Winning in Emerging Markets

Last Post Review

A LONG time ago I posted my last blog feed about one of my favorite topics: Evidence-Based Marketing; or the use of Marketing Strategies reinforced by evidence and data. Another way to describe it (and which may sound more familiar) is Value-Based Strategies. In both cases, it means emphasizing the value offered by a certain health care product, and not only its benefits. After all, not all benefits turn into value, right?

Now, after a few months away from my blog I decided to resume my activities putting some thoughts on emerging markets, under the perspective of Health Care business.

BRIC Power!

The first time I heard about the BRICs was in the 90s when still in high school; and frankly, much before Jim O’Neill from Goldman Sachs “created” the term. Brazil, Russia, India and China, although far from what they represent now, were expected to have such a fast development that they would become major players in the global Economy. At that time, few would believe it, and I wasn’t one of them despite my Brazilian heart.

Nowadays it is very easy to find numbers and analyses justifying the importance of the BRICs to the world economy, but this is just the tip of the iceberg. Emerging markets have dominated the scene for quite some time now, and the BRICs is on top of that given the market size and potential of these four countries.

This is not a blog about Economy, but my point is that emerging markets represent countries experiencing fast industrialization process, with people increasing their income and, therefore, consumption. When you combine an emerging economy with a huge population the effects are geometric: imagine if just 10% of China’s 1.3 Billion people start to relocate from rural to urban areas, earn more money and spend more in clothing, food, entertainment, health care…Imagine what this would represent in terms of market potential for new products and companies. Now stop imagining because this is happening every year, and at a faster rate of about 15.3% (source: The World Factbook, CIA).

The comparison is clear: where would you market your products: a) in a highly-competitive, saturated market, or b) somewhere else with just a few (if any) competitors and with a market that is eager to spend what it hasn’t spent for the past years?

According to the World Bank, on average the world is expected to grow its GDP at 2.7% and 3.0% in 2008 and 2009, respectively. The U.S. GDP is expected to grow at 1.1% and 1.9% in the same period. Now, what about the BRICs?

Brazil: (2008) 4.6%; (2009): 4.4%

Russia: (2008) 7.1%; (2009): 6.3%

India: (2008) 7.0%; (2009): 7.5%

China: (2008) 9.4%; (2009): 9.2%

Together, the BRIC countries represent almost 41% of the world’s population, and in a simple average is growing at 7%, or more than twice the average global growth rate. (For Math fans, the weighted BRICs growth average is even higher: 8%).

Implications for Health Care

As my returning post after a few months “in silence”, I just wanted to call your attention to a logical equation: should we invest where we can obtain higher returns? Let’s analyze the significance and implications of BRICs to Health Care.

The Health Care market, most noticeably Pharma industry, is experiencing a tough period. With blockbuster drugs losing patents and generics entering the market each day, the average product price has been falling steadily, and so are margins.

Well, a broken patent in Germany is also a broken patent in Brazil, so there is no safe place for old blockbuster drugs. However, these blockbuster formulas were initially created for individuals living in developed countries and with a very specific epidemiology. The list goes on diabetes, high cholesterol, obesity, stress, depression, cancer…with this last therapy area being very difficult and expensive to be replicated by generics.

Now, what about unexplored and untapped areas such as vaccines, infections, tropical diseases and severe digestive illnesses? Of course you’re thinking “well, there are a lot of vaccines out there” and that’s right! Out there, in the developed markets, there are a lot of vaccines for sure. And, by the way, one single disease may have different virus strains depending on the world’s region – U.S., Latin America, Africa, Asia etc. Now guess which regions are usually considered for vaccine development?

I’m not talking about “orphan” drugs or diseases, but about creating emerging market plans for health care products. It doesn’t help to say “well, China will grow about 9% this year, so we should be able to increase sales for our Bariatric surgery equipment there”. (Bariatric surgery is the procedure indicated for people with a certain minimum degree of excess body fat).

Mistake 1: Assume that China would be like anywhere else. Fact: obesity is not an issue there.

Mistake 2: Initially, GDP growth has nothing to do with health care sales increase, unless you create a plan for that.

I remember entering a director’s office in my company to report a project’s conclusion. He was sitting on his chair, reading the newspaper with a very serious expression on his face.

- “What happened?” I said.

- “Well, it says here that Brazil’s economy will be the 5^th in the world by 2030 and is growing at a very fast pace as compared to other emerging markets.”

- “And what’s the matter with that?”

- “Well…” and the director looked at me with very disturbed expression. “…headquarters are questioning why our sales are not growing at the same rate.”

(And this director’s region already had the highest sales growth in the world for his division.)

Ernesto M. Nogueira

Evidence-Based Marketing

Last Post Review

In my last post I described what Evidence-Based Medicine (EBM) is, but didn’t mention much of its impact to the business. Coming back to my summary of EBM:

Evidence Based-Medicine is a systematic approach that attempts to answer a medical question by considering the best available clinical evidence and applying strong medical expertise to maximize the value for the patient.

One can easily start inferring implications to the business, and I believe nothing is more correct than it. There are several ways in which EBM impact the Health Care market but I will focus on what I consider the most strategic aspect: Evidence-Based Marketing.

Have you heard of it? No? Great! You’re in the right place, then.

