Friday, March 18, 2011

Emerging notions of 'Valued-Based Health Care' are raising the bar and extending forecasting horizons for new drug therapies

Not long ago, a New England Journal of Medicine article, "What is Value in Health Care?" by Harvard Business School professor Michael Porter, offered up an analysis of healthcare value and its measurement in health outcomes research. Porter, along with and his colleague and co-author Elizabeth Olmsted Teisberg, describe three types (tiers) of health outcomes:

  • Health status achieved or retained -- survival, degree of health/recovery
  • Process of recovery -- time to recovery/normal living, short-term liabilities of treatment
  • Sustainability of health -- time to/nature of recurrences, longer-term liabilities of therapy

This "Outcome Measures Hierarchy" is being used by a growing number of large multi-hospital providers, small group practices, health plans, and employers in the U.S. and abroad as they work toward implementing value-based principles to guide therapy choices and outcome assessments.

Notably, the third tier -- health sustainability -- introduces a criterion that has been notably absent from previous calculations of therapy benefits, often based on trials as short as three months or six, even for conditions we know to be chronic.

The injunction to healthcare forecasters and marketers of all types -- product manufacturers as well as the Wall Street analysts who look over their shoulders -- is clear: The timeframe for product performance is growing longer and new healthcare products will be judged by what they do for us over a period of years, not months, after they're launched.

Porter's injunction and its widespread adoption by providers have implications for how our industry prices products out of the gate, as well as the way marketers position them against existing therapies. The demand for yet more specific, detailed, wide ranging, and importantly, longer-term evaluation is increasing. These hurdles are destined to increase (1) the cost of clinical trials and post-marketing surveillance as well as (2) the risks of product failure.

The common wisdom today is that a new product's first-year performance is the sprint that sets and signals its lifecycle value. Not so tomorrow when the Food and Drug Administration approval and commercial availability are merely the starting gun of a marathon.

If full implementation of value-based healthcare means that the duration of clinical trials for FDA approval must increase substantially, then patent life might correspondingly increase. In fact, in this future world, patent life must increase for the rewards of new product R&D to be sufficient to compensate for the longer development phases and greater risks of product failure that the value-based world creates.

Porter is, more than anything else, a competitive strategist. In laying out his value-based framework, he is telling us not only what constitutes value in healthcare. He is telling us what he believes will be essential for competitive advantage in this industry.

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