chairman, U.S. Life Sciences & Health Care LeaderBill Copeland, Vice Chairman of Deloitte LLP, is a 27-year Deloitte veteran and leads the US Life Sciences & Health Care Practice. Previously, Bill was practice leader for the health reform initiative, focused on serving clients’ needs around the incredible changes resulting from the Affordable Care Act. He was also National Managing Director of Deloitte's Life Sciences & Health Care Industry Consulting Practice and managed the Health Plans Consulting Practice.

12/22/2014

Are pharma R&D returns turning a corner?


by Karen Young, Senior Research Manager, Deloitte UK Centre for Health Solutions

Recently the Deloitte UK Centre for Health Solutions launched their latest annual report on “Measuring the return from pharmaceutical innovation.” Since 2010, the Deloitte UK Centre for Health Solutions has been measuring the projected returns that the 12 leading life science companies are likely to deliver from the drugs they are developing in their late stage pipelines.

Despite an overall decline in R&D returns, from 10.1% in 2010 to 5.5% in 2014, the analysis shows that R&D returns may actually be turning a corner. This year, they estimate late stage pipelines returns for the cohort of companies to be 5.5%, representing an uplift from 5.1% in 2013. The most successful of the 12 companies in the analysis had an estimated R&D return of 11.7 percent in 2014; the lowest R&D return for an individual company was estimated to be -0.7 percent.

Over the last five years, the 12 companies have launched, in total, 143 products with projected total lifetime revenues of $955 billion. Over the same period their R&D divisions have progressed 236 assets into their late stage pipelines, with projected, total lifetime revenues of $1,171 billion. This is no mean feat considering the continuing market hurdles they face including ongoing austerity measures, increasing complexity of regulatory scrutiny, and the scientific uncertainty in being able to address unmet need successfully.

Many of the companies in the cohort are negotiating these hurdles successfully and are continuing to populate their late stage pipelines with promising new compounds and bring new medical innovation to patients. However, the analysis reveals that challenges remain:

  • The cost of bringing an asset to market, including accounting for failures, has risen for the fifth consecutive year to $1,401 million
  • Late stage terminations continue to cost the industry dear - across the cohort, for every $5 that has been launched, $2 has been lost to failure.

This year’s findings indicate that the quality of assets in late stage development is improving. For the first time since 2010, the average forecast revenues of an individual asset have increased, regaining most of the ground lost since 2012, and the average forecast peak sales per asset have also recovered slightly, by $5 million since 2013.

The dynamics behind the uplift in R&D returns are complex with wide variations at the individual company level. This year, the analysis focused on identifying characteristics of outperformance; what is it that sets apart those companies that are delivering higher than average returns? The study found that size matters, as does therapy area focus and that assets acquired from external sources of innovation (for example via acquisition, co-development/joint venture, or licensing) have higher projected peak sales compared with assets developed internally.

Company size matters - the analysis reveals that the larger the company, by revenue or R&D spend, the greater the cost to develop each asset and the lower the returns. In addition, companies that pursue a large, broad portfolio of assets, without rigorous portfolio management and discipline, add significant cost without delivering adequate returns. Legacy investment burdens on larger R&D organizations may be one explanation. Furthermore, the sheer size, complexity, and bureaucracy prevalent within some larger life sciences companies may be overshadowing the benefits of scale.

A focus on four or fewer therapy areas delivers better returns - the results show that those companies focusing on four or fewer therapy areas are forecast to deliver better returns from their late stage portfolios. A strong therapy area focus appears to provide companies with an in-depth knowledge of disease biology and a comprehensive disease management-based view, instead of a product-based view. Deep therapy area expertise also drives more effective commercial conversations with payers when negotiating price, reimbursement, and market access.

Externally-sourced assets have higher, projected peak sales - three quarters of the companies in the cohort generate the majority (on average 58 percent) of their forecast late stage pipeline revenues from intellectual property that is acquired externally. The analysis also shows that forecast revenues from externally sourced assets, on average, are six percent higher than assets which are self-originated. For those drugs with orphan or breakthrough status, the difference is significantly higher; 20 percent higher for drugs with breakthrough status designation and an impressive 54 percent higher for those with orphan drug status. These results highlight the importance of innovation strategies founded on collaboration, networking, and asset acquisitions. The ability to engage in and subsequently manage strategic alliances effectively is a critical success factor in life sciences R&D.

The life sciences R&D ecosystem is undergoing a transformation that has forced the industry’s biggest players to reinvent how they access, foster, and commercialize innovation. The findings indicate that some of the top 12 companies are further through their reinvention than others and, as a result, are delivering leading returns. Innovation strategies founded on collaboration, networking, and asset acquisitions continue to grow in importance and impact; indeed, the ability to effectively engage in and subsequently manage strategic alliances is a critical success factor in life sciences R&D. What is clear, is that the ability to collaborate across the industry and with all stakeholders remains the imperative if returns are to continue to improve. Companies need to consider if they have invested in capabilities that make them “collaboration ready,” including the talent, processes, infrastructure, and data required to collaborate effectively for the long term without eroding the value acquired.

 

This post has been adapted from the original post on the blog Thoughts from the Centre - which provides a personal take on topical issues impacting the health care and life sciences sector powered by Deloitte’s UK Centre for Health Solutions.

12/18/2014

How do we incentivize innovative, patient-centered care?


by Mitch Morris, MD, Vice Chair and Health Care Provider Global Leader, Deloitte Consulting LLP

For many years there has been criticism of physicians who racked up larger incomes because reimbursement has been based on volume (the number of visits and procedures) rather than value (whether patients got better).