Evidence-Based Marketing

I assume you know what Marketing is and how it works in Health Care. Just in case you need more background, read my post “Creating a Multi-Stakeholder Approach” to understand the new Health Care market arena. You may also be interested in my post “The (New) Health Care Market Professional”. Enjoy it.

If you have enough expertise in Health Care Marketing, or not enough time to go over two others posts, let’s focus on Evidence-Based Marketing.

I have already mentioned that the Health Care market is used to target physicians and patients with their products. Therefore, the product/brand message is prepared in such a way to speak either the physician or patient’s language. Nothing wrong with this, but the issue remains in the fact that we have more stakeholders (a.k.a. Targets) to our Health Care Marketing Strategy. And I find it difficult to argue that Health Plans are one of the most relevant (if not THE most relevant) of all stakeholders, simply because they pay the bill.

If you believe money is power, than you should immediately start considering Health Plans as your clients. Yes, clients! Not payers, partners or anything else. After all, clients pay for our products.

Actually, you should not invest much time thinking if Health Plans are clients or not; it is the same as thinking if the Sun will rise tomorrow. Some people won’t like it, but regardless of what they think, Health Plans are already considering themselves as clients and want to participate more than simply paying the bill. If you don’t accept it, maybe you should visit Monster.com and look for good opportunities in other industries.

Health Plans are not primarily interested in clinical benefits, quality of life, coupons, relationship or many of other aspects that we use to target physicians and payers. Our new clients react differently: they want to 1) save money; 2) make sure the money they invest generate results. And, to demonstrate results you need evidence.

When you base your Marketing Strategy on evidence, you bring measurable results to the market. Health Plans will then have a perfect tool to compare your product/brand with others and take a decision based on the best ROI ratio.

But, if you don’t bring any evidence to the table and compete against other brands chances are Health Plans will probably be skeptical about paying for your products. Imagine it:

a) Company X has a product that costs $300 a dose and has demonstrated clinical results in 90% of the cases with strong and real-world data. The results are expected to decrease other costs.

b) Company Y has a similar product that costs $250 a dose. Physicians recommend it and patient associations support it.

Well, it takes one second to see that Company Y product is cheaper than Company X’s. After a second look, what makes us sure that Company Y really works? That turns the situation in:

a) Pay $300 and be 90% sure certain costs will decrease.

b) Pay $250 and expect to have good results based on the market’s opinion.

Correct me if I’m wrong, but these are very unbiased statements. Now put your Health Plan’s hat on and answer: honestly, which one would you choose?

Evidence-Based Marketing is Marketing Strategy clearly based on strong evidence. To base your Marketing on Evidence is very different from using evidence to support your strategy.

Small Word, Big Difference

I hear people proudly saying they “support their strategies with evidence”. Then I ask how they do it and get the same answer 90% of the time:

1) Focus on physicians and patients
2) After the message is in the market, use evidence to support the message

This is the main difference: Evidence-Based Marketing uses evidence to create the message. This is very different from creating the strategy and then seek ways to fit evidence in.

Evidence comes before Marketing. Remember it and you’ll get a huge portion what I’m trying to say in this blog.

If you cannot generate evidence (again, strong and measurable evidence) you cannot and shouldn’t market your product. On the other hand, once you have the evidence, then you may start planning your strategy.

Implementing Evidence-Based Marketing

Let’s say you have a vaccine that has a 80% effectiveness ratio in the first dose (that’s why we get several doses of the same vaccine, BTW). With this information in hand you realize:

1) Your vaccine may be useful for difficult-to-reach individuals.
2) These difficult-to-reach may simply mean the largest (untapped) portion of the market.
3) There are several competitors, but none is using the effectiveness ratio, or even targeting the untapped segment.

This is the same situation I found in 2005 when I was having my MBA internship with a major global pharmaceutical company. In three months, I was able to create a whole new Marketing Strategy that after implemented generated an ROI of above 2,000%. Several months later, after I had concluded my MBA, my manager at that time wrote me an e-mail saying that they had won a Global Marketing Excellence Award based on my recommended strategy.

This is the best real-world example I could think of to demonstrate the benefits of starting the development of your Marketing strategy with the available evidence. Had I started the Marketing strategy looking at something else, results would be completely different.

Final Words

Evidence-Based Marketing is a new concept within the Marketing framework. We have heard of Green Marketing, Guerrilla Marketing, Defensive Marketing and now Evidence-Based Marketing. Everything relates to a basic understanding: how to differentiate yourself in the eyes of the client.

I am a Marketing professional currently working in Health Economics. Marketing professionals should always be cross-functional, and this means having the opportunity to work in other areas such as Health Economics, R&D, Sales and others. Had I not have had the exposure to Health Economics, I would have been developing Marketing Strategies only for physicians and patients.

There is still much to be explored and discovered about Evidence-Based Marketing until it becomes so natural that we call it part of the overall Health Care Marketing Strategy. Until then, keep your eyes and ears open to the market, attend events (such as ISPOR and HTAi) to understand the latest clinical trends and challenge yourself to create a comprehensive strategy to the market.

See you next time!

Ernesto M. Nogueira

Evidence-Based Medicine

Last Post Review

Last time (actually, a long time ago) I related a few points of what I consider a strong Health Care Marketing professional. The market has changed; or, even better, it has evolved and thus requires a different kind of professional. As Health Care develops into a more result-oriented business, the more we’ll see the demand for a new type of strategic and commercial approach.

