Why we need a new way to judge the value of medicine

A screen displays trading information for stocks; Pfizer, Abbott Laboratories, Merck and Company and Eli Lilly and Company on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., May 16, 2016.  REUTERS/Brendan McDermid/File Photo - RTSVG7C

The healthcare industry is experiencing an unprecedented amount of change Image: REUTERS/Brendan McDermid

Joseph Jimenez
Chief Executive Officer, Novartis AG
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This article is part of: World Economic Forum Annual Meeting

Never before has leadership been more important. Today, powerful trends are reshaping almost every industry, and the Fourth Industrial Revolution is bringing a wave of technologies that are transforming daily life around the world and changing how we work and relate to others. As we adjust to these shifts, strong leadership that builds trust, understanding and transparency is urgently needed.

My industry of healthcare, in particular, is experiencing an unprecedented amount of change. The world’s population is growing in size, age and illness. It’s expected to increase by 1 billion by 2025, adding more than 500 million individuals over the age of 50. Globally, chronic disease deaths are forecast to account for 70% of deaths by 2025. These environmental factors are putting a considerable strain on health systems around the world. The result is increased pricing pressure and a fundamental shift in how investors evaluate new medicines.

But change isn’t just happening in healthcare. Take the hotel and transportation industries, where companies like Airbnb and Uber are totally disrupting the market and transforming consumer experiences. Similarly, we’ve seen the financial and retail industries completely reshaped by mobile technologies that allow customers to bank and shop on the go.

As we adapt to a shifting landscape, strong leadership – and a workforce rallied behind its leaders – will be the most important factor in whether or not a business is able to compete and succeed. This is especially true for healthcare, which in addition to experiencing dramatic change, is also suffering in terms of its reputation. Positive views of the industry have steadily declined in the past few years. Recent high-profile controversies, particularly related to the price of drugs, have done further damage.

To not just survive, but thrive in today’s business landscape, leaders need to refocus on value in two ways. The first is the value a company delivers to society – the reason it exists. The pharmaceutical industry needs to work harder to show its value, particularly for the patients who rely on our medicines, the healthcare professionals who prescribe them, and the investors and governments who fund them.

A person receives a test for diabetes during Care Harbor LA free medical clinic in Los Angeles, California September 11, 2014. REUTERS/Mario Anzuoni/File Photo - RTSFORP
Proper use of medication for chronic illnesses, like diabetes, could save the US billions Image: REUTERS/Mario Anzuoni/File Photo

An important piece of this is the way our industry prices medicines. Today, there is a huge amount of waste in the system and many things that cost valuable healthcare dollars have minimal effect on patient outcomes. For example, with the proper use of medicines, chronically ill patients could avoid expensive hospitalization and emergency room visits, potentially saving the US healthcare system $213 billion annually. Collectively, we need to cut out inefficiencies by looking at all costs in the system and focusing on interventions that deliver the most value.

Research suggests that if health systems and policy-makers could stop treatments that aren’t working, healthcare costs in the US could be reduced by 25%. We need to shift the conversation to focus on value and outcomes delivered, rather than on isolated costs of therapies.

At Novartis, we are exploring ways to better align drug prices with value. Moving toward a system that is focused on the value a medicine delivers would be a fundamental change in how we do business and how we think about our products. It is also higher risk for the pharmaceutical industry to be paid based on outcomes, rather than on the number of pills sold. Many stakeholders may take a short-term view, questioning the upfront costs associated with such a change, but long-term thinking is needed to create sustainability for the healthcare system.

This shift will require greater levels of transparency and open dialogue, and I hope that we will be joined by governments, regulators and investors in making this vision a reality.

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At the same time, we must also refocus on the value within our workforce. This is not only the economic benefit that comes with steady employment, but the value that employees deliver to society by contributing their skills, passions and talents toward a larger, meaningful purpose. This is especially true for the millennial generation, which represents our future leadership. According to a recent Deloitte survey, 60% of millennials identify “sense of purpose” as part of the reason they chose to work for their current employers. More than ever before, what a company stands for and the impact it makes on society will determine its success or failure.

When I first became CEO of Novartis, I started bringing in patients to talk with our employees. I wanted to increase these interactions and highlight the impact our work has on the lives of real people. We then introduced an internal programme, Long Live Life, to rally our people around our mission and deepen our patient focus. We also changed our commercial structure to become more customer-focused.

In times of change, extraordinary leadership is required. Leadership that not only sustains an organization and an industry, but prepares it to lead in the future. As we look to a future that for many industries is fundamentally different than anything that has existed before, let us rely on a constant that will always be needed: strong leadership that is focused on the future.

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