Can This Outsourcing Model Save Health Care?
July 19, 2015
By Louis Garguilo, Executive Editor, Outsourced Pharma
Follow Me On Twitter @Louis_Garguilo
A company has been formed to push aside the intermediaries standing between new drugs and the patients that need them. In the process, says Cynthia LaConte, CEO of Dohmen Life Science Services, this model of “intelligent outsourcing” will start to improve health care efficiencies and lower costs.
Other industries over many years have focused on cutting out layers (and managers) between producers and consumers. Why have we continued to add to the middle in health care?
LaConte for one says enough is enough. Through the addition of nine companies to the manufacturer services company she founded in the 90’s, she’s formed a single outsourcing organization to connect life science innovators more directly with patients. DLSS is starting with a primary business focus on orphan drugs and targeted markets.
“The healthcare system is inefficiently oriented towards too many intermediates focused on achieving volume,” LaConte says. “If your goal is to sell as much product as possible, it’s doubtful you’ll be paying much attention to a holistic-care model that benefits the patient and lowers overall cost. You’re more inclined to be worrying about maximizing product sales.”
Better Serving The Precision Patient
LaConte says the real expense in health care comes from conflicts of interest among a myriad of players – including PBMs (pharmacy benefit managers), wholesalers, 3PLs (third-party logistics providers), specialty pharmacies, and other “hub” service companies. Left out: the real interests of consumers.
“Maybe six different players sit between a life-science company with a new drug and a patient with a rare disease,” says LaConte. “These are layers of cost. As medicine becomes increasingly targeted, and patient populations become better defined and smaller, this bloated system doesn’t work anymore.”
Currently, the economics of health care includes, among other mark-ups on the price of a drug, wholesale-distribution agreements that tack on anywhere from 2 to 8 percent of product sales, specialty pharma agreements adding 2 to 5 percent, and PBMs adding cost with backend rebate agreements. LaConte says DLSS changes all this to a transparent, fee-for-service-like model for the functional capability her organization provides.
The DLSS model for direct patient-engagement was inspired by early biotech pioneers like Genzyme, “a company that establishes relationships with patient communities in the earliest stages of R&D to help develop products and services, and deliver the best care-model to patients,” says LaConte.
To implement its business model, DLSS is integrating companies that have separate pieces of the supply chain, such as BioSBoteria (risk management); Centric Health Resources (health management); MedComm Solutions (call center); and Reglera (Regulatory and Quality Services); and other Dohmen companies such as DDN (storage); Siren (relationship marketing), and Red Arrow Labs (technology).
“We’re collapsing the entire infrastructure,” says LaConte. “We asked, “What would this look like if the patients could design health care?’ That paradigm shift causes you to strive for simplicity.” She says profitability shouldn’t be driven by selling more product, but through the delivery of the best outcomes and greatest value to patients. It’s a conversion from volume-based to value-based transactions, and from a sales-revenue to a service-revenue model. “This is what the entire industry is grappling with,” she says, and then adds: “This in practice could help save health care from economic collapse.”
The Sound Of Success
DLSS usually first “touches” the actual product when the CMO (or drug manufacturer) ships it to one of three third-party licensed facilities – totaling nearly a million square feet – in Memphis, Ontario (CA), or St. Louis. DLSS also handles patient requirements pre- and post-filling, and takes on the role of dispensing pharmacy and delivering product and care into the patients’ homes.
LaConte counts 10 strategic clients currently deploying their “Direct to Patient” program, but she won’t name any for confidentiality reasons. All told, DLSS has just under 200 clients on “long-term service contracts.” Total customer make-up is around 65% traditional pharma, 25% biotechs, and 10% med device.
She does mention a client with a therapy for Alpha-1. She says DLSS contributes to top-line revenue via a patient-retention rate 20% higher than standard in the industry. (To put that in perspective, assuming an annual, average therapy cost of $100,000 for a small launch-program of 300 patients, it could mean an additional million dollars in annual revenue.) For the Alpha-1 program, DLSS increased enrolled patients from an initial 1,500 to 4,000 over a multi-year initiative. The program is experiencing 96% patient compliance, 98% patient loyalty, and 98% patient satisfaction.
For another client with a product in the endocrine space that DLSS was brought in to manage, the first 30-day period of a patient program saw a 20% increase in actual tablets dispensed, and an 8% increase in compliance.
Overall, LaConte says her clients experience “an average channel margin-savings of 17%.”
That’s an efficiency, if repeatable and sustained, able to serve notice to every corner of the healthcare industry … and delight drug-makers and consumers. Correctly measuring, and making public, the value that these efficiencies bring to the entire healthcare system are both vital activities. I for one would like to see DLSS and some of its Pharma clients provide us with detailed case studies to aid in this cause to streamline health care.
In fact, CEO LaConte might have intuited a sympathetic ear as we went through our conversation, and if so she is correct. I’ve written that the healthcare system suffers not specifically because of Pharma’s drug prices, but rather because of an overweight and unresponsive system of intermediaries, and government interference. I’ve also written that the widening and growing role of outsourcing – in all its forms – is a part of the solution, and again, should be better publicized.
That’s not to say the consolidation of companies into super-companies, or even that the DLSS model, is inherently the best path forward. The major consolidation in healthcare intermediaries – Aetna and Humana just the most recent attempt – would seem to raise more concern for the potential of higher prices and less control for consumers. Many of these mergers seem headed in the wrong direction for an age of precision medicine, and counter to basic principles of free-market economics. But if companies like DLSS can find new models that successfully reduce complexity and cost while increasing patient outcomes, it should spur more industry executives to think like LaConte.
Sign up for updates straight to your inbox.