Finally, I received a few feedbacks describing this blog as interesting and fun. Although fun is not my focus here, as a former colleague used to say: “It is better be fun and correct than no fun at all and completely accurate”.

Thank you all for your feedback. Feel free to use this blog, as well as my personal e-mail (click the “Send me an e-mail” link located at the side column).

Evidence-Based Medicine

I’ve seen many colleagues afraid of the EBM concept, “what is this thing?” and “how does it impact my business?”. Well, let’s try to analyze the concept and how to translate it into Evidence-Based Marketing. After all, Marketing is something we can control, while Medicine is not.

But before I start my text, I just want to reemphasize the fact that this blog is focused on the business aspects and implications of Health Care. Therefore, I’ll approach EBM as a Marketing professional and not as a researcher. For more information, I recommend you ask your local Medical Board to understand their perceptions around the theme.

The concept

EBM is, first of all, a methodology created to answer a medical question. This question may represent a problem (i.e. how to reduce the complications associated with a certain surgery) or not (i.e. to determine the best approach to treat a certain condition in a specific type of patient).

The concept was created to bundle three main aspects: 1) Clinical Evidence, 2) Medical Expertise; 3) Value for the Patient. In other words, with EBM we are not only trusting a physician’s individual decision nor saying that everything published is the true.

Clinical Evidence

The main sources of clinical evidences are studies that, once finished, are usually modeled into articles and then made available in renowned publications and databases such as JAMA, Cochrane and BMJ. However the problem is that the vast majority of articles have methodological flaws, placing serious questions around the conclusions and results. The implication: never, NEVER trust an article just because it is published!

How to assess the accuracy and value of an article? How to identify clinical evidence from biased or erroneous statements? Well, first we need to understand that nowadays the part that describes how the study was developed (methods, methodology etc) is much more important than the results part. To illustrate this better, according to a famous Clinical Publication it is estimated that thousands of articles are published every day globally, but just around 10% of them have no basic methodological mistakes. By all means, I’m not saying articles are useless; on the contrary, we need to filter the ones we can apply.

Another step is to classify the article according to its Level of Evidence. Basically, the more sources generate data and the less the researcher intervenes on the results, the better the study. Classifications such as “double-blinded”, “multi-centered” and “randomized” signal strength of a study. But again, it doesn’t mean it is 100% good, we need to first apply a methodological filter
(above paragraph) and then classify it according to its level of evidence, such as the one below.

Medical Expertise

Physicians, Nurses and other Medical professionals have studied for several years and are constantly updating their knowledge in the field. An approach that ignores the academic and professional expertise of these medical professionals cannot be considered a serious method. On the flipside, those days when the doctor’s opinion should be respected and never questioned are gone.

The idea is simple: Health Care is strongly based on technology, and since technical advancements are happening everyday, we cannot apply judgments from 5 years ago into current situations. Or should we use large cassette walkman radios when there are MP3 players available? The problem is when certain professionals feel themselves as more important than the comments they make.

Careful if your KOLs are too much confident to change ideas or to even consider other options. Chances are, you are getting an ego statement rather than a medical opinion.

Also, theory without practice turns into nothing. Ideally, medical professionals apply their existing knowledge to evaluate new evidence and make their decisions. But there is still one last pillar, and the most important one.

Value for the Patients

OK, we have theory (Clinical Evidence) and practice (Medical Expertise), but why are we making a decision? What do we want to accomplish?

This is, by far, the most important aspect of Evidence Based-Medicine. The main goal is always the value for the patient; simple as that. If you don’t know what I mean with the term “value”, then check one of my previous posts.

Note that the patient word is in singular, not plural. Although the current guidelines may demonstrate that the gold standard for Diabetes treatment is XYZ, EBM may focus on specific patients (i.e. Type I Diabetes patients) to reach a different conclusion. Value for patient is not value for all.

In one sentence: Evidence Based-Medicine is a systematic approach that attempts to answer a medical question by considering the best available clinical evidence and applying strong medical expertise to maximize value for the patient.

Final Words

“But aren’t you going to discuss how EBM applies to business, and what Evidence-Based Marketing is?”

Absolutely, and I’ll do that in my next post. Actually, I hope to make you curious about how this methodology can turn a simple statement into a clinically supported Marketing strategy.

Overall, I urge you to understand and recognize the importance of EBM to business. EBM is a trend that recently gained much strength and will impact the way we do business and promote medical technologies.

See you next week with Evidence-Based Marketing!

Ernesto M. Nogueira

The (New) Health Care Marketing Professional

Last Post Review

In my last post I analyzed the implications and particularities of the Public Health Care market. What I have seen in 5 different countries during the last years is that partnership can be described as the best relationship model with public agencies. Note that I’m using relationship, not business model.
Companies should aim to make long-term and continuous businesses in the public arena. This means seeking win-win situations that may be totally contradictory to the “low-hanging fruit approach” in some cases, but will certainly generate an outstanding pay-off in time.

The (New) Health Care Marketing Professional

Since this blog was created to generate strategic discussions around Health Care Marketing, nothing more logic than focus on the #1 strategic asset: people.

