What biomedical entrepreneurs should do

The classic Quadrant IV healthcare system was a boon to the biomedical industry; as long as its products promised some measurable (or perceived) benefit to patients, the Tooth Fairy would pay for them. This "if you build it, they will come" paradigm led to explosive growth within the biomedical industry in the decades following World War II and to remarkable progress in our understanding and management of a host of diseases. Unfortunately, it also led to one of the most convoluted business models that capitalism has ever produced.

A complicated business model

The biomedical industry  is unlike any other. To successfully sell a medical product in the American healthcare system, a business must: (a) invent, develop and build the product; (b) convince the FDA, often with evidence from randomized clinical trials (at a cost of $10-50 million and several years effort), that the product is safe and effective; (c) once FDA approval is gained, convince insurance carriers and Medicare that they ought to pay for it; and finally, (d) convince doctors to prescribe it.

Each of these steps is costly and complicated. Both the business risk and overhead expense of such a business model are massive; these costs guarantee that most products this industry sells, even if the unit cost of manufacturing an item is small, will be very expensive.

Nobody would design a business model like this on purpose. It evolved. But a few score of large biomedical companies have adapted to it, and over the decades successful companies have developed all the processes and subsystems necessary to function within this complex model. Companies that have learned to operate under this model are not anxious to change it, because it creates a huge barrier to entry for new competitors.

Threats to the biomedical industry

There are two major threats to the biomedical industry as it now exists. The first is that in a Quadrant III healthcare system, the built-in complexity of their business model, combined with their dependence on hostile third-party payers, makes biomedical companies vulnerable targets for covert rationing.  The second is that these businesses usually have little or no contact with those who benefit from their products,the patients. Their chief potential allies, therefore, are largely indifferent to them.

Biomedical companies often have trouble articulating who their customers are. This is because they have many customers-the FDA, Medicare, other federal agencies, insurance companies, HMOs, professional organizations and societies, and, especially, doctors. But patients have little to do with the decision to purchase the products of these companies. While these companies loftily proclaim that patients are their primary reason for existence, in general patients are no more the customers of the biomedical industry than poodles are of the companies that make doggie sweaters.

This leaves the biomedical industry vulnerable to demonization. Drug companies especially, but increasingly others as well, are no longer spoken of as good corporate citizens or as institutions whose dedicated efforts cure disease and alleviate suffering. Instead, they are painted as evil and corrupt, as willing to satisfy their greed through graft, double-dealing, animal abuse, and even manslaughter.

Wonkonians and Gekkonians want to demonize the biomedical industry. One of the key reasons for our exploding healthcare costs, they insist, is "too much expensive technology." Blaming the technology itself - which the public finds useful and wants more of-for the healthcare crisis is a tough sell; but accusing the capitalists who supply this technology of waste, fraud, corruption, price-gouging, etc. - well, that's an argument with legs. Wonkonians demonize the biomedical industry and the press abets them. This strategy has traction with the public, placing many Americans squarely in the Wonkonians' camp. Wonkonians would fix the problem with new laws and regulations to bring the out-of control biomedical industry to heel.

Most executives in targeted companies wonder why they, who consider themselves in the business of helping mankind, are under attack. But covert rationing requires the biomedical industry to be brought under control. Today's biomedical industry is not compatible with covert rationing, and it has to go.

Painting the industry as greedy and untrustworthy is a necessary strategy for Wonkonians and is a good strategy for Gekkonians, too. It creates the political mandate needed to regulate and prosecute the biomedical industry into submission.

Why the biomedical industry needs the support of patients

In the battle over its future, the biomedical industry has few allies. Many of its customers - especially the federal government and HMOs - are customers only reluctantly and resentfully and are among its demonizers. The industry's other main customers, the doctors, are engaged in a battle for survival themselves and are not likely to be effective or focused allies.

The industry's only natural allies in this fight are those who directly benefit from its products and who have good cause to defend it from destruction-the patients. Patients would be powerful allies if they rose up in the industry's defense. But the public in general and patients in particular do not usually have warm feelings for the industry and are all too happy to line up with its persecutors.
For the most part, the biomedical industry just doesn't get it yet. They don't realize that they are in a battle for survival, one that will determine whether they are to continue as innovators or instead as assembly lines churning out government-approved quotas of government-approved widgets and pills. While the industry continues playing under the old rules, keeping patients at arm's length, Wonkonians and Gekkonians and their allies are filling the public's head with horror stories, trying to work the public into a frenzied cry for those in the greedy and callous biomedical industry to be tossed to the lions.

Unless the biomedical industry wakes up and figures out how to get the public on its side, it faces ruin.

How can the biomedical industry recruit patients to its cause?

A multi-million dollar public relations campaign is not the way for the biomedical industry to get patients on its side. The public is already convinced that biomedical companies routinely engage in price gouging, in withholding vital information to keep their unsafe products on the market, in lying about the supposed benefits of their products, and in bribing doctors. The public is being fed this story every day in a hundred ways by prestigious newspapers, medical journals, politicians, medical experts, cable news channels, and talk show hosts. (By their actions companies often enough provide plenty of fodder for this story.) Against this unrelenting attack, even the slickest advertising campaign won't work. Battling the press in the press isn't a winning strategy.

A better way to win patients over would be to give them something they want and cannot easily get. That something is empowerment.

Empowering patients

Biomedical companies that want to assure their survival as independent and self-directed enterprises should partner with patients whose goal is to become self-empowered. Businesses that learn how to enable patient empowerment will be immunizing themselves against subjugation by Wonkonians. Empowered patients will not stand by and watch the destruction of the entities that make their empowerment possible.

Companies in the biomedical industry will find this hard to do. They don't sell products directly to patients or know how to interact with patients. They don't know what patients want. They are geared up for the much more complicated task of selling things to the healthcare system. They are intimidated by actual patients.

Even the remote contacts they do sometimes have with patients, such as producing educational materials or running TV commercials, are viewed as controversial or inappropriate (because doctors reserve the authority to determine what patients ought to know). Avoiding direct contact with patients is embedded in their corporate cultures, and many companies will find the idea of starting a patient empowerment business counter to their values.

Companies that want to remain successful over the long term have to find ways to work around this barrier. The demand for empowerment tools among the public is a massive business opportunity. Setting that aside, unless these companies develop a patient empowerment business model, they risk extinction.

Biomedical companies should not abandon their current businesses to concentrate on patient empowerment. But they should engage in patient empowerment so they can continue their core businesses. This might require establishing spin-off enterprises that can develop and market patient empowerment tools without contaminating the core business. But they should take this effort seriously, as if some day the patient empowerment side of the business might be their chief endeavor. Because some day it might.