Everyone knows how important reimbursement analysis and planning is to the success of innovative life science products – devices, diagnostics, pharmaceuticals and biologics. Ask any venture capitalist, private equity investor, strategic marketing analyst, or C-level executive; go to any new technology conference or seminar. The story is consistent and near universal: reimbursement is a critical success variable – if not the single most critical, then certainly one of the top two or three; reimbursement uncertainty is widely recognized as a principal barrier to the clinical adoption and commercial success of innovative medical technologies.
Yet despite the depth and breadth of the belief in the centrality of reimbursement to commercial success, the same respondents will likely acknowledge that most young life science companies fail to make adequate or timely investments to analyze their reimbursement obstacles and/or opportunities, or to plan to address them. How can we explain this disjunction between the widespread recognition of a critical strategic issue and the frequent failure to address it effectively?
Each case is unique, with its own narrative and combination of contributing factors. But some of those factors may be observed across many cases, and help to provide the core of a general explanation for the failure of young life science companies to do timely and effective reimbursement analysis and planning. Three such factors deserve special mention:
Financial and personnel resource constraints common to life science startups demand that management make choices among competing demands; the payoff from investment in reimbursement analysis and planning seems distant, while investments in basic science, product design, prototype manufacturing, supply chain logic and/or other product development issues yield immediate returns in the form of milestone achievement and the ability to move a linear step-by-step development process forward; as a result, deferring the reimbursement investment is often the “obvious” option; the belief is that investment in reimbursement will pay off in the marketplace, but that it doesn’t build enterprise value along the way;
Reimbursement is often viewed as a modular function, largely independent of other strategic and operational activities, that can be “dropped into” a company without substantially affecting or being affected by other critical functional areas; this view creates license to begin thinking about reimbursement “when we’ve gotten past our critical technical challenges” or “once we have our clinical program well defined” or “once our next round of funding comes through and we have the financial capacity to make new hires”, etc.; companies believe that dealing with reimbursement can be delayed because there is no perceived cost to delay – so long as there is payment available for the product when it finally comes to market; and
For the first-generation leadership of many life science companies, those with primarily technical or clinical training and background, the vocabulary of reimbursement comprises an impenetrable foreign language, and the mechanics of our systems for medical technology reimbursement are illogically complex; the truth of these perceptions is irrelevant; true or not, they have the effect of reinforcing the tendency to defer dealing with reimbursement issues in favor of other issues that are in the decision makers’ areas of personal expertise and comfort; no one enjoys dealing with an issue that “thinking about … makes my head hurt” or “I need to have explained over again time after time, and can’t seem to ever retain…” (these are real comments from clients about reimbursement planning!); it is easy, in that situation, to let the subject slide, to convince yourself that you can deal with it later.
The truth is that deferring reimbursement analysis and planning is far more expensive than addressing it early on. Early investment in reimbursement yields enormous long-term payback in terms of total product development cost and time to revenue as well as potential short-term benefits in enterprise valuation. The notion that reimbursement can be dealt with as a discrete and independent module is flatly wrong. Reimbursement issues cannot adequately be addressed unless reimbursement strategy is understood as integral to every stage of corporate business, product development and clinical strategy. I’ll expand on these points in subsequent blog postings. But the takeaway should be clear: for young life science companies, deferring reimbursement analysis and planning for technologies under development can be an extremely costly strategic error.