Based on my perceptions and conversations with innumerous other professionals, I have listed the most commented items companies are looking for in Health Care Marketing Professionals nowadays. I don’t have the intention to create a definitive description of how should a successful professional look like (BTW, this is not my core skill); on the contrary, my idea is to list a few major assets that in no way make a complete list by themselves. However, they might serve as a valuable compass to one’s career map.

Not Products Nor Solutions; Sell Health Care

I remember one of my former Marketing professors showing a drill to our class. Next, she asked what consumers were actually getting when they bought that drill.

Convenience, a powerful tool, the drilling itself and a hammer (!) were a few answers we all gave. All wrong.

When consumers buy a drill, my professor said, they are getting holes. Likewise, when consumers buy movies, they are actually purchasing entertainment. Of course, it varies depending on the product/service itself and the consumers: used cars may represent transportation while a Porsche may bring status. The fact is, we never buy things for what they are, but for what they can provide us.

When a patient buys a medicine, that patient is not buying a chemical compound. Well, based on the above paragraph we can infer that the patient is buying a solution for a certain condition (relieve for a headache, for instance). However, this is a particularity of current Health Care business: because of the limited resources and need for efficiency, products should not provide solutions. They should provide the best solutions.

A headache relieve may cause indigestion the next day. Although the solution was achieved, we created a new problem. In that sense, any health care product may lead to any possible complication, ranging from simple discomfort to severe complications. Companies that sell simply health care products are focusing on the activities and not on the value they should generate to patients.

Strong marketing professionals quickly realize this doesn’t mean shrinking your market to a few “ideal” individuals. On the contrary, there is an opportunity to reinforce the Marketing strategy by demonstrating to all stakeholders (not only patients) the benefits of a certain product in terms of health care.

Remember that headache? How about measuring the positive effects of employees’ productivity once they get rid from the pain? Same with lower drug costs to health plans.

In summary, health care marketing professionals should be focusing on the long-term effects of the product to patients, not on the product features to physicians or simply lower costs to health plans. Focus on Health Care is the same as focus on value for patients.

Value for patients, and nothing else, is the ultimate goal of our business. Any questions?

Multi-Stakeholder View

As previously described in my posts, the market is more than simply companies – physicians – patients. Other participants such as government, health plans, regulatory agencies, other medical professionals and employers are also equally involved in the health care cycle.

Marketing 101 again: STP: segment, target and position your message. Since we have multiple participants in the system (like it or not), the logic conclusion is that each stakeholder has a different value proposition. The cost-savings for health plans is different than the reduction in Operating Room Time for Hospitals.

“OK, but you just said that the business is all about value for patients!”

Indeed! And that is why once we determine the real value for the patient, we need to walk backwards and assess the specific value for each stakeholder. If you cannot do it; either you need some Marketing insight, or your product is not that good. Usually, the first option is what happens.

Health Care Marketing professionals should understand the fragmentation and dispute for power among the system’s participants. Successful strategies focus primarily on the patients and link secondary value-propositions to each of the participants.

As in investment, we should not put our eggs in just one basket. There is no single participant (physicians, patient, health plan, hospital etc) that is strong enough to deserve more than 50% of your product strategy.

Cross-Functional Work

Although this is not a new concept, it has gained a lot of importance lately. And if you want to know a little bit more about me, this is also the reason I temporarily left the “pure” Marketing area to work in a Market Access division.

Marketing campaigns should not start the moment products are launched in the market. The Marketing part should be involved since the beginning, during the product development phase. And I’m not referring to only Market Research.

Taking me as example, my Market Access experience taught me how to assess and estimate clinical and economic benefits of products in development. Later, I can validate those assumptions and estimations in the market, which will significantly increase my product’s chance of success after launch.

In order to better analyze a diversified and changing market, you should invest a couple of years working in or at least closely with different areas. Marketing professionals need to understand the major implications for their products, from regulatory aspects to health plans reaction. Once more, this is not a threat but an opportunity to be head and shoulders above others who only dare to use the Marketing perspective.

The great Marketing Professional is more than just a Marketing guy. He understands the market as a whole and how to apply cross-functional knowledge to shape the market.

Final Words

As I said, my intention was not to make an HR guide, but to focus on those personal skills that are among the strongest ones for a Health Care Marketing professional. There are others, and I invite readers to list them as well.

Hope you’re enjoying this blog as much as I am. Suggestions and critics are always welcomed!

Ernesto M. Nogueira

The Public Arena

Last Post Review

In my last post I basically demonstrated that Employers (companies) are among the most important stakeholders in the health care business scenario. And that is because, in most cases, they pay for most of the medical expenses.

Having said that, what are we doing to target employers? Are we focusing on them with our Marketing strategies?

My Answer to the Last Question

“Since the average U.S. employee stays at job for only 4.5 years, is it enough time for companies reap the benefits of investing in their employees’ health?”

My answer is: it depends! (that is the best answer we learn in the MBA!) And indeed, it depends on the patient’s (employee’s) medical condition.

Employees with chronic diseases tend to stay longer in their jobs; and that’s basically because their companies keep paying for their expensive drugs. Thus, employees that have heart conditions or Diabetes, for instance, usually look forward to staying in their jobs.

