The world’s population is rapidly ageing. In 2010, there were 524 million people aged over 65; by 2050 there will be 1.5 billion. Europe faces one of the greatest challenges: within 15 years over 50% of the population in Germany will be aged over 65, for example.
One inevitable consequence of this trend is that people will suffer more chronic diseases, such as heart disease and diabetes – within five years it is anticipated that one in three people will have diabetes, largely due to lifestyle reasons. “This is creating tension in health systems,” says Johan Vanhoyland, sector head of general industries and pharmaceuticals at ING in Belgium.
“Governments want to bring down the cost of health care but demographics mean that it will continue to go up,” explains Vanhoyland. “This might increase government debt and necessitate increases in taxes as a shrinking number of active people have to fund government spending, even though 'inactive’ people contribute taxes and health insurance premiums. As a result, there is growing political pressure on health care firms and care providers to bring down costs.”
That pressure is already being reflected in policy changes. Reimbursement policies for expensive drugs are being curtailed: in the US, reimbursements for some drugs have been lowered to zero. European governments, insurers and health care providers too are increasing purchasing power by forming larger purchasing groups for expensive medicines. This has a significant impact on the sales and profitability of pharmaceutical companies.
New models in pharma
Within the pharmaceutical sector a major shift is occurring from a one-size-fits-all model of drug development to a more personalised form of medicine. “The only way for companies to continue to be successful in this new environment – and remain profitable – is to become more innovative,” says Vanhoyland. “So companies are moving from a volume to a value model.”
Historically, pharmaceutical companies have operated a model based on the successful launch of a few blockbuster medicines (with annual sales of over $1 billion) over a 20-year lifecycle. Half of this period involved intensive – and expensive – research and development (R&D), trials, approvals and commercialisation before a drug comes to market. The company then had 10 years to recoup its investment before the patent expired. Although this model was not foolproof, it was robust enough to cover R&D costs, including for molecules that did not reach the commercial market.
“Given the financial pressures on pharmaceutical companies, R&D budgets are shrinking while merger and acquisition activity is increasing,” says Vanhoyland. Companies are divesting or even swapping assets in order to intensify their focus on therapeutic areas where they can outperform the market. In 2015, GlaxoSmithKline and Novartis swapped $20 billion of assets, with GSK gaining Novartis’s vaccine business and GSK adding Novartis’ oncology business. As a result, GSK and Novartis strengthened their leading positions in vaccines and oncology respectively.
Innovative technologies change health care
Another major change already underway is a shift to greater use of diagnostics to detect illnesses such as cancers at an earlier stage. Oncology mini-labs are able to do analysis in just a few minutes and can then prescribe personalised therapy: the long wait traditionally associated with a hospital appointment is no longer necessary. “Although such solutions have upfront costs, overall they will be good for health systems,” says Vanhoyland. “Cancer treatment is very expensive and some countries have already capped costs. Diagnostics will improve detection, ensure treatment occurs earlier and therefore improve both patient outcomes and costs.”
Michael Porter’s ‘Value based Health Care’ strongly advocates that not the treatments have to be financed, but the outcome of coordinated care cycles. ‘Less pay for caring, more pay for curing’. This is not the way health care systems are currently organised. For that to happen, digitalisation of the process from diagnostics to customer experience is essential.
The use of artificial intelligence (AI) and robotics will help to automate patient guidance and enable clinicians to come up with better solutions in a shorter space of time. “Some hospitals and elderly homes in the Netherlands have already introduced such technology,” says Vanhoyland. “It will not take over the tasks of skilled medical workers but is extremely valuable for people with dementia, for example, because it can provide constant attention: it has been shown to deliver great results.”
Other technology solutions include mobility devices for people who cannot walk that are GPS enabled to activate an alert if they go outside a set range. “There are even wearable devices such as underwear to measure temperature: they free up the time of nurses and can immediately alert medical staff if the situation changes,” says Vanhoyland. “The goal of many of these innovations is to keep people at home for longer, which is what they prefer and is better for them. With technology, they can be constantly connected to medical staff and if any of the parameters being measured changes, a medic can be sent out immediately.” In response new business models are being developed to adapt to new technologies making health care better and less costly.
Meeting changing needs
At the same time as health services and pharmaceutical companies must adapt to the needs of an ageing population, a new population group is emerging with different expectations in relation to health. “Millennials’ behaviour is completely different to that of previous generations,” notes Vanhoyland. “They have a preference for using retail clinics and urgent care facilities. They are also less likely to visit a primary care physician, or even have one at all. Since they are used to visiting urgent care facilities, they’ll only come to the emergency department for serious problems. They expect speedy health care.”
Nevertheless the importance of the primary care sector will only grow, because it mitigates costs - hospitalisation is expensive and often unnecessary - and benefits quality of care cycles. There seems to be a need for more cooperation, and multi-disciplinary and integrated practice units show good results for treatment of chronic diseases. Governments and health insurers encourage this development.
Millennials however want to interact with medical professionals in new ways, for example through video chats. “As a generation raised with the internet, they are happy to use mobile apps and other tools to monitor their general health,” says Vanhoyland. “They also use technology for research, by comparing various hospitals’ surgery experience for example, or to find the lowest cost solutions: they want transparency in pricing. Millennials have a different way of thinking about health and health care companies will have to adjust to it.”