The walls are coming down throughout the healthcare ecosystem as cross-industry M&A activity continues. From Walmart’s interest in Humana to Cigna’s push for Express Scripts, vertical integration is pairing up pharmacies, payers and PBMs. Healthcare sectors once separated by rigid corporate HQs now will be separated by the flimsy, pushpin-filled walls of office cubicles. Such deals abound across the healthcare landscape, and in corporate America, too, where companies—many of which already act as their own payers—are teaming up with providers to offer in-house healthcare options to employees.
And as vertical integration reconfigures the healthcare landscape, the ground beneath drugmakers’ and medical device manufacturers’ feet is shifting as new structures are being erected all around them—monolithic healthcare conglomerates. These new corporate entities have new needs, pain points and purchasing processes, and new relationships with each other and with the end users. The trick is for pharma and medtech companies to get moving quickly on formulating a response to these changes to ensure that they don’t find themselves standing outside of these newly erected walls, trying to find a way in.
By necessity, life sciences companies must evolve as negotiating powerhouses like Walmart and Amazon push to become established healthcare players. These vertically integrated entities have compiled all of the middlemen under one roof. What does that mean for manufacturers’ pricing and contracting strategies? Certainly, there has to be some wiggle room now that all of the markups are hitting the same P&L. But for now, let’s focus on how drug and device manufacturers can address their merged and consolidated customers’ complexities. Below are some suggestions for leaders in the life sciences space.
- Prioritize your customers’ needs. Your customers have an entirely new look and new behaviors to match. They have adopted new skills, polished old processes and merged unlikely partners under one roof. It’s time to update your commercial model in a way that suits your customers’ changing needs before the opportunity to serve them disappears. For example, in banding together, CVS Health and Aetna eliminate one player from an already complex supply chain—a factor that will surely alter your approach at the negotiating table. How can you prepare? Take the time to learn more about your customers’ short- and long-term goals, recognize the pressures that they’re facing, and understand how integration has altered their own business strategies so that you can become true partners and provide more value in the future. Evaluate their options for suppliers in the context of their new business models, and determine what it all means for your commercial strategy.
- Redefine and align your value propositions. Are you trying to “detail” a multi-stakeholder decision process? The time has come to calibrate your B-to-B selling capability (that is, key account management) to match the changing healthcare landscape, and simply relabeling a hospital sales rep as an “account manager” won’t work. Your objective should be to form a value-creating partnership with the likes of the new CVS-Aetna behemoth. Begin by using key account management as a way to uncover what’s important to your customers, and tailor your value propositions (including services and data) accordingly. For example, now that UnitedHealth Group has purchased DaVita’s physician network, value-based contracts are still drawn up with the physician in mind but are addressed to—and negotiated directly with—the insurer. How can you position your value story to address the different needs of each of these stakeholders? And if Walmart and Humana band together, life sciences companies will need to choreograph an entirely different cost-access dance versus a scenario in which the entities are independent.
- Join forces with new partners. The future of healthcare will be shaped by mergers, vertical integration and novel multilateral partnerships. To compete in this interconnected world, you’ll likely want to form partnerships with organizations across the healthcare ecosystem. One feasible avenue is to seek out and form alliances with smaller PBMs, and not just because the larger PBMs are off the table. Though they have different structures, some of the small organizations see a large volume of prescriptions. And with volume comes the chance to provide better value—and an opportunity to leverage internal channels to improve formulary coverage and access to medications. Other potential partners quickly coming into view are tech companies of all shapes and sizes, ranging from startups to more established players and those with software or digital health solutions. Novartis, in particular, has jumped into this trend with both feet, embedding technology into clinical trials and hiring former tech execs to lead new initiatives.
- Predict and prepare for future shifts. The healthcare environment is shifting, and the newly emerging business entities are sure to prompt more movement across the industry, and likely will spill into industries equipped to collect data with healthcare and wellness ties. Speculation reaches from Walgreens’ next move to Anthem’s plans to launch its own PBM in 2020 and potentially become a third wheel in the CVS/Aetna deal. And then there’s Target, which rebranded its in-store pharmacies with the CVS logo and is looking to compete with Walmart and Amazon on the grocery front—and possibly beyond. As these companies become smartphone-powered clearinghouses for every one of our daily needs—from gadgets and hardware to groceries, cleaning services and healthcare—it’s likely that they’ll lump pharma and medical device manufacturers into a single unit that’s managed just like any other supplier. What’s pharma doing to evolve its business model and remain relevant?
As these new “walls” come up across the healthcare landscape, drug and device manufacturers need to search for new entry points and build up their own tools, resources and processes to create meaningful partnerships and collaborations across industry lines. By establishing the right B-to-B selling capabilities and agile structures now—and instituting regular strategic reviews—life sciences leaders can ensure that they have what it takes to meet the needs of these rising healthcare conglomerates and whatever else the ecosystem throws their way.
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