On the other hand, asymptomatic employees (without disease symptoms, which may be or not “healthy”) have a shorter turn-over rate. However, they respond better, and quicker, to corporate health programs.

In summary: YES, it is worthy to invest in your employees’ health, especially on those with chronic conditions.

Feel free to send me your comments.

The Public Arena

As you may have noticed, I’ve worked for the World Health Organization, which exposed me to more than 10 different governments in the America and Europe. In addition, I held a position with the Brazilian Ministry of Health and had my MBA summer internship focused on the US Public Market. All that said, the Public Arena is definitely something which I’m at least familiar with. And, like it or not, governments across countries think very much alike!

There are two aspects that define a really good Public Health Care Strategy:

Partners, Not Clients

Partnership is the name of the game. Governments are usually cautious when dealing with health care companies, and that is basically because their value proposition is very different from ours. While we focus on market growth and profit, governments essentially want to demonstrate results to the population.

The problem; or, should I say, opportunity; is the fact that most governments don’t know how to collect data and demonstrate results. I remember I public campaign that was focused on Preventive actions against Heart Diseases. Although the message was clear, and the targeted population was demonstrating a change of habits, that government was not able to translate the benefits into numbers. In other words, the government didn’t know how to show how well tax money was spent on Preventive Medicine; which eventually led to the campaign cancellation.

How can companies help governments to identify and measure the positive outcomes of investing in a certain condition? The first step is to treat governments not as clients, but as partners. And, by definition, a partnership occurs regardless of money incentives. If you pay someone to do something, that cannot be called partnership (maybe a very positive commercial relationship).

Promote Results

It is better to treat 10 individuals and demonstrate the results than treating 10,000 individuals and do nothing with it.

Any Marketing campaign focused on governments should consider a few approaches to identify measure and promote the benefits. Few governments have these skills in their PR area, which is a very promising venue for developing a relationship which will, hopefully, lead into a business deal. Not the contrary.

See this article about a partnership among the Natural Sciences and Engineering Research Council of Canada, Merck Frosst Canada Inc and Boehringer Ingelheim (Canada) Ltd. The deal resulted in a $915,000 grant towards the establishment of a Industrial Research Chair, which is a promise for strong pharmaceuticals innovation.

Final Words

Overall, the public markets may represent either low ROI or very long-term efforts to companies. However, they are also the major market, and it doesn’t make sense to leave them out of Marketing strategies.

See you next time; keep sending me your comments or e-mails!

Ernesto M. Nogueira

Focus on Employers

Last Post Review

My last post described the complex scenario of health care business. In summary:

1) The market is more than companies, physicians and patients.

2) Market stakeholders are also health plans, hospitals, government and others described in the post.

3) If you want to have a successful Marketing strategy, your product must deliver a specific value for each stakeholder.

And don’t forget: each stakeholder demands a different value proposition!

My first feedback: According to one of my colleagues, the last post “Creating a Multi-Stakeholder Approach” was very complete but too technical.

I accept the comments and appreciate the frankness. This blog is focused on the strategic-level discussion around health care business and it seems my last post went a little bit out of the scope. I will keep further discussions at a higher level and, if necessary, we can all dive into a certain topic using the comments section or exchanging e-mails. Thank you again!

Employers, the Big Payors

Employers may have the largest stake on the health care business, and that’s because of one single reason: they pay the majority of medical costs. If we take the example of Brazil, employers pay approximately 80% of managed care costs, and finance a significant portion of public health with their tax payments. This is not very different in the U.S.

However, employers are usually one of the less involved in health care discussions. Usually, they don’t realize how much profit (yes, profit) can be made by managing employees’ health. On the other side, few health care companies know how to promote their products to this segment.

But the situation is changing. See this very short list of articles that give real-world examples of the discussion around employers and health care costs.

What Fat Costs America – Forbes; November 8, 2007 (article)
Quotation:
“Obese people miss more work, costing employers something on the order of $4 billion.”

The Public Face of Wal-Mart’s Health Care Program – NY Times; November 13, 2007 (article)
Quotation:

Q: “When you think about solving the American health care crisis what are the roles of an employer like Wal-Mart, the government and the individual worker?”

A: “Clearly, we need to do something differently (…) We believe there is always a role for the employer, as well as the individual and the government. So it’s shared responsibility.”

Judges Tell San Francisco It Can Begin Health Plan – NY Times; January 10 2008 (article)

Quotation:

“The unanimous decision, from a three-judge panel of the United States Court of Appeals for the Ninth Circuit, allows the city to require businesses with more than 20 employees to pay a fee to help cover employees’ health care costs…”

Company Clinics Cut Health Costs – NY Times, January 14, 2007 (article)

Quotation:

“Within the last two years, companies including Toyota, Sprint Nextel, Florida Power and Light, Credit Suisse and Pepsi Bottling Group have opened or expanded on-site clinics(…) Today a new wave of clinics is opening, driven largely by a motive that was less of a factor in the past: employers’ desires to reduce their health insurance premiums by taking care of workers before they need to see outside doctors.”
“A clinic serving a couple thousand employees can probably save $1.5 million to $2 million a year,” said Mr. Beech, a health care specialist at the Watson Wyatt benefits consulting firm.”

Aiming at the Value Proposition

Let’s remember our Income Statement: Revenues (minus) Cost of Goods Sold (equals) Gross Margins.

