Keys to the kingdom

Keys to the kingdom

Over the years we have seen many great ideas that never materialized into a profitable sustainable business. Our wacky world is filled with examples of way cool whiz bang devices or services which have faltered because they forgot that like it or not diabetes is not just a chronic disease but also a business. As one former device executive once said this business comes down to three critical elements; can you make it, can you support it, and most importantly can you get it paid for.

It’s this last point we will concentrate on today. The fact is reimbursement policies combined with formulary access/placement are critical elements that determine whether or not a drug, device or service is successful. The growth we are witnessing in the CGM market is a perfect example of this. CGM may be the most transformational tool in diabetes but if the tool isn’t used, if patients don’t have access to this powerful tool, if this tool goes unused it’s basically worthless.

Dexcom and Abbott the leaders in CGM both knew this which is why they spent time and money not just improving their technology but getting this technology covered and reimbursed by the folk who control the keys to the kingdom; payors. The success Dexcom and Abbott are enjoying today would NOT have occurred if they could not get their products into the hands of patients. These systems not only had to work they had to be affordable.

Insulet also realized this as well which is a major reason they switched channels going from DME to a pharmacy benefit. This switch not only made the OmniPod more accessible it also made it CHEAPER. Simply put Insulet made the OmniPod more affordable.

It’s no secret that all the major drug companies fight fiercely to gain preferred formulary placement. They know that formulary position can mean the difference between a drug becoming a blockbuster or just another drug. They know that as diabetes therapies continue to commoditize that formulary placement is as critical to success as is whether the drug works or not.

The harsh reality is, and we have mentioned this many times before this is all about getting as many patients as possible on your drug or using your device. Ultimately the company with the most patients wins the game.

This also applies to the latest hot area in diabetes, virtual physician visits combined with coaching. Thanks to COVID we have seen an explosion in telemedicine. An explosion driven not just by the fact patients could not physically see their physician but driven by the fact these COVID related visits were free. Thanks to these liberal reimbursement policies telehealth went from something used occasionally to the new normal.

We’ve said it before and will continue to say it because it’s true the Teladoc/Livongo merger was a byproduct of COVID. That this deal likely would not have happened without COVID. That there is no way on earth Teladoc would have valued Livongo at $18. 5 Billion without COVID.

Yet what gets lost in this deal and the hype surrounding it is also something else we have noted before; what happens when COVID is over? Will patients continue to embrace virtual physician visits? Will they continue to sign up for coaching? Most importantly of all will these services continue to be reimbursed. Will payors continue their liberal reimbursement policies instituted due to COVID or will they revert back to the policies they had in place prior to COVID.

The fact is since COVID is still here we really don’t know the answers, but clues are emerging. There is no question that telemedicine, virtual visits and telehealth are here to stay. However as the harsh restrictions put in place due to COVID have been lifted or relaxed indications are patients want to go back and physically see their physician. That a virtual visit is ok for some things but not all things.

In what could be an ominous sign payors are also reconsidering and changing their reimbursement policies for telehealth. Major players such as UnitedHealthcare and Anthem have begun to roll back some of the changes they made when COVID first hit the scene. Signs point to a more traditional reimbursement model with patients sharing more of the cost for a virtual visit. We hate to be Captain Obvious here but FREE is always better for the patient and once FREE is replaced with cost-sharing i.e. money coming out of the patient’s pocket usage decreases.

Payors are also in business to make money and they cannot continue to make any with these ultra-liberal reimbursement policies put in place due to COVID. There is also a secondary motive here which is also related to money as many of these payors have telehealth or digital health initiatives of their own. As we have noted before UnitedHealthcare is about to enter the diabetes coaching arena the same arena Livongo fights in.

Besides having what we think is a better platform than Livongo United also has something Livongo does not have and will not have, the keys to the kingdom. With their vast network of plans and ability to control reimbursement policies United can effectively block Livongo’s ability to attract customers. Remember this is all about patients and United has access to millions of them.

We hate to be redundant, but this is the reason why Teladoc would have been much smarter to buy LifeScan over Livongo. It’s as we said yesterday when we talked about the failure Verily is experiencing. It really doesn’t matter that LifeScan had old BGM technology what matters is they had a GLOBAL presence and millions yes millions of patients. And when the game is all about patients that he who has the most patients wins the game one just might think it better to buy a company with millions of them rather than one that has a few thousand. It makes even more sense when you consider that LifeScan would be a steal compared to paying $18.5 Billion and diluting the crap out of your own stock.

One day someone will have to explain to us the rationale behind Teladoc’s thinking and please let’s do this over drinks as that’s about the only way it makes any sense at all.

Listen we get it we continue to live in a world where COVID is still around. But COVID will eventually go away and a new normal will emerge. A new normal which will carry with it some of the changes brought about by COVID. But much of the “old” normal will also return. Yes telehealth, telemedicine, digital health and virtual medicine is here to stay. Also staying after COVID and quite honestly it never left is the fact this is a business and businesses stay in business by making money.

Right now everyone remains fascinated by the way cool whiz bang, the toys in the toy chest as we like to say. They see what’s directly in front of them not even bothering to look at what’s coming down the road. Stock valuations are sky high; money is flowing into the space like water as everyone believes a new age is dawning that the old ways of doing things are yesterday. Well my friends that may be, but our gray hair tells us otherwise. It tells us that while some of these “older” less whiz bang way cool companies may have been late to the game they ain’t dim.

Perhaps the best way to look at this is think about this, Tom Brady may not have the youth he once had nor does have the arm of a Patrick Mahomes, but he does have SIX Superbowl rings. He may not have the legs of Lamar Jackson, but he has SIX Superbowl rings. And quite frankly it would not surprise us at all if he went up against another “old” guy and meet fellow senior citizen Aaron Rodgers in the NFC Championship game. (And damn it really hurts when you are an avid Bears fan to write that sentence.)

Folks these “old” guys know how to play the game, they know how to win and don’t care how they do it as long as they win. The same is true in our wacky world. All these way cool whiz bang upstarts have youth on their side, but few have played the game for long and even fewer know how to win.