Mehta Analysis: Shaming Biopharma managers

President Kennedy successfully persuaded US steel industry executives to manage their price increases responsibly for the collective good by shaming them from his pulpit. Would such a bully pulpit offer an effective answer to balancing the biopharma budgets? Let us fast forward two generations from the early 1960s to assess what has changed.

First, self-interest has gained primacy today, at the same time as bipartisan decorum and the sense of common good have declined. The ability to publicly shame an individual or a company, let alone a whole industry, in this environment is open to debate.

Second, with the US healthcare industry accounting for 18% of domestic GDP (and a still considerable 10% of GDP in the rest of the world), multiple stakeholders have a lot to lose, making it challenging even for a president to target such a diverse group with conflicting self-interests. (In fact, as we write this, reports from Washington indicate that a president who had called for price controls and drug importation while accusing the biopharma industry of getting away with murder has now succumbed to the same lobbying that tied his predecessors’ hand. It appears that the centerpiece of this administrations stick for the biopharma industry will be nothing more threatening than a mild reform in the form of value-based pricing.)

Third, drug costs account for less than 3% of the GDP in the US and most other major markets, even though biopharma is a more tractable target with a few dozen major players. So a bully pulpit is unlikely to make enough of a difference in solving the healthcare cost problem.

At the core of the matter, it is not so much a question of what percent price increases are appropriate. The real challenge for a healthy society is to ensure that all of its citizens have access to reasonable healthcare, including the benefits of ongoing innovations, and to do so without bankrupting the system, or starving other essential services, such as education and other infrastructure and cultural opportunities that add up to a healthy quality of life.

Whether this essential goal for any good society can be met by a particular form of healthcare system is a topic for another set of columns. It goes without saying that it is not possible to actually lower healthcare costs in an ageing society that is fortunate to benefit from an accelerating flow of innovative therapies.

 The perennial objective therefore is managing overall healthcare costs, and biopharma cost spikes within these costs for their growing share of healthcare cost inflation. To date, the complexity of healthcare systems globally has led to a patchwork of ‘Band-aids’. A holistic solution remains even more elusive than a comprehensive tax system reform.

Time is rapidly approaching, however, when legislators, managers, academics, and in fact all stakeholders will be compelled to find a holistic solution as the only path to maintaining a healthy quality of life.

In this approach, there are many more levers to apply to the challenge than just the bully pulpit; all anchored around both information technology (IT) and life science innovations that call for a clean slate approach to deploy the tools that modern technology has ushered in.

The contribution of IT in transforming our lives is experienced moment by moment by all of us; though its value in applying our vast data trove to drug discovery and development is only beginning to be realized. These tools promise even more dramatic benefits in healthcare delivery. Innovative online personal behavioral modification for a better health and a more fulfilling quality of life, for example, may well be the single most important opportunity for cost-effective healthcare. Beyond such IT innovations, the post-genomic life science transformation is gathering momentum. It is quite likely that the impact of life science breakthroughs on our society over the next two generations will be greater than that which IT has had over the previous two generations. We have seen early cures for more accessible targets, such as HCV and certain cancers, and many more have become manageable chronic diseases rather than a death sentence. The sum total of this progress is even greater demand for healthcare, and at a much higher unit cost – and the innovation cycle has only just begun.

Payer groups are responding with a variety of pricing pressures, which will only intensify if the US government limits its biopharma action to value-based pricing. EvaluatePharma revised its biopharma sales projections down by nearly $400bn over the next five years, primarily because of these pricing pressures, in what is likely to be the first of such tapers.

Value-focused price negotiations will expose one of the more difficult challenges facing biopharma, namely, its legacy structures with their entrenched costs – how the industry operates and carries out its discovery, development, sales and marketing functions. Perhaps that is where the blended impact of IT and Life Science innovation will provide disruptive answers, wiping the slate clean and creating a brand new way of delivering innovative and effective healthcare.

The first steps, not surprisingly, are being taken by non-industry players – thanks to their freedom from entrenched costs, and their ambition to leverage their IT power to find completely different pathways for biopharma innovation will make up for their R&D inexperience. The changes being ushered in by the new US FDA commissioner Scott Gottlieb to reduce regulatory risk (per his testimony to the US Congress on June 20th) will benefit all companies, but those with a fresh perspective may benefit sooner. Such bold regulatory refinements are likely to win bipartisan support over time, changing cost calculi that may prove catalytic for system wide acceptance of IT and LS innovations that disruptively push out entrenched costs.

The ultimate shift will happen when such new initiatives add up to a fresh framework for delivering and procuring healthcare.

This column originally appeared on Scrip Pharma Intelligence, June 28th, 2017

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