Gross Margins (minus) Sales, General and Administrative expenses (minus) Depreciation (equals) Earnings Before Tax and Interest, or Operating Profit.

If you still need a cheat sheet, see below:

As a classical approach to increase Profit, you should either increase Revenues or Decrease Costs. Considering that almost all approaches to increase Revenues (enter new markets, target new customers, increase prices, sell more…) demand higher investment in Advertisement and Marketing Campaigns, it is very unlikely that profits will grow as much as sales. You don’t need to be an MBA to reach this conclusion.

That leaves us with the less risky way to increase profits: reduce costs. Let’s see how it applies to our situation.

For instance, your health care company sells a product that reduces length of stay in the hospital by 2 days on average by patient. How much that translates into value for employers?

Benefit: less 2 days of LOS
$ Benefit: Cost-savings of $200 (each day in the hospital is around $100)

Company XPO has 1,000 employees that could benefit from this product in one year

Potential cost-savings: 1,000 emp x $200 = $200,000
And by the way, that benefit goes directly into the Operating Profit

Now the final question: How much more sales (units or $) should Company XPO make in order to reach the same increase in Operating Profits?

Suddenly, your product can be a terrific asset for a company looking forward to improving its bottom line. Your value proposition for employers should then be divided into two parts:

Part 1: “My product can help Company XPO reduce medical costs by $200,000 in one year, thus increasing Operating Profits.”

Part 2: “If Company XPO would like to see the same result, they would have to increase sales by (%, more units, more $...)”

The Invisible Impact

So far, we have been discussing the “Direct Costs”. These are the actual visible costs that companies can assess by checking claims and bills. But Direct Costs are far from being the end of the story.

In 2006 the Thomson Corporation estimated that Migraine Headaches cost U.S. employers more than $24 Billions annually (see the article here). Of these $24B costs, slightly more than 50% were due to Indirect Costs. These hidden costs can be divided into Absenteeism and Presenteeism.

Absenteeism is the absence of a worker from his job, in our case due to a medical condition. It can be easily translated into costs by multiplying the worker’s hourly wage by the number of hours he is absent from work. The final number will represent how much the company is investing in an employee while getting no return form his work.

John’s hourly wage is $30

John has been absent for two days: 2 days x 8 hours/day of work x $30

Total Absenteeism cost of $480. In other words, the company lost $480 since John didn’t work or produce anything during those 2 days

Remember the case about Company XPO above. Do the math: $480 absenteeism cost/employee multiplied by 1,000 employees…Much more than the Direct Costs we calculated!

Presenteeism happens when employees are working in spite of medical problems. The concept is very straightforward: if you have an employee feeling pain or any other kind of discomfort, he or she won’t be able to concentrate and, thus, will produce less than expected. Healthier employees work faster and more productively.

There are several ways to calculate Presenteeism, and I strongly recommend only two approaches:

1) Speak with your target employer. Ask if he understands the Presenteeism costs related with the condition and discuss ways to measure it.

2) If the first approach doesn’t work, look for published papers for relevant data.

Wrapping-up

Step 1: See how much Direct Cost savings your product can generate for a certain employer. The most challenging part will be to get the employer’s cost structure.

Step 2: After you get the numbers, assess the benefits of reducing Indirect Costs. Don’t forget to break it down into Presenteeism and Absenteeism.

Step 3: It is always a good idea to see how much familiar the employer is with the concept of Direct/Indirect Costs before demonstrating your results.

There is much more I’d like to describe and discuss, but I must refrain this blog to a strategic discussion. However, feel free to contact me for any other information you would like to share or receive in regards to employers.

Before I finish this post, I want to provoke you with a question:

“Since the average U.S. employee stays at job for only 4.5 years, is it enough time for companies reap the benefits of investing in their employees’ health?”

Let me know your thoughts. My answer will come with the next post.

May we all improve our value propositions for our clients!

Look forward to hearing from you,

Ernesto M. Nogueira

Creating a Multi-Stakeholder Approach

Last Post Review

In my last post I approached the reasons that led me to start this blog. In summary, the changing health care market and increasing barriers to access to new medical technologies are significantly impacting business. The proposal is to develop a channel where my ideas can (hopefully) stimulate other health care professionals to participate and share their thoughts. The health care market has changed, and health care business must change as well to be effective.

Multi-stakeholders?

The word “stakeholder” has a few definitions. Here it refers to a group which has a share or interest in something. Thus, stakeholders are participants of the health care cycle which impact and are impacted by health care businesses.

We typically divide the market into companies, physicians and patients. Although incomplete, this scenario already brings three stakeholders to the table. However, this is not how things work; health care is much more complex, and therefore demands more comprehensive business strategies than simply “focus on key opinion leaders for driving growth”. Let’s see why…

Imagine you work for a Biotech company (feel free to substitute it for a medical device or pharmaceutical company as well) and are about to release a new product in the market. You probably have already done a few things: identified epidemiological factors (related incidence and prevalence), defined a price that will provide you a good ROI and NPV, positioned the new product versus competition, talked to patient groups to gain support, spoke with KOL physicians etc. However, have you asked yourself how will patients gain access to this product; in our case, a new compound? After all, several stakeholders interact between your company and the patient, and I’m not limiting myself to physicians.

