[Editor's note: The game has changed. It used to be sufficient to focus on clinical and regulatory strategy for successful product introduction and market access.  Now, the failure to integrate economic value can diminish the chance for market success . We hope you find this article thought-provoking- DPM]

Integrating Healthcare Economics and Economic Value into Business Strategy

Healthcare executives must change approach to drive market access 

and achieve optimal market penetration.

By: Jim Langley

Chair, Healthcare & Life Sciences Practice 

These are exciting times in the Healthcare world as a new "Healthcare Reality" emerges.  Today's Healthcare Executive faces an increasingly complex environment as companies look to launch new products/technologies and grow existing business segments.  Everything from the Affordable Care Act to changing provider models to changing payment systems are increasingly the difficulty of market planning and execution as the number of key stakeholders in the system with impact on Market Access and Penetration expand - and control the access to a market.  The historical model of Market Access depended primarily on the targeted medical endpoint of a device/diagnostic technology/drug compound - its clinical safety and efficacy - and the clinical/regulatory path to get there.  Market penetration curves were then impacted by the resulting regulatory-oriented clinical efficacy data, marketing/sales strategies, key opinion leader networks, distribution channels, and the like.

While these investments/strategies remain a required level of effort, they are no longer sufficient to drive Market Access and bend the Market Penetration curve.  Increasingly, the Economic Value of the technology/compound must be understood, defined, and measured - to the key stakeholders in the healthcare system - and integrated into a Device/Drug company's strategic planning and execution.  Some critical principles that apply here:

1.        Economic Value:

The economic value of a technology/drug compound consists of multiple factors including the actual clinical outcomes resulting from the application of the product, the price/cost of the technology, the total therapy costs required to achieve the defined outcomes, the comparison of these outcomes and costs to the current Standard-of-Care, and the resulting Cost-Effectiveness.  It is critical to understand that a product's Economic value varies by Key Stakeholder.

2.        Key Stakeholders: 

In the new Healthcare reality, key stakeholders beyond the prescribing physician include the Payor, the Provider Site-of-Service where the product is distributed/utilized (e.g., hospital inpatient, outpatient, physician office, etc.), and the patient - from a cost share perspective.  As noted above, the "Economic Value" is different with each of the Stakeholders

Economic value must be understood and demonstrated early in the product development process. It is of fundamental importance that a company include Economic Value in their strategies and move it to the beginning of the process - in the pre-clinical technology conceptualization phase.  A recent study by Deloitte and Touche estimated that, if economic value is not targeted as part of a Company's Market Access strategy early in the Product Life Cycle, more than 30% of the total potential market returns in absolute dollars will be lost (See Figure below)

There are proven methods and processes to prove or demonstrate economic value and integrate into your company's business strategy. First, the starting point - your initial step should include:

•  Establishing an economic value hypothesis based on your product/compound.  
  • Estimate, based on your best available current knowledge, the total cost to successfully deliver your product/compound to achieve efficacy in a single episode-of-care. 
  • Define the current Standard-of-Care and estimate the current total cost required for that standard  - in a single Episode-of-Care

• Developing  two scenario's for an "Economic Value" measurement. Build basic financial models for each - one for the Payor (based on total therapy cost for delivery of the technology/compound to achieve desired outcomes)and the other for the expected Provider site-of-service (e.g., inpatient hospital, outpatient hospital, emergency room, physician office).  This model is to include billed revenue, cost of technology/compound, cost of labor, supplies and reasonable allocation of overhead.

• The resulting financial models establish "Economic market boundaries" for your technology and must be used to not only inform your strategy about customers, barriers to entry, market access investments, and market penetration curves, but also to begin driving your technology and business plan development, and your business strategy

We can help. The Mead Consulting Group has done this before - we have

developed and executed Economic value strategies in the Medical Device/ Diagnostic and Biologic space with such companies as Medtronic, Summit Medical Systems, Accredo Health Group, Medco Health Solutions, United Therapeutics, Actelion, and Baxter.  

The Mead Consulting Group's Senior consultant team has extensive experience across the spectrum of healthcare from the device/ biologics companies, provider sites-of-service, and Payor coverage and benefit design in assessing and building economic value strategies - and integrating them effectively into a company's marketing strategies including Key Opinion leader network development, proof statement /sales tool development, distribution channel strategy, formulary strategies, GPO strategies, etc. for a free consultation. 

Coming Attractions: In future issues we will look in more detail at Market Access and Penetration optimization in today's Healthcare world including such critical topics

• Fundamentals of targeting Economic Value
• Payor Requirements when viewing new technology/compounds
• Economic modeling by Provider Site-of-Service - Economic value in a provider world
• Integrating Economic Value strategy into Marketing Strategy -including Distribution Channel strategy