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Creating value in healthcare in a cost-conscious marketplace

healthcareFor pharmaceutical companies, success is all about playing the odds. That’s because the vast majority of drugs never make it to market, says Enrique Conterno, senior vice president of Eli Lilly and Company and president of Lilly Diabetes and Lilly USA.

It’s one of many unique challenges facing the pharma industry, says Conterno, who delivered the keynote address at the 2016 UNC Kenan-Flagler Business School Healthcare Conference.

With the odds stacked against them, pharmaceutical companies must fund a perpetual cycle of R&D – and it takes more than a little pocket change.

“Our industry collectively invests more than $50 billion per year in research and development,” says Conterno. That number dwarfs the amount other industries – such as software, communications and aerospace – spend on R&D.

“When you consider the odds of success of any new discovery in the early stages of research — 1 in 5,000 — a weekend in Las Vegas actually sounds like a good idea,” he quips.

Firms lucky enough to beat the odds are granted a patent that provides exclusive rights to commercialize the drug during the life of the patent. The potential windfall is enough to offset the amount firms spend on R&D and further incentivize pharmaceutical research.

But there’s a catch.

If granted, a patent protects a company’s intellectual property rights for 20 years. But the clock starts ticking as soon as the patent application is filed, not when it’s approved. The formula must also undergo extensive testing by the FDA, meaning it may be seven to 12 years – or even longer – before a new drug is approved and ready to hit your medicine cabinet – and that significantly diminishes the amount of time a company has to capitalize on the exclusivity period. Once the clock hits zero, generic companies are free to enter the market. At that point, brand name sales typically vanish as they give way to generic substitutes.

Pharmaceutical companies must also navigate changes to insurance plans, ever-changing deductibles, mandated rebates and discounts, varying international drug regulations, fees to wholesalers and other supply chain intermediatries – as well as legislative changes – before their products ever reach pharmacy shelves.

A need for change
The surge in healthcare costs over the last decade has been well documented. And with the tedious processes pharmaceutical companies must navigate to bring a drug to market, it is no surprise that all of the intermediaries involved add up to significant markups. Pharma list prices no longer represent the manufacturer’s value of the prescription – but most consumers don’t realize that the structure of the existing U.S. healthcare system is essentially pushing prices up, says Conterno.

“Most people believe that our margins are going up with our list prices, but that’s not the case,” he says. “While the price of insulin has doubled since 2009, our net-realized price has actually gone down.”

To prevent further inflation and realign prescription prices with the actual value of the drugs, Conterno suggests implementing innovative processes – such as shifting the existing healthcare structure to a value-based contract system that incentivizes effective treatment and prevention. Adopting a value-based healthcare system would provide patients with the best treatment options, reward providers for success in patient wellbeing and streamline drug availability.

He also suggests ensuring government regulations don’t hinder medical innovation. In order to advance the healthcare industry, firms like Eli Lilly and Company – which has introduced several new treatment options for patients in recent years – need to be encouraged to pursue new medical developments while making sure their innovations are affordable for the patients who need them most, says Conterno.

Conterno is not alone in his push for reform. He believes that the U.S. healthcare system does not deliver optimal value – and many stakeholders across the industry recognize the amount of excess waste on healthcare expenditures. Lilly, he says, continues looking for solutions that ensure patients have access to the medicines they need.

A call to action
While the vast majority of industry leaders, policy makers and government officials recognize the need for healthcare reform, it’s hard to pinpoint feasible next steps. Support for a value-based contract model is gaining momentum in the pharma and healthcare industries, which could provide a solution at the front-lines of healthcare as opposed to a high-level policy change.

If a value-driven curriculum can be integrated into healthcare studies, future providers will be better prepared to offer economically feasible solutions, says Conterno. Similarly, if these teachings are incorporated into medical school studies, trainings and examinations, future healthcare providers will not only be trained to resolve medical issues for patients, but to do so in a way that is economically smart.

There are many potential pathways to improving access and outcomes for patients and, according to Conterno, it will take leadership from across the health care system to find solutions that work.