In the U.S. health care system, emerging payment and health care delivery models emphasize good outcomes. Outcomes tend to be measured based on the entire group of patients under the physician’s (or health system’s) care rather than what happens to an individual patient. But in a recent New York Times op-ed piece, “How Medical Care is Being Corrupted,” Drs. Pamela Hartzband and Jerome Groopman at Harvard Medical School stoked the fears of consumers by suggesting that measures used by regulators and insurers in these models were designed to “coerce” physicians into providing inappropriate care driven by evidence-based practice.1 Concern about new models is also something found in Deloitte’s 2014 Survey of U.S. Physicians; most physicians (78 percent) prefer to stick with the traditional payment approaches.2

How many patients can I see today? How many knees can I replace in a week? How many stents can I insert this month? In general, the health care industry in the U.S. seems to be taking baby steps in its evolution from traditional fee-for-service payments to more payments based on value. Today, physicians are sometimes judged by the ambiance of the waiting room instead of the quality of their work. Today, the traditional approach to reimbursement is doing little to reward good outcomes.

While I believe that hard work should be rewarded, I also believe the industry could do a better job of rewarding good outcomes. If a physician takes care of people with diabetes, it is reasonable that he or she be measured by how many of those patients have good control of their blood sugar as measured by a simple blood test. And physicians who care for women with breast cancer could be gauged by how often the patient receives the treatment that randomized studies demonstrate could be their best chance for a cure.

The best care may be based on the individual patients’ needs in the context of what is most likely to result in the best outcome. And many physicians agree: Deloitte’s 2014 Survey of U.S. Physicians found that seven out of 10 physicians acknowledge the importance of being capable of closely integrating clinical care, data analytics and consumer engagement to improve patient health.3

We know that a middle-aged man with high cholesterol and who is overweight, smokes and does not take low-dose aspirin has a far higher chance of having a heart attack than one who has a healthy weight and doesn’t smoke. I would argue that it’s not wrong to provide an incentive to motivate doctors and health systems to put in place approaches to care that lower the risk of heart attacks. Of course, I also believe that people are responsible for their good health. We are beginning to see health plans try new ways (e.g., lower insurance premiums for those who do not smoke) to financially incentivize people into changing their behavior.

Historically, physicians have not been held financially accountable for the health of their patients and outcomes of their treatments. I believe it is time to change that, but acknowledge that the devil is in the details.

Both the private sector – health providers and health plans – and the Centers for Medicare and Medicaid Services (CMS) are focused on those details. Across the industry, stakeholders are actively working to develop new approaches to rewarding physicians and health systems for care can enable good health for Americans.

Physicians are aware that the shift to value-based care is happening and inevitable. The physician respondents to the survey predicted that value-based payment models will equal about 50 percent of their total compensation in 10 years. But just as patients have needs and preferences about the physicians that care for them, physicians also have needs and preferences for how they practice medicine. And most of them have opinions about what skills they need to navigate in an industry based on value. Physicians were asked which skills they need to possess to successfully practice medicine in the future, and they reported the following as important:

Deloitte infographics

But most (78 percent) physicians remain concerned that value-based payment models may penalize them for factors out of their control and not capture quality improvements achieved outside of performance goals.4 To boost their comfort level and help ease the transition somewhat, physicians say they need expanded clinical support capabilities, comprehensive health IT, access to non-physician staff, managerial expertise and business knowledge and possibly most importantly, fairly structured value-based payment models to support their participation in value-based care efforts.

Transparency is important but I suggest that stakeholders should consider focusing on better understanding which approaches result in the healthiest populations because the old model may not work much longer. Ultimately, incentivizing innovative, patient-centered care by providers and greater engagement by consumers could drive better health outcomes.

Read the entire Health Care Current here and subscribe at: www.deloitte.com/centerforhealthsolutions/subscribe.

 Mitch Morris Signature

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Sources:
1 Pamela Hartzband and Jerome Groopman, New York Times, “How Medical Care Is Being Corrupted,” November 18, 2014, http://www.nytimes.com/2014/11/19/opinion/how-medical-care-is-being-corrupted.html?smprod=nytcore-ipad&smid=nytcore-ipad-share&_r=0
2 The Deloitte 2014 Survey of U.S. Physicians, a nationally representative sample of the U.S. physician population, assesses value-based care (VBC), future of medicine, impact of health reform, and health information technology (HIT). Publications can be found at www.deloitte.com/centerforhealthsolutions. The Deloitte 2011 and 2013 Surveys of U.S. Physicians can also be found at www.deloitte.com/centerforhealthsolutions.
3 Physicians responding “very important”/”important” when asked which physician capabilities will be important in the next 1-3 years as the practice of medicine evolves.
4 Physicians responding “agree”/“strongly agree” when asked about risk-based compensation agreements.

Mitch Morris, MD, Vice Chairman and National Healthcare Provider Lead, Deloitte LLP

 Mitch Morris is the National Leader for the Health Care Provider sector at Deloitte including Consulting, Audit, Tax, and Financial Advisory Services. Dr. Morris has more than 30 years of health care experience in consulting, health care administration, research, technology, education, and clinical care.

12/15/2014

Infographic: 2015 global life sciences outlook


The extended nature of life sciences product development mandates that sector stakeholders adopt a long-term approach to strategic planning, portfolio management, and market expansion. However, organizations must also prepare for and react to near-term challenges and opportunities. Four major trends are expected to capture the sector’s attention in 2015: searching for innovation and growth; changing regulatory and risk environment; preserving and building shareholder value; and preparing for the “next wave.” The resulting challenges and opportunities can be both global and market-specific.

Check out top life sciences sector issues for 2015 in the inforgraphic below.

Click here to download a copy of the infographic and full report.

Deloitte | DeloitteHealth |2015 Global Life Sciences Outlook | #CHSBlog

 

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