As health systems continue to vertically integrate and consolidate, their buying power increases, setting up a winner-takes-all situation for pharmaceutical companies. Companies can win big or lose big depending on whether their products are the preferred drugs for a health system.
Within each health system, stakeholders operating in different departments (including administrative leaders, procurement professionals, pharmacy directors, etc.) influence decisions about which drugs secure favorable positions on formularies, protocols, or pathways. Pharma commercial teams must engage these various influencers as they seek to get their drugs to patients. Adding to the complexity is the fact that no two health systems are alike. At minimum, there are a handful of categories: integrated delivery networks (IDNs), large hospital systems, medical groups, research hospitals, and vertically integrated health systems.
The operational structures of entities across and even within these categories can vary significantly. For example, one health system may give HCPs across its network of child hospitals little latitude to vary from a drug formulary or pathway that was determined at the headquarters level. However, another may lack centralized tools to enforce a top-down strategy or may not yet have fully integrated some of the child hospitals it has acquired. As a result, the child hospitals may be making their own local pathway and protocol decisions.
Therefore, for pharma companies, there is no one-size-fits-all solution. Pharma companies must develop custom commercial strategies for each health system. A pharma company’s approach to each health system will vary not only based on the health system’s level of centralization, but also based on the pharma company’s therapeutic area and market position.
In some cases, companies will need to “zoom out” to target key decision-makers at headquarters (a top-down approach). In other cases, they will need to “zoom in” to target individual child hospitals and HCPs with promotion (a bottom-up approach).
Given these dynamics, pharma companies must adopt agile commercial strategies, rooted in data analytics, which enable a mix of “zoom in” and “zoom out” strategies that can evolve over a drug’s lifecycle and in line with changing market dynamics.
Health Systems Are Not Monolithic
Before we get into a discussion of the “zoom in” and “zoom out” approaches, let’s review the different types of health systems:
- Integrated delivery networks are the behemoths of the industry and combine the payer and provider functions. Usually, IDNs have well-integrated technology systems (e.g., synchronized electronic medical record systems) across their expansive footprints.
- Large hospital systems are collections of hospitals that aim to improve operations and control costs through economies of scale.
- Medical groups are formerly independent physician practices that attempt to tap into economies of scale and implement uniform technologies and operational practices.
- Research hospitals focus heavily on research alongside patient care. These institutions may not be large, but they exert significant influence in the healthcare system. Partnerships with research hospitals can help a pharma company bolster its reputation and make inroads at other types of health systems.
- Vertically integrated health systems include both inpatient and outpatient services and thereby often come to dominate the geographies in which they operate.
Evaluate a Health System’s Degree of Centralization
The principal issue a pharmaceutical company must assess as it crafts commercial strategies aimed at a health system is the degree of centralization across a particular health system. At a high level, the more centralized a health system, the more headquarters controls treatment decisions across the various child entities. A less centralized health system typically places more decision-making power in the hands of local teams.
Many factors influence the degree of centralization across a health system—for example, the recency of merger and acquisition activity. A hospital system may have recently acquired new hospitals that aren’t yet fully integrated into its technology infrastructure. As a result, these newly acquired entities may continue to operate somewhat autonomously, continuing to use their own systems and processes.
Capital expenditure budgets play a role in the degree of centralization, as well. An IDN with a large capital expenditure budget devoted to implementing enterprise technology will be better positioned to impose treatment protocols and pathways from the top down.
Local conditions also matter. If a hospital system cuts across multiple states, it may need to empower local teams to make decisions in line with local regulations and market dynamics.
A pharma company should also assess to what extent a health system has adopted value-based incentive models. If a hospital, for example, is part of an accountable care organization for Medicare patients (or has value-based contracts with commercial health plans) that link reimbursements to quality metrics and reductions in the cost of care, centralization will be a key enabler of success.
After all, centralization facilitates improved operational efficiency and better data collection and analysis, insight-gathering, and risk-assessment capabilities—all of which can help a health system improve patient care and minimize waste. On the other hand, a health system with a traditional fee-for-service model may not prioritize centralization.
Deploying a “Zoom In, Zoom Out” Strategy
Given the fact that health systems are not monolithic, pharma has no choice but to adopt what I like to call a “zoom in and zoom out” strategy.
In some cases, when the health system gives healthcare professionals significant leeway to make prescribing decisions, a pharmaceutical company will be better off deploying a strategy that “zooms in” to the HCP level. This effort is like a traditional HCP-focused sales approach.
With a highly centralized health system, a pharma company should deploy a “zoom-out” strategy to reach and influence the right stakeholders at headquarters. These stakeholders usually have business, as well as clinical, concerns that companies need to address as they make a case for their therapies.
A pharma company also needs to look inward and understand how its size, product portfolio, target therapeutic areas, and stage in the treatment lifecycle impact its commercial efforts. After all, the value propositions that a big pharma company with a large portfolio of non-specialty drugs presents to a health system will be vastly different from a small, specialty oncology drug company’s value propositions.
For the latter, a “zoom in” approach will be more applicable since HCPs and child hospitals in oncology usually have significant leeway to make treatment decisions given the complexities and nuances inherent in cancer treatment. A top-down, standard protocol does not make sense for personalized oncology treatments. A large pharma company can approach central decision-makers at IDNs with comprehensive offerings that cover multiple product lines.
No matter if it is zooming in or zooming out, sophisticated analytics work must undergird a pharma company’s commercial efforts aimed at health systems. The more data-driven a company gets, the more commercial success it will have.
Embrace the Complexity of a Consolidated Healthcare Landscape
Healthcare consolidation isn’t slowing down. So, pharma companies must adapt to the growing power of health systems. Companies need to base their commercial strategies on analytics-driven insights and a deep understanding of different health systems, their degree of centralization, decision-making structures, and stakeholder mix. Those that adopt this comprehensive and tailored approach to commercial strategy development will position themselves to successfully make commercial inroads at the health systems that increasingly exert a large amount of control over treatment decisions for patients across the United States.