To get a better idea, take a moment to analyze the image below. This is a perfect representation of the path followed by our new product until it reaches the patient.

Basically, we see 5 groups:

Manufacturers: Companies that develop and commercialize medical products (in this case, our Biotech company). Note that we include distributors because they usually participate in the commercialization process, or have you forgotten about them? After all, they have their margins, right?

Payers/Regulators: These are the most critical stakeholders nowadays because 1) they are the ones paying for your product (not the patient!); 2) they are hardly ever considered in health care business strategies; 3) finally, they may block access to your product which, in this case, will turn any great marketing strategy in dust. We’ll see more of them in this post.

Providers: The physical location where a medical professional will deliver care to the patient. Hospitals represent only one side of providers (although the most expensive side). There are business strategies focused solely on changing the provider channel, which may significantly reduce the cost of your product. Will your Biotech compound cost the same if applied in an ambulatory site of care versus a hospital? Imagine which one of these two providers has the most expensive cost structure.

Medical professionals: Note that I’m not using the word physicians. There is a type of professional that stays much closer to patients and delivers much more care than doctors: we need to recognize the importance of nurses to the system. And, of course, nurse assistants and medical staff.

Patients: Last, but not least. Great health care planning considers Patients as the final clients, and therefore, deals with all other 4 stakeholders groups in a way to maximize value (medical outcomes per $ spent) to patients. Yes, that is the same thought described by Prof. Michael Porter in his book “Redefining Health Care”. I absolutely recommend it!

And that is our health care market scenario. Does your business strategy reflect it?

Implications for business

OK, now that we understood who the health care stakeholders are (or participants, or actors), let’s focus on the purpose of this blog. What are the implications for business?

Two paragraphs above, I asked if your business strategy reflects the market, so let’s start there. Why do we need to consider all stakeholders in our strategy?

Remember Marketing 101: Segment, Target and Position your product. Divide the market into similar groups (Segment); Identify those groups most likely use your product (Target); Develop a message that will differentiate you from other competitors in the target customers’ minds (Positioning). How does it apply to the health care market?

Segment: See the image above again, your segmentation is there. Remember, patients are final clients, not the only clients. Segments: Payer, Provider, Medical Professionals, Patients. These are all your clients.

Target: Not much to do here, but consider all of them. Why? Because as opposed to other industries, if one stakeholder decides to block your product all the others may not have access to it. For instance, if a health plan does not recognize the value of your Biotech compound and doesn’t pay for it, neither patients will use it nor medical professionals will prescribe the product.

Positioning: Remember this: Each stakeholder has a different value proposition.

If stakeholders don’t understand the benefits of your product, they will block it. Read this January 9 article about the Pharmaceutical industry research drought in the US.

One product: different value propositions

Remember that your medical product represent different things to each stakeholder. Let’s use again the example of a Biotech compound, but remember that it perfectly applies to any other medical product (i.e. device or pharmaceutical).

For a moment, imagine that the product has FDA approval and is about to enter the market. You know it will significantly improve patients’ quality of life by minimizing certain disease symptoms and pain. However, not everyone wants that.

Manufacturers: They want ROI at the end of the day. And there is nothing wrong with that! On the contrary, they are in business for it and will reinvest a portion of profits to develop even better products.

Payers/Regulators: Minimize risks and costs. Risks: do they know that your product may lead to (expensive) complications? Are medical professionals adequately trained to use the product? Are outcomes sustainable? Are there evidences that demonstrate that the product works in real conditions (effectiveness)? Costs: if I pay for this compound, I need to stop paying for something else; after all, I don’t have budget to pay for everything. What technology does this Biotech compound substitute? Am I going to have a return on this investment based on either lower patient’s complications or less use of medical products in the future?

Providers: Do I need to train my staff? What minimal infrastructure is required for the product (i.e. at a certain temperature)? Do I need to make capital investments?

Medical Professionals: Are there clinical and economic evidence demonstrating the real benefits of the compound? Is it quick to deliver, or am I going to spend a lot of time with just one patient?

Patients: Does it improve my condition? Do I have private or public coverage to pay for this product? Does my family need to pay out-of-the-pocket, deductibles or any other expenses?

Recently I had the pleasure to join what I consider as the best health care business meeting I’ve ever had the chance to participate. The company I worked for was developing a certain product and invited not only medical professionals and patient groups to attend the occasion but also health plans representatives, distributors and providers administrators. At the end, we all gathered invaluable feedback that could be combined and translated into a superb marketing strategy addressing several value propositions. But what made it a brilliant meeting was not only the result, but the timing. The company decided to listen to all stakeholders before finalizing the product itself.

The earlier you decide to listen to your stakeholders, the more you can tailor your product to everyone’s concerns (or fears).

Imagine these two situations:

Situation one: You release an expensive product and months later receive communication stating that health plans are not paying for it. You decide to meet with several of them to see what is going on; after all, that was such as good product!

Situation two: Before the launch happens, you invite several stakeholders to introduce the product and hear their feedback. You realize that unless you demonstrate its long-term benefits (reducing others costs), health plans and government won’t pay for it. You do your homework and develop real-world analysis to demonstrate the cost-savings of using the product versus alternatives. You include it into your marketing message and launch the product.

