The Road Less Traveled
For years we along with many others have been clamoring for outcomes to truly matter. That how wonderful and impactful it would be if better outcomes actually mattered not just to patients and their physicians but to payors. Keep in mind when it comes to any piece of diabetes technology or any drug not much is going to happen unless it gets into the hands of patients and payors control this critical piece of the diabetes food chain. And unless we missed something payors still care about one thing and one thing only, money.
Even with these so-called value-based or outcome based deals being made outcomes only matter to the extent they get the payor a lower price without calling it a discount or rebate. Put in simpler terms this has nothing to do with outcomes and everything to do with money. Yep it looks good and sounds good but it isn’t necessarily designed to do good.
This is one reason lots of device companies employ economists who specialize in showing payors how their toy saves the payor money. One would think payors would know how many patients use an insulin pump and how many of these people are visiting the emergency room but the fact is they don’t. They sure as hell know how much they spend on insulin, metformin and just about every other diabetes drug but insulin pumps usage isn’t a big number for payors.
This is one reason it may take some time for payors to adopt Tyler even though Tyler can save payors money, something they love to do. As much as we along with many others believe Tyler will help patients achieve better outcomes the burden is on the companies who produce Tyler to prove to payors it saves them money.
Another hurdle Tyler must overcome is working within the labyrinth of reimbursement codes used so these systems can be paid for. Many of the Tyler companies are seeking to move away from the traditional reimbursement model of pay for all the pieces of the system separately to a monthly subscription model or what we call the Shave Club for Men model. While we strongly believe in this model there is one huge problem with it as payors are not set up for it. So proving Tyler saves money is just step one, getting payors to adjust their thinking to a monthly subscription model is step two.
This is one reason we see the insulin companies having a major strategic advantage when it comes to Tyler as they are perfectly content with the existing reimbursement model have no desire to move to a monthly model and are perfectly content to make money on the insulin used by Tyler. Whether it’s a durable pen or disposable we see the insulin companies giving away their particular toy. This is in sharp contrast to the toy companies who make money from the sale of the toy.
At ADA we asked one of the insulin pump companies why they haven’t moved from the traditional reimbursement model to a monthly subscription model. Why instead of having the payor pay a large upfront cost for the pump and then more costs for pump supplies did they not just charge a monthly fee which would eliminate the high up front cost and provide a more predictable revenue stream. The answer was payors are not set up to work in this environment even though it would ultimately save them money. So rather than reinvent the wheel they work within the current environment.
Now some may say Insulet has eliminated the high upfront cost with their pay as you go pricing which is only partially true. In essence Insulet is working within the existing reimbursement environment yet is taking a road less traveled moving from a durable medical equipment (DME) benefit to a cheaper pharmacy benefit. A benefit payors are perfectly comfortable with. This benefit fits perfectly with the OmniPod whose only durable is the PDM, something that will be eliminated in the near future. Put simply Insulet has gone Shave Club for Men within the existing reimbursement infrastructure.
Abbott has done the same thing with Libre and Dexcom is now moving here as well. These companies understand that its easier to work within the existing system than to change the mindset of payors. Or as they say in Chicago it makes no sense to fight city hall.
The Shave Club for Men reimbursement model will only work if adopted by non-traditional diabetes companies who have two things, massive scale and boatloads of cash. Lots of people thought Cramer was crazy when he said that Apple should buy Tandem and Dexcom and then adopt a shave club for men model. Crazy like a fox as we see it for three reason;
1. Apple can easily afford the acquisitions.
2. It fits perfectly within the existing Apple infrastructure.
3. It adds revenue for Apple that does not come from the sale of $1,000 iPhones.
We don’t see the traditional payors driving this move to Shave Club for Men, we see companies like Apple, Google and Amazon driving this change. Asking a traditional payor such as Unitedhealthcare to move to this model is like asking Steph Curry to change his game, stop shooting so many three-pointers and begin dunking the ball more. Not only is this non-starter it’s also pretty stupid. Let’s face some hard and very pesky facts no one likes change very much and traditional payors are no different.
The question now becomes does Apple, Google or Amazon want to drive this change. Honestly we have no clue. They can easily afford it and have the infrastructure in place so no problem there. They are making the deep dive into diabetes so no problem there either. The question is do they really want to be have the desire to be that disruptive.
Many times we state that the business of diabetes interferes with the treatment of diabetes. It is equally true that there are structural forces which stand in the way of change. Structures which have been in place for many years. The diabetes game isn’t about having the coolest toy or the best drug fundamentally its about getting these toys and drugs into the hands of patients. Patient access is perhaps the most overlooked metric in diabetes.
As an ex-diabetes device executive once said this game is not just about the ability to make the product or support it. It’s also about getting that product into the hands of patients which means someone has to pay for it. The Shave Club for Men model may have many advantages but it is the road less traveled. Until someone is daring enough to travel down this road we’ll have to be content and work within the existing infrastructure in place inefficient as it may be.