What would happen if…..
Although Diabetic Investor was half joking yesterday when we noted that it might not a bad idea if executives at glucose monitoring companies actually spent a month using their products as it would give them a more realistic view of what a real patients goes through and help them come up with better marketing campaigns, another perhaps more viable idea would be for them to think about the possibility of what would happen if patients actually lived in world where there was no reimbursement.
In the world we live in today formulary placement is actually more important than technology. Typically when a patient is diagnosed with diabetes their physician does not recommend a specific monitor. In the real world the physician asks who the patient is insured with and then writes a prescription for whatever monitor is covered by the patient’s insurance company. All the meter companies understand this which is why the battle for top formulary placement, simply put formulary placement equals valuable share points.
Think for moment what it would mean if this world was turned upside down and testing supplies weren’t reimbursed. While this may seem like far-fetched scenario it’s not a crazy as it sounds. Germany is one country that is considering the possibility of only reimbursing testing supplies for insulin using patients and eliminating reimbursement for non-insulin using patients. Given all the data that has been published that shows no correlation between outcomes and glucose monitoring for non-insulin using patients it would not surprise Diabetic Investor at all if this move being considered by Germany spreads to the United States. Considering that our government spends billions on testing supplies and the growing of number of patients with type 2 diabetes, it’s not outside the realm of possibility that the government in an attempt to cut costs makes some major changes in reimbursement rules for non-insulin using patients, a move that would be quickly followed by insurers.
Just such a move is already underway as insurers have already begun this process by transferring a greater share of the cost to patients through higher co-payments. As Diabetic Investor has noted previously with some plans today it is actually cheaper for the patient to buy co-branded monitors than it is to use the branded offering which is covered by their insurance. Although the government does not like to take away benefits Diabetic Investor can see a scenario developing where they not only raise co-payments but limit the actually number of test strips they are willing to reimburse. Again any such move by the government would be quickly followed by private insurance companies.
Although non-insulin patients do not monitor their glucose levels as frequently as insulin users these users are critical if for no other reason than they outnumber insulin using patients by a wide margin. By most estimates there are approximately 4.5 million insulin using patients in the United States. Based on the latest statistics we have from the American Diabetes Association (ADA) there are 18.8 million diagnosed patients with nearly 2 million cases being diagnosed each year. While insulin usage is increasing physicians remain firm in their use of oral medications as front line therapy for their newly diagnosed type 2 patients.
The key question is how glucose monitoring companies would adapt to such an environment. Would they just keep doing what they are doing today figuring they will get their fair share of this market by default? Or would they actually try and cultivate this market by creating value? Based on past history Diabetic Investor believes the branded companies wouldn’t know how to handle this situation as they have never had to some the users of their products why their particular offering is better than the competition. The reality is while the patient may use the product the real customer who controls which product is actually used by the patient is the insurance company. Or put more simply the real customer who they are selling too is the insurance company.
Take away the gatekeeper role now played by the insurance company and all of sudden these companies would be placed in a world where they would actually have to sell directly to the consumer. Talk about turning their world upside down. The reality is these companies would be very uncomfortable in a world where the patient is empowered with the ability to decide for themselves which monitor they use. If anyone thinks pricing, which is already an issue, would not become a major issue in this new world is gravely mistaken.
While there would a minority of patients who do their homework and look for what they see as the best most accurate system, the vast majority of patients would opt for the lowest cost system given it’s their money they would be spending. As we have noted many times in the eyes of the consumers all meters are basically the same and there really isn’t much difference between systems. Therefore it makes perfect sense that in a world where they are spending their own money they would chose a system which inflicts the least financial burden.
The harsh reality is the major companies in this space could not deal with such an environment as they have never had to show the consumer of their products the actual value of using their products. While we say sound like a broken record here, the major BGM companies have never shown a non-insulin patient a reason as to why they should monitor their glucose in the first place, never educated them as to how they can use this information to more effectively manage their diabetes. Rather they have relied on whiz bang technology, apps and pretty colors to sell more systems.
Looking into the future Diabetic Investor believes there is a greater than 80% chance this new environment will actually become reality. Federal and state governments already in a sea of red ink are looking for ways to trim budgets. There is ample evidence showing no correlation between regular glucose monitoring and improved outcomes. And the diabetes population continues to explode which will only create greater demands and strain budgets even further well into the future.
The bottom line is this scenario will be the final nail in the coffin for the major BGM companies. The simple reality is they could not adapt to world where the patient is empowered to make their own decision. More to the point even with their vast resources they have never bothered to learn what makes these people tick or what their lives are really like. The truth is if they really understood the thoughts and feelings of the people who actually use their products they wouldn’t be in the shape their in today.