Options for Paying for Health—The Right Way

Jul 31, 2011


William Looney
THIS MONTH, Pharm Exec presents its third-annual review of opportunities in the emerging market countries, still touted as the most fertile seedbed for industry sales growth as key patents expire and a bleak deficit winter settles over the US, Europe, and Japan. In a slightly contrarian point of view, Senior Editor Ben Comer and our panel of IMS experts conclude that while the revenue curve in the "pharmerging 17" is straight up, the trajectory for sustainable profits is craggy. Smoothing out the kinks depends on the capacity of Big Pharma to perform consistently around a locally grounded strategy defined by doing just a few things well.

Core skills consist of:

» an adequately resourced commitment to each market, for the long-term;

» a business plan focused on competitive differentiation through a good understanding of local health practice patterns and unmet medical need; and

» a simple value proposition that neutralizes the growing bias of government toward domestic "national champions" in the life sciences.

But success in emerging markets is not solely a consequence of framing the right business plan. There is a broader, industry-wide dimension geared to shaping the structural design of the healthcare system itself. The next five years provides a window of opportunity for Big Pharma to apply its deep exposure to healthcare practices around the world to help that business model thrive in these emerging markets—where the global future is being set today.

A good way to start is to develop core principles around a basic question: What's the best way to finance the path toward better health? I see five themes as critical:

First, access to healthcare ought to be declared a national development priority and be enfolded in planning targets for GDP growth.

Second, financing for publicly sponsored healthcare must be sustainable over time. This requires a mandate through permanent legislation that allocates to health a specific revenue-raising source not subject to amendment through the annual budgetary cycle or the fickle streams of foreign aid. Health provision is never sustainable if it has to compete with other, more short-term budget priorities.

Third, a "level playing field" between public and private approaches to financing care is vital in emerging markets. Evidence from the US and Europe indicates that a combination of insurance schemes promotes economically productive competition and allows patients to exercise choice on the basis of medical need and income. It also complements the dialectic of demand in emerging countries, in which the market for health services is complex, divided among the urban and rural poor, dependent on the informal sector; middle-class workers, who rely on employer-subsidized care; and the truly affluent, with the capacity to pay directly out-of-pocket. Government neglect or bias against the latter two population segments can induce higher public-sector deficits and lead to a deterioration of care overall.

Fourth, regulation of health insurance needs to avoid contracting bias, by allowing for the transparent and prompt registration of private plans that can address the diverse needs of middle-income and affluent consumers. This is particularly true in providing cover for supplemental health services such as pharmaceuticals. Capital reserve requirements for private insurers are important to guarantee the solvency of plans, but should not be imposed in a way that limits returns to private investors, especially in comparison to public provision.

Fifth, allowance for diversity and choice in the structure of funding for healthcare is not only good for business, it is good for society. It plants the incentive for innovation by granting more leeway to local medical entrepreneurship and the growth of academic centers of excellence where the conduct of clinical trials funded by pharmaceutical companies carry an important spinoff effect. Emerging market countries can leverage opportunities in this sector to diversify and avoid the pitfalls of relying too heavily on the "boom and bust" cycle of commodities.

What Big Pharma fails to see is how engagement in health policy is the biggest of reputation builders: it fosters equity; creates stronger institutional roots by moving people away from the unregulated, under-taxed informal segment of the economy; decreases the "democratic deficit" by establishing the legitimacy of good governance; and, through the expansion of access to proven technologies such as modern medicine, delivers better outcomes to patients.

William Looney
Editor-in-Chief