The healthcare sector is experiencing a rapid transformation, with a sea change in demographics. The global population is ageing. By 2050, seniors over the age of 60 are projected to outnumber children under the age of 15 – a first in history. Additionally, over the next two decades, the global middle class is expected to expand by 3 billion. There has also been a shift in the global disease burden. Non-communicable diseases, such as cancer, heart disease and obesity, are on the rise, while some previously deadly conditions such as HIV/AIDS have now been converted into chronic diseases.

These changes, coupled with stagnant global economic growth, have made the cost of healthcare a universal concern. As budgets continue to shrink, governments, insurers and other payers are taking steps to shift their resources to solutions that deliver the most cost-effective real world outcomes. More and more healthcare systems are linking payments to quality of care and cost effectiveness.

The message is clear. Doing more of the same is simply not an option. So how can we adapt?

One key to success is innovation beyond R&D. We must demonstrate that we can innovate our commercial models. There are a number of approaches we can explore to partner with health systems, payers and others to achieve better patient outcomes, while at the same time lowering costs.

The first is risk sharing. Risk-sharing models link payment to health outcomes achieved through treatment. A pharmaceutical company would agree to refund the payer the cost of a drug if a patient doesn’t respond to treatment. For example, Novartis has used risk-sharing programmes in markets like Germany, where we partnered with two leading national payers on pricing for Aclasta, our osteoporosis treatment. Under the agreement, if a patient suffered a fracture, it signified a failure of the drug, and Novartis agreed to pay back the cost of the drug to the payer.

Risk-sharing is attractive to payers because it reduces the risk of their investment. It is also appealing to pharma companies because we are able to build confidence in our products. However, there are several limitations with this model. For example, it is often difficult to agree on a clear endpoint with payers – meaning, what is the exact patient outcome we’re aiming for? Payers have found this model to be too complex, and the timeline for repayment too long. However, we are using these insights to inform our work on simpler pricing models.

The second model is integrated care programmes. Integrated care models are broader and more holistic than risk-sharing models. They require coordinating patients, payers and healthcare professionals to present a comprehensive package of products and services that complement the medicine prescribed and help improve overall health.

One example is Novartis’ Vale Mais Saúde programme in Brazil. It is a comprehensive treatment package that considers the full range of symptoms for patients with chronic obstructive pulmonary disease, or COPD, a potentially fatal lung condition that is expected to become the third leading cause of death worldwide by 2030. In addition to offering Onbrez Breezhaler, our once-daily treatment that helps improve lung function, COPD patients are eligible to receive discounted Novartis flu vaccines and nicotine replacement therapies. We also help them enroll in physiotherapy sessions for pulmonary rehabilitation and reinforce patient education by sending informational materials to their home. For patients with COPD, these sorts of interventions help alleviate symptoms, prevent other illnesses that can exacerbate symptoms and support adoption of normal daily activities.

While risk-sharing and integrated care models can help improve outcomes in markets that have strong foundations for healthcare, we also need a model that is effective in the developing world where infrastructure is not as strong. We refer to this third approach as “social ventures”. In the past, many companies have used philanthropy to address the needs of patients at the bottom of the pyramid. While these efforts help, they are not enough. We need to make real, lasting changes through sustainable initiatives that enhance local capabilities and infrastructure.

Arogya Parivar is one social venture. It means “Healthy Family” in Hindi and focuses on four principles that work in an integrated way to ensure long-term impact: awareness, acceptability, availability and adaptability.

We raise awareness by training health educators to teach disease prevention and treatment. Just last year, these health educators reached 2.5 million villagers. To address the acceptability issue, we sell some over-the-counter treatments in smaller, more affordable doses to be more in-line with the income of the villagers, who are mainly daily-wage earners. We’re improving availability by connecting with over 45,000 local doctors and creating a network of 90 medical distributors inside the villages that receive stock. These measures ensure that our medicines are available in 28,000 of the most remote pharmacies in India. Finally, Arogya Parivar is an adaptable model. We adjust the medicines, training tools and packaging to meet the health and cultural needs of diverse communities.

These are just three examples of how the pharmaceutical industry can shift its approach to better align with today’s healthcare realities. However, we cannot solve tomorrow’s healthcare challenges alone. These and other models require strong coordination between a broad range of stakeholders up and down the healthcare system’s value chain. We need to work together with all parties – governments, payers and physicians – to reach better patient outcomes, faster.

Joseph Jimenez is Chief Executive Officer of Novartis. He is participating in the World Economic Forum’s Annual Meeting in Davos-Klosters, from 22-25 January.

Image: A researcher uses a microscope during a photo call at an aseptic room of the FCB-Pharmicell laboratory in Seongnam, near Seoul. REUTERS/Jo Yong-Hak