Reframing markets is hard. Companies that may have succeeded with the same basic strategy for decades have a tough time re-defining where they play when their core business starts commoditizing. An even more difficult challenge is orienting the firm around that new strategy when the resources, processes, and priorities of the company are tightly linked to the old model.
For many pharmaceutical and medical device companies, a great hope for escaping intense pricing pressure is to change what they sell from drugs and implants to integrated solutions for major diseases. They reason, correctly, that the cost of pills or devices can be a small component of the overall cost of patient care, and that a holistic approach toward patient needs can create far more value -- through better medical outcomes and lower total costs -- than disconnected therapies like a prescription.
The strategy makes sense, but there is a very big problem. The buyers of these integrated solutions would be entities that have a holistic view of the patient. Physicians compensated on a fee-for-service basis have little economic incentive to manage overall costs down. Health insurers are typically a step removed from patients and, for all their aspirations otherwise, may be little more than claims processors. Pharma and device companies are pinning their hopes on "economic customers" that gain financially from improved patient care and that have the capability to align physicians around protocols which achieve these outcomes. But, at least in the U.S. healthcare system, few of these economic customers actually exist yet.
What can pharma and device companies do about this conundrum? The answer lies in aiming first for footholds, not the ultimate prize. My piece for Forbes explores what the footholds might be.
Stephen Wunker is the Managing Director of New Markets Advisors. Read more about our perspectives on healthcare.