Why Health Care Needs a New Business Model

September 4, 2012
  • Mark Little

    Former Director, Healthcare, Advisory Services, BSR

For years, stakeholders have pressured health care companies to expand access to their products and services and do more to support global health goals, particularly in low- and middle-income countries. Some critics have fingered patents, or state-granted intellectual property rights, as the culprit. While companies consider patents their reward for taking significant investment risks in research and development, critics question whether the companies are truly committed to serving the broader public—or just trying to protect profits as long as they can.

These are not new issues.

Lately, however, even the critics have acknowledged that health care companies are finding profitable ways to address the world's health needs—at least when it comes to noncommunicable diseases like cardiovascular disease, diabetes, and cancer, which are among the world's biggest health concerns. China, for instance, has the world's highest incidence of diabetes—with a prevalence rate in children four times higher than in the United States—and, at the same time, the country has experienced a remarkable rise in living standards. The bottom line: While income growth fuels obesity and associated health burdens, it also means the Chinese market can pay for treatment.

Unfortunately, this win-win is not the case for certain types of diseases, or for certain markets. And while it is not the primary responsibility of industry to ensure access to health (that is the role of government), it is evident that the industry's predominant business model could be further adapted to meet five key access challenges affecting low- and middle- income countries.

Declining margins brought by pricing pressures, patent expiries, and costly R&D cycles are forcing health care companies to explore growth opportunities in non-Western markets. But given the outstanding challenges (below), it's time for the industry to ask itself: Is our business model broken?

Five Challenges to Current Business Models and Their Role in Expanding Access to Health

  1. Innovating for diseases that affect the poorest of the poor: Treating pernicious diseases like malaria, tuberculosis, and infectious diarrhea will require thinking and resourcing beyond today's profit-seeking business model. Unlike noncommunicable diseases, these diseases affect populations and countries where the ability to pay is extremely limited. Solving this challenge requires multisector partnerships, and many health care companies are already contributing to partnerships such as the Medicines for Malaria Venture and the Malaria Vaccine Initiative. But as governments spend less on health in the wake of our global recession, companies will face more pressure to contribute by making existing treatments more accessible and by developing new treatments, antibiotics, and antiparasitics.
  2. Providing access to the most vulnerable populations, including the rural, the poor, and especially women and children: Initiatives like the UN's Every Woman Every Child campaign and the MDG Health Alliance point to the relatively unaddressed medical needs of low-income women and children in the developing world. And the expected failure of the health-specific Millennium Development Goals (4, 5, and 6) illustrates the gap between commitments and aspirations on the one hand, and action and impact on the other. As these efforts fall short, it's clear that business will need to step up—or likely face criticism from the same stakeholders pressuring companies to address the diseases affecting the poorest of the poor.
  3. Developing primary health care systems: Access depends on not only R&D and resulting therapies, but on the local market's infrastructure for health—that is, hospitals and clinics, health care practitioners, supporting diagnostics, tools/technology, and other resources. Many companies make these investments by collaborating with local partners and government to train health care practitioners, educate patients, and mobilize health services. But these investments are usually focused on the interests of the company (specific therapeutic areas for which the company has patented products in its sales and marketing portfolio). Yet the most powerful investments look beyond the specific products of an individual company, and expand primary care systems for prevention, diagnosis, and treatment across a full range of diseases.
  4. Expanding availability through differentiated pricing and alternative business models: Affordability of medicine remains a thorn in the industry's side. People on the "open access" side—representatives from government, civil society, and academia—complain about the surging prices associated with each round of innovation, and the net cost-benefit analysis that shows tangible profits for companies and questionable outcomes for patients. Rapidly increasing demands from governments to "show me the value" pose new constraints on profits from noncommunicable disease franchises, and raise questions about whether payers will continue supporting a (relatively) high-margin/low-volume business model. The affordability/value-for-money trend originates in developed countries: For example, the U.K.'s National Health Service and the U.S. Patient-Centered Outcomes Research Institute, established by the 2010 Patient Protection and Affordable Care Act, are weighing outcomes data against price to determine which therapies will be paid for from government coffers. It's only a matter of time before Brazil, China, and India deny patent holders on the basis of comparative efficacy.
  5. Adapting products and approaches to local conditions: Critics complain that many companies, not just those in health care industry, enter new markets with off-the-shelf strategies that fail to account for local nuances. In health care, these critics call for further investment in pediatric and heat-stabilized formulations, combination therapies that ease patient compliance, and financing mechanisms to improve affordability and ensure patient access to continuous care. There is a clear need for companies to develop unique access strategies that demonstrate a deep understanding of health needs and the broader socioeconomic context affecting access to health.

Developing a More Effective Access Strategy

It is tempting to identify a piece of the access challenge, like noncommunicable diseases, and claim success. But the fact remains that many access challenges do not neatly align with short-term profit goals.

Addressing these holistic issues requires that companies engage in a deliberate strategic-planning exercise. Too often, access initiatives are one-offs, and disconnected from the business strategy. Even when there are many successful initiatives in place, companies often fail to bring those disparate programs together into a cohesive, integrated strategy—a strategy that provides focus for internal management, that galvanizes support among stakeholders and that amplifies overall impact.

Recognizing these challenges, BSR has worked with several health care companies to design access strategies for both headquarters and local markets. Through our experience, we have identified several keys to success:

  • Establish a frank assessment of the company's current performance in expanding access.
  • Integrate external and local-market perspectives on access needs.
  • Identify the best opportunities to use core competencies to drive systemwide impact.
  • Collaborate and build partnerships to take advantage of complementary capabilities.
  • Measure and communicate impact.

Let’s talk about how BSR can help you to transform your business and achieve your sustainability goals.

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