The Myth of meter selection

The Myth of meter selection

Yesterday Diabetic Investor outlined how the branded glucose monitoring companies must drastically change their business model as their very survival is at stake.  With Medicare now reimbursing at less than $11 per box of 50 test strips and private payors soon to follow Medicare’s lead these companies cannot survive doing business as they have been.  They can no longer focus on whiz bang technology that only a handful of patients even care about and even fewer actually use. They must also accept the fact they really have very little influence over why a patient chooses a particular meter, Diabetic Investor calls this the myth of meter selection.

Years ago, so long ago in fact that Diabetic Investor was still a print publication, we conducted an experiment which while done long ago is still very relevant today. Back in the day we went to several different pharmacies, explained to the pharmacist that we had just been diagnosed, told by our doctor to get a meter and asked which meter we should get. In every instinct the first question from the pharmacist was “Which meter is covered under your insurance policy?”  Our response was we weren’t sure and wanted to know their opinion on which meter is best. Again the responses were nearly identical as each pharmacist noted that there really isn’t much difference between the meters as they all do basically the same thing the same way. Or next question was given that there really wasn’t much difference between systems which was the cheapest.

Now back when we conducted this experiment co-branded meters were just coming onto the market and we wanted to show that while all the branded companies felt no one would use a Walgreens branded meter that meters where becoming a commodity and that if the branded companies weren’t careful they could see their customers switch over price concerns. The wild card however was the very first question asked by the pharmacist; “Which meter is covered by your insurance?”  The fact is while the branded companies have spent millions on advertising and millions more on developing whiz bang technology; this capital investment really has little impact on meter selection.

When it comes to meter selection there is no bigger influencing factor than formulary position. For anyone who doesn’t believe this just go back in time when Roche and LifeScan, a unit of Johnson and Johnson (NYSE:JNJ), were in a fierce battle for market share. And yes there actually was a time when Roche held the number one position here in the US and was basically kicking LifeScan’s butt.  Yet for reasons only Roche knows, management decided not to be overly aggressive when insurance contracts were coming up for renewal and LifeScan at the same time decided to be very aggressive.  At the time many speculated that given their lead in the market Roche felt they didn’t need to have the number one formulary position and foolishly believed patients would not switch meters just because they had to pay a little more.

Roche has made many blunders over the years but this decision not to battle LifeScan for formulary dominance was the biggest blunder of all and ultimately has cost Roche billions in lost sales. Today the company is mere shell of its former self and now with market conditions being the way they are they cannot afford to fight back and regain lost formulary position.

The fact is the branded companies have deluded themselves into believing that they actually can influence the patient’s decision on which meter they use.  This is why every branded company has come up with co-pay equalization programs as they foolishly believe that a patient will switch meters if all things are equal. The problem here is for most patients there is no real need to switch as in their eyes there really are no difference between systems. We’ve said it before and we’ll say it again, all meters do basically the same thing the same way and at the end of the day the vast majority of patients could care less about all this whiz bang technology and want a meter that gives them a reading.

This is why Diabetic Investor believes that all these new systems which are designed to attach to a smartphone don’t stand a chance. Yes they are way cool but even if these companies give away the meter for free it doesn’t matter if the test strips used with the meter aren’t covered by the patients insurance or the patient has to pay a higher co-payment for the privilege of using this way cool system.

One would think that the branded companies would wake up to the fact meters are no longer a medical device but a commodity.  And in a commodity market price trumps performance, whiz bang technology and pretty colors. Yes it’s true if you put a bunch of patients in room and show them fancy meters they will say they would use such a system, that’s the problem with using a focus group as it doesn’t take into account how things work in the real world. In the real world patients as much as they say they like all these fancy features they care much more about their pocketbooks.

In the real world the vast majority do not view the meter as tool that will help them manage their diabetes more effectively. In the real world these patients see the meter as a necessary evil, another reminder that they have diabetes. Most don’t understand what these numbers mean and worse how to use these numbers.

This is why if the branded companies are to survive they must drastically change the way they do business. They cannot continue to delude themselves into believing they actually can influence which meter a patient uses. About the only thing they really can influence is formulary position and even that is problematic given the new economics of the meter market.

A new day is dawning and without major, and we mean major, changes to how these companies operate they cannot survive.