Medication Adherence Tech: A dynamic and crowded market, but where are the winners in the space? (Part 2 of 2)

By Dan Gebremedhin and Kara Werner

About the Authors:  is a Principal at , an early stage Health Technology and Services focused VC Firm. He is a practicing physician at the Massachusetts General Hospital, previously served as a Medical Director at the Harvard Pilgrim Health Plan, and spent five years as an entrepreneur in the Health IT Industry. 

 is a current member of the 2017 . While completing her MBA at the Kellogg School of Management, she interned at Healthbox and athenahealth MDP. Prior to Kellogg, Kara was a strategy consultant at Accenture, specializing in brand strategy and commercial model redesign for pharmaceutical companies.

Part II:

In Part 1 of this article, we addressed the more than $100 billion US nonadherence epidemic and the health tech companies developing solutions to solve it. In evaluating several early stage companies for potential investment, we’ve been impressed with the range of technology and solutions attacking the market. However, many of these companies are in the early days of commercial adoption, having conducted several pilot studies with commercial partners, or are in across populations. Despite significant awareness of the problem of medication adherence, there has been a disconnect between funding, activity, and commercial adoption in the space.
Our hypothesis for the source of the disconnect between activity and adoption is the for adherence tech. Startups are still trying to answer two fundamental questions about their business models: Several competing stakeholders along the value chain make the landscape complex and nuanced. In this competitive background, these stakeholders require clear indication of positive bottom line impact before allocating resources to unproven technologies.
In the below sections, we will profile the motivations of the key industry stakeholders in the medication adherence conversation. We then contemplate a model for assessing adherence tech product-market fit and how to achieve it. Finally, we will outline commercial model characteristics that will allow winners to breakthrough in this dynamic and crowded market.
Key Industry Players

Medication distribution landscape

It is vital to understand consumer/patient needs as they are the end users of most adherence tech. The willingness to “self-pay” for adherence tech however, is limited by the reasons of non-adherence itself. It is unlikely that a patient would be incented to pay out of pocket to achieve a task they have consciously or unconsciously avoided. Companies that have utilized other entities such as enterprises or family members as the paying customer, in turn have gained the most traction. Solutions that have received interesting consumer traction in this fashion are those targeting , , and of fulfillment.

Providers (non-risk bearing):

For provider systems not taking on significant financial risk, there is a less direct line between adherence solutions and the financial bottom line. While physicians understand the importance of medication adherence on patient outcomes, the prevent them from investing significant time in . Even if a physician is managing a patient’s adherence effectively, it is often happening at the individual physician level and is difficult to scale across systems.
In turn, expecting non-risk bearing providers to pay for medication adherence solutions is a tall order, as there is little economic benefit to altering existing practice and workflow. The most attractive products to this segment require little time investment and workflow alteration to increase patient satisfaction and outcomes. Examples of solutions that meet the above characteristics are turnkey, patient facing solutions like discount cards provided by and or workflow augmentation solutions like and .
Payers (and other at-risk entities):

At-risk entities, such as health plans, self-insured employers, and , are a prime customer target for adherence tech. These entities are financially responsible for the medical costs of their populations and are incented to prevent that result from medication non-adherence. Recent data suggests this continues to be a challenge for even forward thinking payer/providers, as have higher adherence rates despite significant effort in improved care coordination. The largest US payer, , has attempted to tie to (MTM) activities measures through its . This program has led to more payers, specifically those populations, to drive more adherence intervention efforts.
Despite acknowledging that medication and opportunity, to adopt medication adherence tech. We believe there are three main reasons for this slow uptake. First, payers are hesitant to adopt solutions that require and do not have proven savings. Startups who present potential “cost savings” figures tend not to be true that factor in the . Second, payers insure broad populations that have variable medication adherence needs. When faced with , payers doubt the cost effectiveness of paying for services not utilized by segments of the population. Finally, some industry veterans will float a cynical maxim that increased medication adherence is a slippery slope that drives utilization and increases drug costs, creating a for payers. We believe by tackling these three issues head on when marketing to payers, startups can improve their targeting and advocacy for tech-based solutions.
Retail Pharmacies:

Retail pharmacies represent the last mile of the pharmaceutical value chain. As the last of a long line of distributors, retail pharmacies have in the 20 to 25 percent range. This margin structure requires pharmacies to maintain high prescription volume, which is endangered by the fact that never get filled. To combat this statistic, pharmacies have transitioned from phone call reminders to deploying elaborate systems and to prompt patients to refill their prescriptions.
Because , and not , is the real KPI for a traditional pharmacy, there is limited incentive to track outcomes and maintain constant patient engagement. Adherence tech companies selling into traditional retail pharmacies have found frustration as incumbents have optimized around driving refill rates and are to maintain their high volume, low margin business. By understanding and qualifying a pharmacy’s KPIs, startups can effectively target their solutions to the appropriate customer segment in this fragmented group.
There is a segment, though, of more enterprising retail pharmacies who aim to play a , both as an , and because are increasingly  tied to adherence rates. A handful of tech companies such as and are attempting to fill the technology voids for pharmacies that need to maintain engagement with populations for the first time.
Specialty Pharmacy:

