Skin in the game

Skin in the game

As interconnected diabetes management (IDM) transitions into main stream diabetes management there are some hidden benefits besides better patient outcomes. As we noted in the past this move towards IDM is linked to the belief that soon reimbursement and even formulary position will be connected to patient outcomes. Simply put diabetes management systems which can prove they positively impact patient outcomes will curry favor with payors. The key here for the makers of diabetes management system companies is providing proof of better outcomes.

This is one of the hidden benefits of IDM. Diabetes is one of the few, perhaps the only chronic disease where there is near universal agreement on what constitutes good control. Even better with some exceptions the data needed to determine outcomes can be obtained from IDM systems. In the “old” days a patient needed to go to their physician who ordered blood tests which determined how the patient was doing. Today that’s not necessary.

HbA1C, the current gold standard for measuring control can also be determined using Average Mean Glucose (AMG). Simply put with enough glucose measurements HbA1c can be determined using AMG. This is a snap for patients who use a continuous glucose monitor, systems which continue to become more patient friendly and more importantly cheaper. As we noted in the past it won’t long before conventional point to point glucose monitors become obsolete and disposable CGM systems take their place.

But glucose measurements are not the only data gathered by IDM systems, today there is a host of cloud enabled devices.  Anyone who has been to the Consumer Electronic Show (CES) sees literally hundreds of cloud enabled devices, scales, blood pressure cuffs, etc. There are also a host of devices/apps which measure exercise.

Simply put it is now possible for the makers of a diabetes management system to provide verifiable data to a payor. Here is where this gets very interesting – as makers of these systems could make a deal with a payor where they have skin in the game or put another way their goals will be aligned with the payors goals. Should their system produce better outcomes they make more money, on the flip side however if better outcomes do not result there is some sort of giveback or greater product discounts kick in.

To Diabetic Investor this is the beauty of IDM as everyone wins. The patient gets the help they need as the system maker has a vested interest in the patient achieving better outcomes. The payor wins as patients who achieve better outcomes do not experience costly complications. The system maker wins as they make more money. And just to clear here when we talk about systems these are systems which include everything a patient needs to manage their diabetes, drugs, devices and apps.

This is another misconception about IDM as most people see this as the domain of device makers. Yet drug makers have as much, even more at stake then device companies. This is why we believe we will soon more alliances, partnerships or whatever you want to call them between what at first glance seems like unlikely partners. Google is a solid example here as they have an alliance with Dexcom (NASDAQ: DXCM), Sanofi (NYSE: SNY) and an investment in health insurance company. Google could well be the first company that prices health insurance based on patient data.

Yet Google isn’t the only player here as Medtronic (NYSE: MDT) has an alliance with Qualcomm and is looking to align themselves with foreign insulin makers. It’s also well known that Lilly (NYSE: LLY), Novo Nordisk (NYSE: NVO) and AstraZeneca (NYSE: AZN) are looking at possible partners. Given the way the Google/Sanofi partnership is going, not well, it wouldn’t surprise Diabetic Investor if Sanofi is eventually replaced with another major insulin company.

It would also be a mistake to count out a company like Intarcia Therapeutics as their exenatide micro-pump solves a huge problem – therapy compliance. The fact is whoever can assemble the most complete system stands to reap the lion’s share of the market. The key as we see it is everyone having skin in the game, where everyone’s goals are aligned and not moving in different directions.

This is a major problem with the current structure as goals are not aligned. Payors frankly want to manage their patients with diabetes as cheaply as possible until they can transfer them to Medicare. Drug and device makers want the highest possible reimbursement for the products they make. While all patients want is a system that is easy to use and makes their life easier not more complex. And let’s not forget physicians who treat these patients, their role may be changing but that does not mean they will cut out of the process.

It’s time to start accepting certain facts about how this market is transitioning once again. That the old way of doing things just won’t work anymore. That this is no longer a market where each company remains solely focused on their fiefdom, that in order to succeed and prosper in the future they must share the risk and be rewarded when they succeed. The smarter companies will understand they cannot do this alone that for them to succeed they must work and play well with others.

The bottom line is when everyone has skin in the game, when goals are aligned, everyone and we mean everyone will win.