Last week I partnered with HealthXL to lead a panel entitled, "Masterclass: Value, Cost, and Pricing in Regulated Digital Health Solutions." We focused on the importance of digital health solutions in biopharma and explored drivers of cost and value that lay the foundation for pricing in digital health.
It was a productive conversation with strong debate around when digital health solutions may drive financial returns for pharma, medtech and digital-first companies—and how reliable those returns might be. No matter the topline results, we agreed that focusing on the product's value, keeping both cost and time to market low and developing the right pricing model are all essential parts of a successful launch and scale.
At a high level, digital health pricing, as with other industries, is driven by three considerations:
In all cases, who you are selling to becomes another critical part of the puzzle.
A company hoping to showcase the potential value of their digital health solution should focus on key factors like user engagement and clinical outcomes, in addition to revenue.
The number of active users, NPS and app feedback can be useful to indicate user satisfaction. Depending on the solution, metrics for clinical outcomes can include workflow efficiency, quality of life, treatment drop-off rates and reduction of hospital stays, among others. To demonstrate ROI, look for revenue drivers such as the number of patients on therapy, improved adherence or higher market share, among others.
Most companies understand that bringing a new digital solution to market is costly, but they are often surprised by exactly how expensive the process is—not to mention the cost of ongoing maintenance and the content needed to continuously drive patient engagement.
Just how much sticker shock are these companies experiencing?
According to digital health leaders that were interviewed by BrightInsight and HealthXL, the cost tended to be five times higher than they expected, and on average the process took three times longer than the leaders estimated. An industry survey found that 71% of biopharma companies ended up underestimating the cost to bring a digital solution to market.
It is important to understand the cost profiles from product inception all the way through to the maintenance post launch, and charge accordingly with the value created. To be competitive on cost, consider a platform that allows you to scale solutions across products and global markets and accelerate time to market.
There are several different pricing models that can be used in a SaMD launch, from outcomes- or milestones-based models to reimbursement-driven, time-based licensing and even cost-plus models. Companies typically need to evolve their pricing model and metrics as time goes on and the product matures, especially when the product gains greater evidence for its effectiveness, attains regulatory approvals, expands geographically, increases the number of users or otherwise hits important milestones. The key principle to follow when updating pricing models is to align the value created or consumed by the customer with the value that is captured by the digital health product creator.
An iterative value approach may work well when the future value is unclear—a common situation for early stage digital health products. For example, in the beginning of a product build, a milestones-based model can work well, whereas an outcomes-based model becomes relevant as the product matures and starts driving meaningful, demonstrable clinical and financial results. Rarely, if ever, does a cost-plus model work because most companies have great difficulty in assessing cost upfront (see above). In the end, we all agreed that it is early days for standardizing pricing across digital health, and the go-to-market experiments we continue to run with digital health products will help us all to better understand the drivers of value creation.
To find out more about how to juggle value, cost, and pricing concerns related to your SaMD launch, reach out to us.
David Matthews, PhD, is Chief Customer Officer at BrightInsight