A relatively new and rapidly growing entrant into the industry landscape is the . This player serves as a distributor of higher cost “specialty” drugs that require a unique skill set given the often-biologic nature and high cost of these drugs. This player is growing in prominence given that specialty drugs are expected to account for by 2020, even though specialty drugs  of total script volume. Specialty pharmacy firms work very closely with manufacturers, and enjoy a trusted relationship and healthy margin, to distribute and manage costly drugs that boost a manufacturer’s bottom line.
Given the complexities around specialty medications, which are often biologic and require IV infusion, specialty pharmacies have medication adherence and education as . These pharmacies have historically used nurse/pharmacist call centers and home visits to meet their goals, but are moving adherence tech into their workflows. Given the cost per prescription, these pharmacies in more costly adherence tech solutions such as ingestible sensors, in home care coordination services, or directly observed therapy. This category is an underpenetrated segment of the market that is of adherence tech.

Wholesalers are likely the most obscure stakeholder in the medication value chain. Their business model is to purchase drugs at scale from manufacturers then distribute these drugs to retail and specialty pharmacies. In exchange for this distribution function, they  on the total cost of the drug. The control over 85 percent of the market: AmerisourceBergen, Cardinal, and McKesson, combining for a revenue total of over $300 billion annually.
The model focuses on scale and relationships: manufacturers are their suppliers and pharmacies are their customers. To enhance these relationships, wholesalers have expanded their product offerings to provide adherence solutions to both ends of the market. Cardinal Health has been out front in these efforts after , a full stack MTM provider that markets services to over 40 health plans. Both the other major wholesalers have , but we predict that they will soon to bolster these capabilities and are an attractive customer target for market entrants.

Recent months have seen (PBMs) come under in the press. Several articles have been written about , suggesting perhaps the PBMs are a in rising drug prices. As a result of growing discontent, PBMs are now feeling pressure to provide more value to their health plan and employer customers in addition to the standard value proposition of . While PBMs have to control costs through and , playing a larger role in medication adherence is an opportunity for PBMs to provide continued value to their customer base.
PBMs' initial approach to improved adherence was . Recent studies though have on the relationship between adherence and mail order, and suggest that 90-day mail order can . Given this shift, PBMs have now in piloting and deploying various tech-based adherence tools. Express Scripts, for example, has shown willingness to partner with adherence startups, but their recent activity suggests there may be starts and stops on the road ahead between PBMs and adherence tech companies. The company has successfully launched a partnership and investment in , but also has had a rocky relationship with other adherence startups such as and .
Ultimately PBMs will need to determine whether they see adherence tech companies as competitive or complementary. Given the valuable platform and many captive customers PBMs retain, we anticipate that PBMs will wisely see themselves as aggregators of adherence tech. We believe that PBMs will actively survey the adherence tech landscape, and will be frequent collaborators and ultimate acquirers of technologies that show long term, meaningful engagement and adherence.

Pharmaceutical companies face the largest financial implications of non-adherence to medications. Pharma firms have long provided mass market focused on , co-pay cards, and mail order delivery. Recent data suggests these traditional programs are , forcing pharma to rethink their strategies. Much has been written about pharmaceutical companies’ desire to go “”. It’s unclear what is precisely meant by this mantra, given the and pilots that pharma companies have engaged in. Many note “beyond” activities have been an , and incumbents have to impact patient experience. We believe this is a temporary phenomenon, as most manufacturers now have dedicated resources committed to digital health, and in a steep learning curve to drive outcomes with digital interventions.
Pharma is rapidly learning, and three major developments in the diabetes space provide a preview for future pharma-tech partnerships. Roche, the conglomerate, made early investments into glucose management app developer MySugr, and recently for nearly $100 million. Novo Nordisk and its , recently announced a joint digital development and marketing . And not to be left out, Sanofi, the owner of the franchise, recently partnered with Verily to launch Onduo, a digital health company focused on diabetes management.
A catalyst that will undoubtedly hasten pharma’s adoption of adherence tech is the (OBCs). With the aid of technology companies such as , payers and at-risk providers can track the real world evidence of medical outcomes of therapeutics in practice, and structure OBCs that to manufacturers. Market leaders have already pointed to the to successfully execute on these emerging contracts. Though the model will vary, we predict manufacturers will bring their vendors to the table, as Merck has recently done in with Aetna. It is still early days for OBCs, as a that while only 24 percent of health plans have an OBC in place, 70 percent of plans view them favorably, and 30 percent are in active negotiations to deploy these value-based contracts.
Searching for Product-Market Fit in Adherence Tech