In your opinion, which situation is more likely to lead to success?

Wrapping up

Lesson #1: Recognize the different groups and actors in the health care market.
Lesson #2: Each stakeholder has a different value proposition.
Lesson #3: Address all value propositions with your Marketing strategy.

Final lesson: The earlier you do it, the higher your returns will be. And don’t worry, (really) good products can generate value for all stakeholders.

But what if you have already launched the product and are currently facing issues with stakeholders? Well, either you don’t have a good product or you may need to change your Marketing strategy. This is certainly a topic for the future.

In the next post I intend to focus on Employers, the real payers of health care. Let's understand the Marketing implications for us.

Send me your comments!

Ernesto M. Nogueira

Why this Blog and why it now?

The health care system has been facing a notorious rise in costs for the past decades, and the last years have pointed to an approaching failure of the system. In very few words, there is not enough money to fund health care for all individuals. The problem has many facets, and the simpler one is the fact that medical costs have risen more than inflation and overall salaries.

This is not a problem of a single country; instead, it’s a general aspect that affects all health care systems around the globe. Nevertheless, this shouldn’t be news to any one, as the Media has brought many articles around the theme. For instance, read this article posted by the Ny Times on January 2nd about the current U.S. Presidential race.

Why this Blog?

If we get already enough updated information around the discussions and decisions made on health care, what is the purpose of another source of information?

Although I have no problems to find the latest news on health, I cannot find enough sources describing and analyzing the impacts to health care business. If you consider that as secondary, think again. Science has evolved in a radical pace and we have new promises for treatments and diagnostics that may considerably increase our standards of life. If you’re healthy, you’ll find advanced genetic tests that may predict your chances of having a heart failure, for instance. On the other hand, if you have a chronic disease such as Diabetes, new devices may help you keep you blood glucose under control. And the list goes on…

But again, there is not enough money to pay for everyone’s access to health care. If neither governments nor health plans want to pay for a specific treatment or product, why should we continue to invest in Science? If we want to increase quality of life in the future, with more access to health care, we better start considering the business impact of health care costs for all stakeholders: patients, health care professionals, governments, providers, companies, health plans and employers. One day, we all need access to care.

And this is the reason I’m starting this blog: as an attempt to bring discussion to the business level, hopefully with the help of other professionals such as you! Let’s analyze the impact of the increasing health care costs to marketing strategy, product positioning, segmentation and message, among other topics. We can improve health care business; and by doing so, improve the overall system.

Why it now?

After nine years looking at the health care market from the perspective of NGOs, government and companies at three continents, I felt it was time to start sharing my thoughts and absorbing others’ opinions and experiences.

We should all be unsatisfied with health care. Note that I’m using “should” because a few ones are not. Although some of us either don’t have health problems (therefore, don’t use the system) or don’t have problems to pay for medical treatment (thus, don’t have problems to gain access to adequate care), I guarantee that all of us pay taxes. Not getting into the details of how much tax we pay, I believe we all would like to see our tax money being used in a proper and efficient way. In other words, I believe no one likes to pay taxes for nothing, but for improvements. After all, paying more does not mean getting better treatment: the U.S. has the highest health care expenditures in the world, but much less life expectancy rates than several other countries paying much less for their medical care.

This is definitely not a critic to any government! By the way, I’m tired of listening to one stakeholder blaming another for the rise in medical costs, decreasing standards of care, etc. As mentioned by Professor Michael E. Porter in the (brilliant) book “Redefining Health care”, all stakeholders (or participants) must take action to improve the system. Having said that, I don’t intend to, and will not attack any stakeholder in particular because 1) this is a waste of our time and intelligence; 2) after having worked with different stakeholders, I found no one more responsible than the other for the situation we currently face.

With politicians intensively discussing health care in their agendas, companies looking for ways to improve access to products and individuals (patients) getting more knowledgeable and demanding about treatments, this is the perfect time to start this blog as an initiative to stimulate discussions on how we can improve health care business. This means getting more and better competition around things that really matter as outcomes, instead of focusing on sharing risks or denying access to adequate care.

Again, health care business is everyone’s matter, and all stakeholders should act in conjunction to improve the system. This blog will mainly focus on the role of Life Science companies, but I also intend to explore (and welcome comments) about other sides.

One final note

Finally, I believe it would be good to have a certain consistency to my posts to this blog. I intend to post at least one comment per week, but won’t choose a specific date.

Enjoy the blog. Participate and post your comments.

Ernesto M. Nogueira

Welcome

Welcome to my personal blog!

I'm Ernesto Nogueira and this personal blog was created in January 1st, 2008 as one of my first decisions this year. The idea is to share my passion for Global Health Care business with any one interested.

You'll find more info about me in the specific section, but just for a quick intro, I have been working in Health Care Marketing and Strategy for the past 9 years. Throughout this period I have worked in the W.H.O., International Public Health Agencies and Top Global Pharmaceutical Companies (I currently work in one of them).

My two goals here are: 1) to share my thoughts about Global Health Care business aspects and, even more important, 2) to establish a channel where other professionals can share their thoughts as well.

Hope you enjoy the topics and take part in the discussions. BTW, feel free to reach out to me anytime. Critics and feedbacks are constantly welcomed.

Stay tuned and Happy New Year!

Ernesto M. Nogueira