Is it fixable?

Is it fixable?

Lately Diabetic Investor has given a great deal of thought as to whether or not there is any chance that the market for conventional glucose monitoring is fixable. Or perhaps, put another way, are there any strategies that can be implemented by the major players that would lessen the blow from competitive bidding and its related fallout. It’s important to remember that as bad as things have become this is still a huge market and while not as profitable as it was just a few years ago, these products still carry a pretty decent margin.

As we have been reporting for some time the major players – LifeScan, a unit of Johnson and Johnson (NYSE:JNJ), Roche, Bayer and Abbott (NYSE:ABT) – have all followed similar strategies cutting costs wherever they can in an attempt to maintain margins.  While cutting costs will save money in the short term, Diabetic Investor believes this zeal to cut costs will likely have negative long term consequences and without trying something different, perhaps radical, these companies will face some very difficult decisions.

The fact Bayer could not sell their diabetes device unit is clear evidence that even when a company decides they’ve had enough, putting a reasonable deal together isn’t as easy as it sounds. The simple truth is potential buyers of this unit asked the same questions Diabetic Investor has been asking; what happens after the deal is done. As we noted previously buying the unit was only the beginning of a long and costly journey which may or may not pay off.

The general consensus among industry experts is that the conventional BGM market will split into two distinct pieces, the haves and the have not’s.  The haves can be defined as insulin using patients with private insurance, the have not’s Medicare patients or those with substandard private insurance. The have’s will have access to the more advanced systems while the have not’s will be pushed into cheaper imports. The biggest loser here will be compliant non-insulin patients who are already seeing their co-payments rise and will soon see further restrictions as insurers try and limit their costs. As we have noted the key to success for the name brand players is to capture as many insulin using patients as possible.

Looking further into the future the hope is reimbursement policies will change and that physicians will be rewarded not just for treating patients but actually producing better patient outcomes. A move that most physicians, both primary care and endocrinologists endorse provided the standards set aren’t overly complex and take into account the variances of diabetes management. After speaking with several respected diabetes thought leaders the belief is that while HbA1c is a good tool to measure outcomes, this measurement should not be the only one used to judge success. For example, research has suggested that it may be unwise for certain types of patients to strive for an HbA1c of below 7 as this may lead to greater hypoglycemic episodes, while for other patients the goal should be an HbA1c of 6.5 or lower.

One of the positive trends in diabetes management has been the view that diabetes is not a one size fits all disease and it should not be treated as such. More and more physicians are now taking account other factors and not just HbA1c as their standard for success or failure. The reason this could be a positive sign for BGM is that almost universally these physicians indicated that would play a far more active role in the patient’s diabetes management and would embrace tools that help in this effort.  Like Diabetic Investor they see the trend towards interconnected diabetes management but until properly compensated it would difficult for these physicians to actively promote them to their patient base.

The first domino that must fall for these systems to go from theory to actual widespread usage is changing the way physicians are reimbursed and paying some sort of bonus for producing better patient outcomes. Once this domino falls it will knock over a series of dominos where physicians will actively seek systems which help them play a more active role in their patient’s diabetes management.

Unfortunately the news for the have not’s even with a change in reimbursement policies is not as promising given the governments zest for cutting cost it is unlike under the new competitive bidding era that Medicare patients, even those using insulin. The simple fact is an interconnected system would be too costly and although Medicare would save millions, possibly billions of dollars if patients were under better control, Medicare is known to penny wise and pound foolish.

The one possible saving grace and this is an extreme longshot would be a patient driven outrage which would force Medicare to change their policy. This could happen as once competitive bidding goes into full effect it is highly likely that Medicare providers will force patients to switch to a lower cost system or tell them they have to pay more to stay on their existing system. This may seem cruel but if Medicare providers are to have any hope at all to make money they will have no other choice. Considering that Medicare patients vote in great numbers it is not outside the realm of possibility that they will not like being told they can longer use their existing system and take out their anger on Congress.

Still the major players cannot hang their hat on this possibility and must instead make every effort to capture the insulin using patient.  These players also must come to grips with the reality that the old marketing efforts, i.e. television and web ads just don’t work anymore and that giving away a boatload of free meters does not necessarily do anything more than create additional costs. The real key is getting the insulin using patient who now has a free to meter to get a prescription for that meter and use it on a regular basis.

We’ve said it before and we’ll say it again; the time has come for some way out of the box thinking and time is running out.