Despite exciting tech development and clear market interest, the adherence tech market is still searching for product-market fit. Given the wide variety of use cases and customer segments, the value proposition of an adherence tech solution will vary based on industry perspective. After conducting several industry interviews, we’ve learned there is a dichotomy between the two attributes stakeholders care about most: cost of deployment and patient activation. Most adherence solutions today are either or are for patients. The solutions providing the most yield are logistically complicated, labor intensive, and expensive. Likewise, the solutions that are the most cost effective to scale across a broad population have little corresponding patient activation and adherence lift. Based on this line of deduction, we developed the below framework to think about the “value” landscape in adherence tech:

To create this matrix, we pursued a three-step approach:

  1. Through Part 1 of this blog, we evaluated the breadth of adherence tech startups and categorized them as succinctly as possible.
  2. We spoke with industry stakeholders to understand which solution parameters were most valuable when making a purchasing decision in the adherence space, finally settling on the axes of “Cost” and “Activation.” Cost was assumed to be cost of the deployment (product + implementation) of a technology from the perspective of the customer. Activation was interpreted to be a combined metric of adherence improvement and patient engagement.
  3. Our team extensively reviewed published academic and industry-sponsored research and clinical evidence to inform the relative degree of activation and cost each solution imposes. Admittedly, the analysis will be limited by the availability of reliable research on each solution category. Where limited data existed, we used our best judgement based on industry conversations held over the last two years. Although imperfect, we believe this landscape is an accurate depiction of the market, and will be useful to both customers and market entrants in navigating this dynamic space.

We believe the landscape can be used as a quick product-market fit guide when considering a target market to pursue or serve. Customers responsible for low needs populations (e.g., large commercially insured and employer populations) will favorably respond to the low cost and low or high activation solutions found in quadrants I and II. However, customers who serve high needs populations (e.g., Complex Care, Specialty Pharma) have a higher willingness to pay given the larger pharmacy budget and downstream financial implications associated with these groups. These stakeholders will be willing to invest in the higher cost solutions of quadrants II, III and IV, if activation can be realized. The adherence tech nirvana of quadrant II is currently sparsely populated in our opinion, but we are optimistic that existing solutions can migrate to this quadrant through further development of innovative tech and creative commercial models that offset upfront deployment costs.

Key Aspects of Winning Models:

Based on our survey of the adherence tech landscape, we have five recommendations on how to develop a commercial model that will meet the needs of customers in a replicable and scalable fashion:
1. Align Incentives by taking on Financial Risk: When considering adopting new technology, healthcare enterprise customers often flinch at the upfront cost of deployment and are doubtful of potential ROI advocated by start-ups. Startups can overcome this by putting a significant portion of their fees “at-risk,” contingent on a guaranteed savings or activation outcome.

2. Own End User Adoption: Health tech solutions broadly have user adoption rates above the low double digits. The main reasons for this are poor end user experience and ineffective marketing and onboarding strategies. Many startups will celebrate when they land an enterprise contract, only to bemoan non-renewals based on low ROI from a lack of organic traction in an organization. Market entrants must own end to end user onboarding to control their commercial destiny.

3. Develop a Platform of Capabilities that includes software and services solutions: To create large, market-leading companies, entrants should shift their focus from simply medication adherence to holistic management of medication regimens and end user and customer relationships. By building a platform that is a mix of evidence-based tech and activating and engaging services, entrants can tailor solutions to specific market needs and target long-term ROI collaborations with their customers.

4. Experiment with Commercial Models: Stakeholders want to see clear indication of positive bottom line impact before investing resources on new unproven technologies. Companies should test different commercial models to find the right mix of upfront costs and recurring revenue needed to ensure ROI for their customers. This may include successfully generating to fund their business or innovative partnerships with other interested stakeholders. For example, we have seen companies using pharmacy revenue to reconciliation and care coordination programs.

5. Minimize Patient Responsibility: Technology reaches transcendence when . The more passive the solution for consumers/end users, the easier it is to gain high activation. Chronic disease populations are lifestyle adherence tasks, thus creating more work and cost for patients can become an untenable business model. By understanding end users’ current workflow/lifestyle and value system, entrants can design aligned solutions that reach high levels of adoption through seamless integration into end users' lives.

Our team has enjoyed learning more about the adherence tech market and we are indebted to the entrepreneurs and customer stakeholders for sharing their valuable perspectives. We believe the adherence tech industry is at a tipping point, and we hope the above work is a helpful guide to market access for companies looking to provide improved outcomes for patients who need it most. Please reach out and share your feedback with us on @dangebremedhin and @karalwerner.

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